The fund benchmark, the FTSE EPRA/NAREIT Developed Rental Net Total Return Index, recorded a net total USD return of -6.18% for the month of September. The best performing listed real estate market was Australia which recorded a total USD return of 0.20% for the month. Europe ex-UK recorded the lowest total USD return of -10.52%.
The best performing sectors globally for the month in USD were Hotels (0.50%), Malls (-3.26%), Strip Retail (-4.01%), Office (-4.76%), and Apartments (-5.17%). The worst performing sectors were Towers (-12.61%), Net Lease (-8.59%), Storage (-8.25%), Manufactured Housing (-7.75%), Student Housing (-7.73%).
Year to date, the fund benchmark recorded a net total USD return of 15.30%. The best performing listed real estate market year to date is the US, which recorded a total USD return of 22.83%. Hong Kong recorded the lowest total USD return of -2.64% year to date.
The best performing sectors globally year to date in USD were Storage (46.35%), Single Family Housing (42.02%), Manufactured Housing (41.35%), Apartments (29.28%), and Strip Retail (28.17%). The worst performing sectors were Towers (-18.91%), Hotels (6.19%), Data Centres (9.14%), Office (11.45%), and Diversified (11.79%).
After delivering strong returns this year, the global listed real estate market was also affected by the general sell off that occurred in bonds and equities in September. Several factors combined to contribute to the risk-off move in markets. Concerns about the ripple effects of a potential collapse of Evergrande, one of the largest property developers in China, hints of tapering from central banks, concerns about the Delta variant infection rates, US government debt ceiling worries, supply chain issues, and several weak economic data releases all probably contributed to the pullback.
Relative to fixed income the real estate sector screens cheap, with expected total return spreads near all-time highs. The estimated forward FAD (Funds Available for Distribution) yield for the sector is 4.21%. Based on our earnings estimates and market break-even inflation expectations, we expect the global listed real estate sector to deliver approximately 8.0% return for buy and hold investors over the medium term. Within the real estate universe, more attractively priced opportunities exist in specific real estate sectors and stocks, providing opportunities for astute active managers.
Source of data: Bloomberg, Company Information and Catalyst Fund Managers