MEDIA RELEASE: The relative underperformance of global real estate investment trusts (GREITs) since the start of the pandemic may be poised to change, with a strong recovery in fundamentals and supportive financial conditions creating a strong set-up for returns , according to the head of LaSalle Investment Management Securities, Lisa Kaufman.

Ms Kaufman said there were legitimate reasons for the underperformance of GREITs, including COVID-19 uniquely impacting gathering places and the work from home phenomenon; however those impacts are rapidly moving to the rearview and REIT earnings growth is poised to accelerate while broader equity earnings growth slows.

“It’s unusual for early cycle fundamentals to coincide with late cycle cost of capital but we have those two dynamics happening now and it’s driving good flows into real estate,” she said.
Ms Kaufman said the Baltimore-based asset manager holds this view despite the recent rise in global interest rates.

“Real estate is a long-term investment and when we look at interest rates, investors need to look at long-term rates. We’re less concerned with short-term interest rates and the Federal Reserve raising rates. If long-term rates were rising sharply, credit spreads were exploding and/or inflation expectations collapsing, it would be a different story, but that’s not happening,” she said.

“The recent sell-off notwithstanding, there is a lot of historical data that shows that GREITs can perform quite well in a rising rate environment. In fact, negative returns have been most often associated with falling interest rates due to a negative economic growth shock.”

Further buoying the strong set of economic fundamentals for the GREIT sector is the surge in mergers and acquisitions activity (M&A). 2021 was a record year for US REIT M&A volume, with more than $US100 billion transacted.

“The combination of strong cash flow growth expectations and supportive financial conditions are collectively driving flows into real estate. The world is awash with capital, and there are unprecedented levels of private equity capital looking for a home in real estate.

“Furthermore, the scale that comes with large portfolios, especially in more operationally intensive sectors, is increasingly appreciated by private equity.

“We expect M&A to continue both in the US and around the world and to be an additional a catalyst for the GREIT sector in 2022. We’re expecting an average annual return of over 10 per cent a year over the next three years, which is above the long-term average returns generated by the sector,” said Ms Kaufman.

The SGH LaSalle Concentrated Global Property Fund is an actively managed portfolio that invests primarily in GREITs and real estate operating companies. The fund seeks to provide total return through long-term capital appreciation and rental income. It provides investors with exposure to attributes of property ownership along with liquidity offered by tradable securities.

LaSalle Investment Management Securities – which has approximately $US4.4 billion funds under management - partners with Melbourne-based SG Hiscock & Company in exclusively distributing the Fund to Australia investors.