managed Global Property Fundsdocuments.efgroup.co.za/Documents/Boutique... · particularly in light of big pharma patent cliff –Supply constrained to hubs of life-science activity

Reitway Global managed

Global Property Funds

Agenda

• Factors underpinning REIT values to the end of 2016

• The pending rise in Interest Rates

collective investments

Factors underpinning REIT values to the end of 2016


•Global Industry Classification Standard (GICS) system currently consists of 10 sectors

• Real Estate is currently included in the Financial Sector

• Real Estate will become the 11th S & P sector

• Implementation date is 31 August 2016 after market close

Real Estate set to become a separate Sector


•Most general equity fund managers are historically underweight REITs

• Raymond James estimate that they are $90 -$100 Bn

underweight REITs relative to the Russell Indices • In particular, the small & mid-cap value managers are

underweight property • The need to balance funds is set to create a noticeable

demand for REITs over the next 15 months

Real Estate set to become a separate Sector


Source: FactSet, Standard & Poor’s, Morningstar, Raymond James research. As of September 2014

Portfolio Managers are underweight REITs


Source: U.S. Census Bureau, Raymond James research. As of March 2015.

Commercial Construction Spending Remains Measured

There is not enough of the Stuff!

• Demand-supply dynamics are favourable for REITs, particularly in certain sectors:-

• German Apartments / Residential – Rising incomes and immigration contributing to demand

– Supply limited due to high build costs

• US Self-Storage – Demand increases as the economy grows

– Supply growth (currently 1%) at the lowest in a number of years due to strict bank lending practices after GFC

There is not enough of the Stuff!

• US Hotels – Demand rising, despite fears that strong dollar curbs inbound US travel

and hotel demand

– Supply concerns in certain regions (e.g. New York)

• US Life Sciences – Demand driven by pharma/biotech need to formulate profitable drugs,

particularly in light of big pharma patent cliff

– Supply constrained to hubs of life-science activity e.g. Cambridge, US


The pending rise in Interest Rates


Contrary to a common misconception, rising interest rates do not necessarily lead to poor REIT performances • REIT’s have generated an annual return of 12.6%* over the six

monetary tightening years since 1979 to 2012 • Similarly, REIT’s generated 10.8%* over 6 periods of rising US

treasury yields over the same observed period

*Cohen and Steers


Source: FactSet, SNL Financial, Raymond James research. As of 4/28/2015

REIT performance during Sustained Periods of Rising Interest Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Prolonged Rising Interest Rates 10-Year Treasury Yield

Average

Return

Lodging 26.9%

Malls 22.7%

Industrial 22.0%

Office 19.4%

Self Storage 18.6%

Apartments 14.4%

Mixed 12.4%

Diversified 9.6%

Strips 7.6%

Free Standing - Retail 7.1%

Manufactured Homes 5.2%

Health Care 4.1%

Sector

Price Performance


• Long term rental contracts giving an extended earnings visibility

•More sensitive to interest rate movements

• Tend to outperform during periods of declining interest rates

Characteristics of Bond like REITs


• Tend to have shorter lease terms

•More sensitive to economic movements

•Cash flow values can be marked to market more frequently

• Tend to outperform during periods of economic expansion

Characteristics of Cyclical/Equity like REITs

REIT Sector Economic Sensitivity

Source: Cohen & Steers estimates There is no guarantee that any market forecast set forth above will be realized..

The 2015 / 2016 REIT Outlook

A low cost of capital, favourable demand/supply dynamics and low yields on capital market alternatives are creating a sound environment for property markets – Particularly for Equity / Cyclical like REITs

- Reitway Global

Thank You

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