Markets have had a volatility spike during the last week where most of the investment classes have been hit (long bonds, stocks, gold, REITs, etc.). This creates a nice entry point into REITs if you are following the sector.

Nothing much has happened in the direct property markets but we see a lot of equity issuance in the listed space (Hamborner REIT, Befimmo, Technopolis, ADO Properties, Cofinimmo etc.). Many of our favorite REITs and property stocks have thus been issuing shares and raising equity recently. Why now? …well, the cost of debt is coming down very fast as we could see when Citycon launched a 10 year corporate bond a few weeks ago at a coupon of 1,25 %.

Then imagine most REITs doing the same, raising equity and debt 50/50 at these levels (Equity at a premium! and long 10year fixed at closer to 1 %!). This will create a situation where we will continue to see NAVs increasing during the coming years. As you can see from the chart below we would like to debunk the myth that you should only try to buy REITs at a discount.

Click to enlarge

Source; (FTSE EPRA/NAREIT Asia Index TR (Black), S&P500 TR (burgundy), FTSE EPRA/NAREIT Developed Index (World, red) and FTSE EPRA/NAREIT Developed Europe Index TR (green), MSCI Daily TR World Index (blue))

REIT’s grow their NAVs and usually next year NAV will be higher than the previous year NAV. REITs have demonstrated this over several decades and shown that they can increase their dividends faster than inflation and that they are able to increase their NAVs at a comparable or even faster pace than opportunistic value add private equity funds. We feel comfortable with current valuations that are slightly on a premium, especially when we look at the market dynamics and the big picture where it just makes sense to increase the “real assets” part in any asset allocation going forward. Also, if REITs continue financing at long term fixed rates it will clearly reduce their exposure to the risk of rising interest rates in the future.

Click to enlarge Source: Charts and data are calculated by UB Real Asset Management Ltd, 2016/09/16

Click to enlarge Performance of UB REIT funds, Source UB Asset Management

Disclaimer

UB Asset Management Ltd, the UB group or UB Real Asset Management Ltd (hereinafter referred to as UB) has made every effort to carefully research all information in this presentation. The information, on which the conclusions and other information such as e.g. market data, are based on has been obtained from sources which UB believes to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialized press as well as the relevant companies which are potential investments for UB’s investment portfolios.

Opinions expressed in this financial analysis are UB’s current opinions as of the issuing date indicated on this presentation. This material does not claim completeness regarding all the information on the financial instruments or markets or developments referred to in it. This material is intended as general information to the recipient and nothing contained in this presentation constitutes investment advice, nor is it to be relied on in an investment decision.

On no account should the document be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. It is recommended to discuss possible investment decisions with your customer service officer as differing views and opinions may exist with regard to the mutual funds, stocks or other financial instruments referred to in this document. This document is not a solicitation or an offer to buy or sell the mentioned instruments or investment alternatives.

The document may include certain descriptions, statements, estimates, and conclusions underlining potential market and company development. These reflect assumptions, which may turn out to be incorrect. UB and/or its employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content. UB and/or its employees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. UB and/or its employees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital market or underwriting services. This material is intended only for the recipients and is not allowed to be redistributed without written permission from UB. The UB funds mentioned in this presentation are managed by UB Fund Management Company Ltd. Key investor information documents (KIIDs) and fund prospectuses and relevant material can be obtained from UB Fund Management Company Ltd in Finnish and in Swedish. Historical performance is not a guarantee of future returns and cannot be used to predict future risk or return characteristics of any fund or portfolio mentioned in this presentation. The charts and information on this page are calculated by UB Real Asset Management (UBRAM) and are based on data that UBRAM believes to be reliable (pls. read disclaimer on the third page). This material is intended as general information to the recipient and nothing contained in this presentation constitutes investment advice, nor is it to be relied on in an investment decision