Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Interest cuts seem to be having a positive effect on the share prices of REITs and other property trusts. Here we ask whether there are signs that investors are beginning to pay attention again, and if the prices on offer are still attractive. Specialist and generalist investors into REITs are all reporting higher levels of optimism, with one of the biggest specialist investors in REITs in Europe, TR Property (TRY) reporting a renewed sense of optimism matched by holding its gearing at c. 15%. Generalist equity fund managers are also in some cases positioning for an improvement in REIT discounts and NAVs as rates and the cost of borrowing fall. Even bond managers such as M&G Credit Income (MGCI) provide us with evidence that the cost of borrowing is improving, having profitably exited some European property company bonds this year as spreads narrowed.
REIT managers themselves, meanwhile have not stood still and, while valuations have fallen in response to higher interest rates, many have continued to grow income and reposition their portfolios, and to adapt to tenants' demands for more efficient and sustainable buildings. Thus Picton Property Income (PCTN) has successfully repositioned a number of office assets for residential or student accommodation use, and Schroder Real Estate (SREI) has begun to capitalise on its explicit adoption of sustainability as part of its investment process. With falling bond yields and REIT prices rising, we ask if this is the recovery the market has been waiting for.
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