Listed real estate good value in current climate: Heitman

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The human impact of isolation to protect oneself, one’s family, and the community against COVID-19 has prompted investors to pause and re-think their portfolios on several levels. Real estate exposure is a logical place to revisit as the pandemic has accelerated some trends and hastened others that were already underway.

According to Heitman LLC, the global real estate investment management firm, whose investment strategies include direct investment in the equity or debt capitalization of a property or in the securities of listed and publicly traded real estate companies, there is growing demand for customised property investment solutions that seek to take advantage of the disparate sectors.  Some super funds and their consultants are seeking a solutions-oriented approach tailored to their unique holdings, according to Beau Titchkosky, Heitman’s Melbourne-based managing director for Client Services and Marketing in Australia and New Zealand.

Titchkosky and colleague John White, Heitman’s senior managing director for Public Real Estate Securities, have recently been speaking to investors and their consultants about real estate demographics and what trends are likely to persist after resolution, hopefully, to the COVID-19 pandemic. They have also been pointing out the risk/return differences between the listed and private real estate investment markets, between debt and equity, and the opportunities in each segment. It’s horses for courses, notes White.

White, who has specialised in property for more than 20 years, both in Australia and in the Asia region, says that the listed real estate market has had a “pretty good couple of months” since the bottom of the market, but it is still trading at a substantial discount from its asset backing, giving rise to its continued attraction from a value perspective. “REITs initially fell 40 per cent from their December 2019 prices and have recovered half those losses since bottoming in March. Although the private market valuations are indicating a 5-10 per cent retracement. The valuation gap has closed; however, some investors believe it looks like an interesting relative valuation trade favouring REITs at the moment,” he says.

White added that there have been strong market runs in global REITs (GREITs) for sectors such as logistics and data centres, but the markets are increasingly pricing in the belief that “we will get through this at some stage.” In the Australian REIT sector, he says, balance sheets remain solid because most companies have recapitalised. But he also noted that he “expects the real recovery will come once we have a vaccine.”

Heitman has noted that some clients are seeing an arbitrage buying opportunity between sectors and countries at the moment and have partnered to implement their views, which includes the dispersion in valuations between listed and private. In a fast contracting market cycle, listed REITs normally trade at a discount to private values. “As a result the value is more in the listed (real estate) market right now than the private market. A bespoke approach allows investors to efficiently and quickly access the most attractive sectors of the property market and avoid others,” commented White.

Heitman is a multi-disciplinary real estate investment manager with a global research department run by senior managing director Mary Ludgin, a frequent visitor to Australasia. Its global research teams work in concert with each of Heitman’s real estate investment platforms. “We leverage our insights from investing across public and private markets, as well as across both equity and debt markets, to achieve an information advantage for our clients,” said White.

“In addition to questions on where to invest, we have been fielding a lot of questions about valuations and whether now is the right time to expand listed property allocation,” added Titchkosky. “Recent events in Australia, including the early access to super initiative as well as general market volatility, have brought more focus and attention on liquidity – a key feature of listed property markets. Accessing trends via the public property markets presents a timely way to access sectors well-positioned for growth as we continue to navigate the impacts of the global pandemic and commensurate economic volatility.”

– G.B.

Note: Heitman is a sponsor of Investor Strategy News

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