Investment Return Objective
Presima Global Property Securities Concentrated Fund aims to provide a total gross return of 2% p.a. or more above the FTSE EPRA/NAREIT Developed Index hedged to Australian dollars (Benchmark) over rolling four year periods.
Quarterly Overview and Outlook
Early in the year in the United States, Donald Trump was sworn in as President. On the heels of that day, good US economic data – including consumer confidence and jobs – emerged that seemed to support a “Trump rally.” Later in the quarter, validating the US economic rebound, the US Fed raised its overnight rate. Although the overall return during the first quarter of 2017 points to a low but stable quarter, some sectors contributed more positively to performance than others. Data centres performed well, with investors appearing to see 2017 as having the potential of being strong for leasing, following a more choppy 2016. The healthcare sector also ended the quarter up strongly. The retail sector, for its part, has made the headlines with a down quarter. The sector has recorded volatile years, with the growth in online sale a challenge for retailers. During this period, however, mall owners have actually managed to increase occupancy, despite some bankruptcies headlines. Stock prices nevertheless appear to be reacting more to headlines than to current trading conditions.
In Europe, following a politically turbulent 2016 with Brexit and the Italian referendum, focus shifted to the upcoming Dutch, French and German Elections. Germany continued to attract investors over France and the UK, and the industrial sector remained a strong performer. Companies in the favoured sectors have appropriately been raising capital, while companies in the less favoured sectors have been opportunistically selling assets and/or buying back shares in an effort to close the gap between their current share prices and their net asset values. London office players were busy this quarter selling assets at or above book value into one of the busiest quarters ever for commercial property transactions.
In Asia, Hong Kong developers which have historically traded at the largest discounts to underlying asset value, appear to be willing to address the discount. The impact has been notable on share price performance, with the stocks outperforming their Asian peers. While Japan had good news with positive inflation for the first time in over a year, Tokyo office developers suffered due to increased supply which has led to spikes in vacancy and reduced pricing power. The lodging sector has also been impacted by a slow growth in tourist arrivals. While the number of tourists visiting the country remains high, the slowdown in growth remains worrisome for many investors.
The FTSE EPRA/NAREIT Developed Index (hedged to AUD), the benchmark, posted a 1.45% return for the quarter. The Asian REIT market was the top performer during the quarter, followed by European and North American REITs.
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