October 10 2023
Where August was back to rangebound, September was a blues that came very close to the market dropping the whiskey. The GPR 250 REIT Index produced -6.62% (USD), testing the 2023 low last seen amid the SVB banking turmoil.
The laggard of the sector pack was free standing retail, delivering -10.43%, while the leader, lodging/resorts, delivered 1.97%.
Of the continents in the GPR 250 REIT Index, Asia performed the best with -1.9%. Japan’s ultra easy monetary policy and inflation asset was a contributor in a world where the higher for longer rhetoric in the west weighed on markets. Oceania was the worst performing continent, delivering -8.1%.
The Commercial Real Estate (CRE) finance council continued to find improving sentiment among real estate professionals in the latest quarterly survey. 58% of respondents expressed a negative sector view, down from 67% in the second quarter, and 83% in the first quarter. Said sentiment had been sparked by improvements in capital and transaction markets.
Pressure points found were liquidity, sustained higher rates, and evolving CRE fundamentals, with the office and multifamily sectors front and centre. A Bloomberg survey supported the office pessimism, with ~66% of respondents believing office prices will only start to recover after a severe collapse.
We at Reitway are underweight the office sector due to its operational challenges and banks hellbent on delivering office loans from their books. The mass uncertainty about the future of the sector has us happily sitting on the sideline for now. Although we have seen a short rebound in some geographies, stemming from a of handful of transactions, we still see more headwinds and devaluations on the cards in the future.
On ESG matters, a swathe of green regulation alterations hit the western world, from the US to Europe.
California governor, Newsom, is set to sign a new emissions disclosure law that will require all companies with more than $1bn in revenue to disclose all three scopes of greenhouse gas emissions, ramping up the costs and potential ramifications for companies.
UK Prime Minister, Sunak, communicated plans to delay or pull back some of the more aggressive regulations around real estate. One of the focus areas is to defer Energy Performance Certificate minimums for several more years, which would save landlords a substantial amount in fines and onerous green capex.
The US 10 year found a couple of fellow travellers on its way to screeching highs. Among them were the German 10 year, moving from 2.46% to 2.93% and ending at 2.84%; levels not seen in over 12 years. The Italian 10 year was also in the mix, moving from 4.13% to 4.82% to reach over a decade high. And then there was the bellwether of the group, the US 10 year, jumping from 4.23% to 4.61% as the sun starts to peer through the dawn of the term premium, brought on by an indefinite build in federal debt and other structural forces at work.
In the central banking sphere, the Fed held its policy rate between 5.25% and 5.50%, leaving another rate hike on the table for this year and less cuts in 2024. The Bank of England took a breather, keeping rates at 5.25% and alluding to rates now being sufficiently restrictive. The ECB surprised the markets by hiking all three of its policy rates by 25 bps. Markets shrugged off the move on conveyance of the ECB’s rate hiking cycle also now nearing its end. Although with a single mandate of price stability, growth seems to weigh heavily on the ECB’s mind.
As some relief comes through on various inflation components, oil continues its headlong foray into central bankers’ headquarters with the blessing of major producers Russia and Saudi Arabia, committing to cutting a combined 1.3 million barrels a day; a move expected to bleed into global stockpiles. West Texas Intermediate futures climbed from $83.63 a barrel to $93.68, ending the month at $90.79. Brent crude futures was in lockstep with WTI; following the price pattern $86.86; $96.55; $95.31 for the month.
In a transitioning environment, which brings uncertainty, we reiterate our preference for hybrid companies (possessing both offensive and defensive characteristics) with structural tailwinds that provide a layer of economic insulation.
Click here to download the September Commentary (PDF)
If you would like to set up time to speak to us or for more information on any of our funds please contact [email protected] / 082 676 6115 or [email protected] / 060 587 5086
Although all precautions have been made to ensure the reliability of data and information contained in this presentation, Reitway cannot guarantee the reliability thereof. Past performance referred to in this presentation is not necessarily indicative of future performance. Similarly, forecasts contained in this presentation involve risks and uncertainties which may result in future performance, outcomes and results which differ materially from such forecasts. You are accordingly cautioned not to place undue reliance on any historical data, general information or forecasts used in this presentation.
Reitway accepts no liability whatsoever for any loss, damage (direct or consequential) or expense suffered by a recipient as a result of any reliance placed on any information contained in this presentation or any opinions expressed during this presentation. The views, opinions and comments reflected in the presentation represent those of Reitway, associated companies and employees.
Reitway Global (Pty) Ltd
Registration No: 2011/125542/07. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 43747. The full details and basis of the awards are available from the manager.
Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002 and is a full member of the Association for Savings and Investment SA.
Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request. BCI reserves the right to close the portfolio to new investors and reopen certain portfolios from time to time in order to manage them more efficiently. Additional information, including application forms, annual or quarterly reports can be obtained from BCI, free of charge.
A feeder fund is a portfolio that invests in a single portfolio of collective investment schemes, which levies its own charges, and which could result in a higher fee structure for the feeder fund.
Performance figures quoted for the portfolio are from Morningstar, as at the date of this document for a lump sum investment, using NAV-NAV with income reinvested and do not take any upfront manager’s charge into account. Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance referred to in this presentation is not necessarily indicative of future performance.
Investments in foreign securities may include additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information.
Boutique Collective Investments (RF) Pty Ltd retains full legal responsibility for the third party named portfolio.
Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, BCI does not accept any responsibility for any claim, damages, loss or expense, however it arises, out of or in connection with the information in this document, whether by a client, investor or intermediary. This document should not be seen as an offer to purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. Investors are encouraged to obtain independent professional investment and taxation advice before investing with or in any of BCI/the Manager’s products.