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Sarasin IE Real Estate Equity - Global (GBP) - News
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Sarasin CI Real Estate Equity comment - Sep 11
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Thursday, 22 December 2011
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Fund Manager Comment
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August began with global market mayhem as US fiscal and political woes and euro zone turmoil deepened. Obama came under fire over his handling of the US debt ceiling affair, while across the Atlantic the ECB bought €36bn of Spanish and Italian government bonds, attempting to calm European chaos. Japan and Switzerland enacted currency interventions, and it became clear that global growth is slowing.
In the face of all this, global listed real estate continued to outperform global equities. Australia was the strongest region, with solid results and a number of share buybacks announced - we increased our weight during the month to slightly overweight. The UK was the weakest, as a number of analysts downgraded their expectations after a strong run. Our stock selection suffered as investors sold down West End names and Land Securities in favour of the higher yielding British Land.
In the US, weak political leadership and slowing economic data severely dented confidence in the authorities' ability to keep the economy on an even keel: it was definitely a month for the risk-off trade. In light of this we reduced our overweight position in the Hotel REITs; at a stock level, large-cap REITs continued to outperform but our overweight to the more cyclical hotel, industrial, mall and office sectors meant stock selection was negative. Lastly, in Japan we gave back our outperformance of July, as worries over global economic growth and a potential worsening of the euro zone crisis caused investors to sell down developers.
Sentiment continues to be weighed down by sovereign debt issues, but although the risks of a recession have risen we do not see this as the central case. We believe that although growth is slowing it will remain positive, unless there is another significant shock. Under this scenario the fundamentals for real estate remain solid, with little or no new supply, stronger company balance sheets after recapitalisations, and the majority of companies now trading at discounts to their underlying asset values.
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Fund Name Changed
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Thursday, 17 November 2011
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Official Announcement
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The Sarasin IE Real Estate Equity Fund (GBP) will change it's name to Sarasin IE Real Estate Equity - Global (GBP), effective from 17 November 2011
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Fund Name Changed
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Monday, 10 October 2011
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Official Announcement
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The Sarasin CI Real Estate Equity Fund (GBP) will change it's name to Sarasin IE Real Estate Equity Fund (GBP), effective from 1 July 2011.
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Sarasin CI Real Estate Equity comment - Jun 11
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Wednesday, 21 September 2011
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Fund Manager Comment
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Escalating Greek tensions and increasing fears of a global slowdown hit the markets during the first half of June. However, signs of smoother Japanese supply chains, a further drop in oil prices after the IEA decided to release some oil reserves, more positive US manufacturing data and a short-term resolution of the Greek debt crisis provided some relief. Meanwhile, the US Federal Reserve ended its QE programme, while the ECB signalled its intention to hike rates for a second time this year in July. Conversely, the Bank of England moved away from an interest rate hike.
The economic picture set the tone for June, with listed real estate selling off initially, then rallying into month end. Canada and Australia were the strongest markets by default (being least affected by US slowdown worries and the Greek crisis). Japan was also strong as investors continued to venture back, and H1 2011 saw the highest level of asset purchases by JREITs since H1 2008, which should benefit developers. Europe and the UK also continued to outperform the global index, due to a strong rally after the Greek resolution. Hong Kong, the US and Singapore underperformed on continued concern over a Chinese slowdown, and fears for the health of the US economic recovery. There were no significantly large regional contributors or detractors from performance. However, our Japanese overweight and focus on developers made Japan the largest positive contributor, closely followed by European stock selection with strength in our German and Swiss names. In Singapore we had strong stock selection; Global Logistics Properties Ltd benefitted from increased demand for prime industrial in Japan, and the potential to spin off their Japanese industrial assets into a JREIT. Our local landlords also performed impressively.
It is worth reiterating that we remain positive on the outlook for global listed real estate; rental growth, falling vacancy levels, and accretive transactions and developments should drive earnings. We continue to see significant difference in the pace of recovery between prime versus secondary assets, and therefore maintain focus on companies with better quality portfolios. However, having rebounded strongly from March 2009 lows, investors should expect more normal property returns ahead.
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Sarasin CI Real Estate Equity comment - Mar 11
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Wednesday, 25 May 2011
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Fund Manager Comment
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On a regional basis, Europe ex-UK was the strongest. This was helped by over 4% appreciation in the euro versus sterling in March, and significant outperformance from Unibail-Rodamco following its purchase of a stake in Socié té Foncière Lyonnaise (a Parisian central business district office owner and developer). The weakest market for us was obviously Japan (which significantly underperformed the benchmark) followed by the UK and US, which had performed strongly in the previous few months. In the US we saw another merger, this time in the healthcare sector, with Ventas (held) merging with Nationwide Health Properties (held). However, with good employment data counteracted by bad housing data, our overweight to US retail REITs did not help performance. Japan was the biggest negative contributor to the portfolio. Before the sad events of 11th March we were positive on Japan as the outlook for prime office in Tokyo continued to improve, and we felt it would exceed market expectations. We were overweight with exposure tilted to the higher beta developers which had significantly outperformed the J-REITs and been a large contributor to the outperformance of the fund. However, following the Japanese crises, we saw a significant sell off in our holdings there, with the higher beta developers sold off the most. Volatile newsflow could potentially continue in Japan. However, with pricing where it is for our names (with little or no damage reported), a substantial government recovery/stimulus package potentially to be announced, and a weakening yen beneficial for the large Japanese export industry, we feel now is not the time to cut our exposure. We will obviously continue to monitor the situation closely. Elsewhere, we still see a significant difference in the pace of recovery between prime versus secondary assets, and therefore continue to focus on those companies with better quality portfolios.
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Sarasin CI Real Estate Equity comment - Dec 10
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Thursday, 24 February 2011
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Fund Manager Comment
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On a regional basis, Europe and Japan were the strongest markets in December. Hong Kong and the US were the weakest, reversing some of their November outperformance. Our biggest positive contributors this month were stock selection in Australia, Hong Kong and Singapore. In Australia this was led by Lend Lease - up 21% after making a significant accretive acquisition. In Hong Kong, our overweight to landlord names, and underweight to residential developers subdued by continued policy intervention, continued to benefit the fund. Similarly, in Singapore, we benefited from our positioning away from residential names which also suffered from fears of further policy intervention. The month's main detractors from performance on a regional basis were our underweight to Europe and stock selection in Japan. Our yen hedge (due to a strengthening yen) alongside our small cash position in a strong market also caused a drag on performance. Europe is at present our biggest underweight; having been weak in November (due to heightened EU sovereign debt issues) the rollercoaster continued - it rallied strongly in December when these issues abated as China made noises indicating a willingness to buy Spanish and Portugese debt. Our overweight to Japan continued to benefit the fund but was outweighed by our tilt to the large-cap developers as J-REITs outperformed due to the Bank of Japan's announcement that it would buy J-REITs, ETFs and corporate bonds to encourage the declining risk premium. Heading into 2011 we still remain positive on the outlook for global listed real estate as although the majority of the yield compression has occurred rental growth, falling vacancy levels and accretive transactions and developments should drive earnings going forward. However, having rebounded strongly from the March 2009 lows investors should expect more normal property returns going forward.
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Sector Changed
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Tuesday, 28 December 2010
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Official Announcement
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The fund changed sectors from Global--Equity--Varied Specialist to Global--Real Estate--General on 28 Dec 2010
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Sarasin CI Real Estate Equity comment - Sep 10
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Tuesday, 9 November 2010
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Fund Manager Comment
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September continued where August left off, with better than expected economic data from China, Japan and the US. Even Irish banking issues, a brief resurrection of sovereign debt concerns in Europe, and rumours of further Chinese policy intervention were shrugged off by markets. On a regional basis, Europe ex UK was the strongest market in September, as global investors (who had largely ignored the region since the sovereign debt issues) began to return. The US - having been one of the strongest markets year to date - was the weakest, with a near 13% difference from Europe ex UK. With pricing in the US now up with events, and a number of equity issuances during the month, investors seem to be waiting for further signs of economic improvement and positive company guidance in their Q3 results before committing further funds. The main positives this month were our slight overweight to Hong Kong, slight underweight to the US, and good stock selection. Hong Kong continues to be driven by strong office and residential market fundamentals, which - alongside solid results - were positive for Sun Hung Kai (one of our largest positions and the best performer in the region). Reasons for the US weakness are mentioned above. Finally, our stock selection - almost across the board - was strong, with significant outperformance from our good quality euro zone retail names, as well as Hong Kong names led by Sun Hung Kai. The main negatives this month were our underweight to Europe ex UK, overweight to Japan, and slight underweight to Singapore. Europe rebounded from its weak performance in August (due to the reasons stated above) but the negative impact was minimised by the stock selection's positive contribution. In Japan, election uncertainty and a slight increase in Tokyo office vacancy did not help the market. However - after the election - currency intervention, an improvement in prime office fundamentals, and a strong condo market helped our Japanese developers to outperform the local market. Lastly, Singapore reversed its August underperformance as the residential developers which sold off due to the government intervention rebounded strongly. Looking ahead, we still believe the stability and visibility of a significant number of listed real estate companies' cash flows and dividends should continue to make real estate stocks attractive in a low bond and cash yield environment. In this economic climate, we also feel that companies with strong balance sheets and prime portfolios in good locations will outperform companies with more secondary assets.
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Sarasin CI Real Estate Equity comment - Jun 10
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Thursday, 19 August 2010
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Fund Manager Comment
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Global real estate continues to outperform equities, and is now 46% ahead of the S&P 500 since the trough in March 2009, and 3.2% ahead year to date. However, the old adage "sell in May" is bearing out as markets have been down since early May (S&P 500: -12.2%).
Europe and Asia were both positive, and the US negative, but year to date the US has outperformed by 13%. In Asia, Hong Kong led, followed by Singapore, with Japan turning negative (although still strongest in Asia year to date); we allowed our overweight to Japan to reduce over June. In Europe, France was positive, followed by Germany, whilst the UK continued to be weak. Australia and New Zealand were both strong, after a weak May.
Diversified holdings outperformed Specialist and Retail, whilst Hotels lagged (although this remained the best performing sector over 12 months). We switched our holdings in Hospitality Trust into LaSalle Hotels. At the stock level Sun Hung Kai (Hong Kong) and Unibail-Rodamco (Europe) were top performers, with Mitsubishi Estate and Mitsui Fudosan (both Japan) dragging.
Morgan Stanley, one of the biggest property investors among Wall Street banks, raised $4.7bn for a new global real estate fund - the largest since 2008.
Purchases of new US homes fell 33% from April to 300,000 p.a. in May (the lowest level on record) after tax credits expired, showing that the market remains dependent on government support. Australian mortgage approvals also fell in April for a seventh straight month, evidence that raising rates six times between October and May has cooled housing demand.
US commercial property values are rebounding slowly, but remain as much as 40% below their 2007 peak. More than $500 bn of real estate may hit the market in coming years as lenders dispose of assets or restructure debt where valuations have dropped below loan levels. As regional US banks are forced to recognise large losses on construction loans, deleveraging may take longer than in previous cycles.
We remain cautiously optimistic. The sector is fair value at a 9% discount to net asset value (91p for £1 worth of assets), yielding 3.9%. REITs are proving able to acquire distressed assets, often off-market, and supply constrained markets are improving, with selective development returning. With declining investor risk aversion - as a high beta sector - listed real estate is likely to benefit more than proportionally.
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Sarasin CI Real Estate Equity comment - Mar 10
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Thursday, 27 May 2010
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Fund Manager Comment
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A year following the trough in markets in March 2009, the global listed real estate index has recovered 85% (S&P 500 +53% and MSCI World +54%), and in March 2010 real estate outperformed by 1.2% (in $). However, the sector is still 37% off the peak and would need to rise over 57% to reach its February 2007 highs. In the US the market has risen 145% in a year but would need to rise a further 75% to regain its 2007 high.
This month the sector rose 4.8%. The best performing region was North America + 7.5%, ahead of Europe +4.6%. Asia lagged +1.9%. In Europe, UK (overweight) was up 4.5% and in Asia, Hong Kong led +3.7%
Our US holdings outperformed the benchmark with UK directly in line. Hotels outperformed specialist holdings, with retail lagging. Vornado (USA), Sun Hung Kai (HK) and Simon Property (USA) led with Nippon Building Fund and Orix JREIT (Japan) lagging.
Outlook
US commercial property values rose for a third month, according to the Moody's/REAL Commercial Property Price Index, but are now 40% lower than the peak in October 2007. Yale University endowment is raising its allocation to real assets including real estate, from 29% to 37%.
As jobless figures have improved, the US real estate market has continued to be strong. At the end of February, US real estate was trading at an 11 % premium to Net asset value yielding 4.3%. a narrow 70 bps spread to US 10 year Treasuries.
Today, that premium has grown to 12.5% yielding 4%. a mere 20 bps spread indicating that the sector is overbought.
Globally the real estate sector still stands at a healthy 9.5% discount to NAV and yielding 3.5% - a good spread to the 1.8% dividend yield on the S&P 500 which should attract yield investors. We continue to favour Asia.
The "dash for trash" shows signs of abating with a swing to the higher quality stocks that we hold.
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Sarasin CI Real Estate Equity comment - Dec 09
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Tuesday, 23 March 2010
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Fund Manager Comment
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Fund Manager's Comment
At the end of a roller-coaster year, the CI Real Estate Equity fund performed 0.3% ahead of benchmark over Q4 2009, and 0.82% ahead of the MSCI global real estate index in December (3.7% over 2009). The fund enjoyed over £50m of new monies during the year. During 2009 global listed real estate (+38%) outperformed the S&P 500 (+22%) and MSCI World indices (+26%). The best local currency return was Hong Kong +89%, Singapore +78%, followed by Europe ex-UK +39%, USA +28%, UK +15%, with Australia +3.3% and Japan +4% lagging.
In the USA we remain U/W apartments and healthcare, but O/W prime shopping malls. During December, North America outperformed (we added weight in the Autumn), followed by Asia ex-Japan. Australia had a strong finish, whilst in Europe, the UK led France and Germany. Hotels outperformed logistics and residential. At stock level, Simon Property, Macerich and Vornado (all USA) added most to performance.
In Hong Kong, Cheung Kong expects to sell 9,500 apartments in 2010 (4.500 in 2009). Meanwhile, Swire Pacific plans to spin off its property arm to raise $2.5$3bn in 2010. Sino Land has paid HK$10.4bn for two waterfront sites in Hong Kong, but analysts feel there is a land supply issue brewing.
China is attempting to cool the market without stalling economic recovery, with a 5% sales tax on homes sold within five years.
Singapore's GDP is expected to hit 5.5% in 2010 (2% in 2009) and we are seeing signs of recovery.
Hammerson is buying Scotland's second-largest shopping centre Silverburn at well above estimates, whilst British Land has bought a 50% stake in two shopping centres with Tesco.
In the US, Simon Property agreed to buy Prime Outlets shopping centres for $2.3bn.
At the year end global real estate was standing at a small discount to NAV and yielding 3.7%, liquidity is improving and prices are supporting or exceeding most recent book values. Confidence is also improving towards development. Real estate still provides a positive yield spread, and markets like London will continue to attract investment due to currency weakness and favourable lease terms. However, there could be a lag in job creation and positive take-up.
Several key themes may impact REITs in 2010 including: (1) A wave of IPOs; (2) Increased acquisitions; (3) the slow rebirth of CMBS; (4) Rising interest rates; and (5) Job creation. Most are positive for real estate.
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Sarasin CI Real Estate Equity comment - Sep 09
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Thursday, 17 December 2009
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Fund Manager Comment
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Global real estate continued its sharp recovery in September with the sector index up 7.5%. Since 9th March global real estate has shown a clean pair of heels to broader equities, 41.5% ahead of the S&P 500, and 34.26% ahead of the MSCI World index, and in September was 2.2% ahead of the S&P. Performance between regions was close with Europe +8.7%, Asia +7.3% and North America +9.2%. We moved to overweight USA during the month.
In Asia-Pacific, Australia rose 17% with Japan the weakest, -4.4%. In Europe, Germany rose 15.4%, whilst UK lagged down 0.5%. Emerging markets and Pacific ex-Japan, Hotels, Industrial and Retail added most to performance, with largest contributions from Westfield (Australia), Simon Property (USA) and Unibail- Rodamco (Europe), all major shopping centre landlords.
The global real estate sector has not avoided the "dash to trash" as second line stocks near bankrupt in early 2009 have far out performed better quality, financed and managed REITs. I am afraid we have not escaped the impact of this with our exposure to the best quality real estate companies.
We continue to see positive indicators around the world. In Hong Kong, Hang Lung sold HK$7.5 bn of property in August. Home prices have risen 26% to levels before Lehman Brothers collapse driven by low mortgage costs and near-zero savings rates; and Hongkong Land climbed to its highest in 14 months on signs that the office market has turned. We added it to portfolios in June. Singapore is introducing measures to prevent speculative buying. Sales reached 10,000 homes to end-July (4,300 in 2008). Prices have started to rise significantly since June, when we added Wing Tai and Allgreen.
In the UK, British Land sold 50% of Broadgate, the largest City office complex to Blackstone Group. The remaining portfolio will be 65% retail. The sale will strengthen its balance sheet for acquisitions as the market recovers. Land Securities has sold £780m of assets since April, and Hammerson about £650m this year. Land Securities sold its 33% stake in the 1.2m sq.ft. Bullring, Birmingham, the UK's most-visited shopping centre for £210m to Australia's Future Fund, at a yield of 6.85%. The public-sector pension fund has assets of A$61bn.
Financing is also becoming easier: Sydney-based Dexus Property Group sold $300 million of five-year, 7.15% US bonds in order to lengthen the maturity profile of its debt book and diversify its funding. SL Green, Manhattan's biggest office landlord, refinanced office tower 100 Park Avenue for $215m through a group of German banks allowing it to retire a $175m mortgage, and providing evidence of funding for high-quality borrowers.
Listed real estate is currently yielding a healthy spread to bonds and equities; and as property values improve from depressed levels and underlying economies improve yielding fresh letting activity, property should continue to attract investors.
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Sarasin CI Real Estate Equity comment - Jun 09
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Monday, 28 September 2009
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Fund Manager Comment
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Review
After a strong run up since mid-March, global real estate took a breather in June and fell 1.73%. Europe fell 6.3%, Asia rose 1.1% and North America fell 5%. In Asia, only Japan and Australia were positive; and in Europe, Germany fell 6.5%, France was -7.8% and UK flat.
Emerging markets, followed by Japan and UK: Industrial, Healthcare and diversified all outperformed, with Sumitomo Realty (Japan), Westfield (Australia), Mitsui Fudosan (Japan) and Stockland (Australia) the largest contributors. Daiwa House added in January, also outperformed.
We raised Australia to 8.9%, China from 1.4% to 4.7%, and Singapore from 4.7% to 5.7%. We reduced weight to HK residential as we have seen strong performance and switched into some Chinese developers which have since outperformed HK. Office exposure increased from 8.5% to 11.3% as we added CapitaCommercial in Singapore and to HongKong Land. We increased exposure to Sterling.
The fund performed in line with index down 1.9% during the month.
Outlook
The Fed "succeeded in averting a full-blown meltdown" according to Janet Yellen President of the San Francisco Federal Reserve. Nevertheless, the threat of another financial shock, such as one from falling commercial real-estate prices, is "high on my worry list" she said and reiterated her expectation that the recession will end later this year and the US economy, about to "turn the corner".
The real estate industry has historically relied primarily on debt, rather than equity, to satisfy its financing - a key difference from broad capital markets. The industry has been slow to question this practice and specifically whether the capital structure of most REITs typically contains too much debt and too little equity; we believe that lower gearing will prevail in future.
We also expect to see rationalisation as REITs in an attempt to (1) simplify business models (2) compete with specialised global REITs and (3) stick to national boundaries. We expect that asset and business divestment will continue to form part of the consolidation process.
The global real estate sector now stands at 13% discount (March -41%) to Net Asset Value, yielding 4.4% (7.1%) and so stands close to fair value.
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Sarasin CI Real Estate Equity comment - Mar 09
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Thursday, 11 June 2009
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Fund Manager Comment
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Overview
Global real estate enjoyed a moment in the sun as the sector index rose over 21 % from March 9th, outperforming the S&P 500.
Europe advanced 1.25%, North America 3% and Asia led 12%. In Europe, Germany led 15.4%, France was +1.85% and the UK flat. In Asia, Hong Kong led 18.8%, Singapore and Australia were +12% and Japan +8.6%.
The Pacific, Japanese and Emerging market regions were the best performers. Sectorally, Residential and Diversified outperformed; Office and Specialist were worst. At the stock level, Sun Hung Kai, Unibail-Rodamco and Mitsubishi Estate led performance, with Land Securities, Macerich and Kimco lagging.
In Singapore, residential prices have now fallen 21 % since mid-2008 resulting in a recent increase in sales. HK's economy has had its steepest contraction since 1998, but values are still 40% higher than during SARS in 2003. Sino Land was the best performing property stock up 53%, whilst sales rose 36%.
We increased weight to Asia and reduced Europe, subscribing to new issues from Land Securities, Segro and British Land.
US mortgage applications rose for the 3rd week (+32% WoW) as 30 year fixed loan rates fell to a record low spurring on purchasers. In the UK the IPD index reported the steepest falls in commercial real estate values in 2008, since records began.
Outlook
UK REITs offered deeply discounted rights issues to raise £27bn and are well financed to withstand any future fall in values. The slide in UK direct property prices started in July 2007, 5 months after the listed market which had fallen 25%. We expect the listed market to lead direct markets upwards.
While real estate markets have been under pressure due to the global slowdown and poor news from the financial sector, we believe this is priced into stocks barring another major financial shock. We favour stronger balance sheets in Hong Kong and Japan and with more positive GDP, higher savings, lower gearing and less exposure to toxic debt, the Asian economies may outperform. We remain underweight USA and Europe - risks around debt covenant breaches, refinancing and liquidity remain.
There are signs investors are rotating out of defensive sectors into higher beta areas which should benefit our stocks.
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Sarasin CI Real Estate Equity comment - Dec 08
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Thursday, 26 March 2009
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Fund Manager Comment
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Global real estate had a strong recovery rising 17.3% in the month, 10.6% ahead of the S&P 500, and 8.4% ahead of the MSCI World index. The market was volatile falling 5.5% before rising 16%, falling back again before rising a further 13%. For the year global real estate underperformed the S&P by 14.4%, but is 21.2% ahead over 5 years and 89% ahead over 10 years. There were strong regional variations with Europe +22%, Asia +12% and USA +25%. Singapore was +19.8%, Hong Kong +15.9%, Japan +14%, Australia +6.6%, France +21.9% and UK 0.7%. (all in GBP). The German property sector rebounded 65% on the month, with some stocks doubling in two weeks. This does not reflect a change in property or financing fundamentals. We believe many stocks are overvalued and will need to issue substantial amounts of new equity to strengthen their balance sheets. In the US Prologis rose 23% after agreeing to sell its China and Japan properties to the GIC of Singapore for $1.3bn. General Growth the U.S. shopping mall company with $27bn of debt rose 23% as it won postponement of its debt deadline. In Singapore, CapitaLand rose 7.8% on expectation that lower borrowing costs will bolster demand for real estate.
During December we had significant outperformance in our European holdings over the global and local real estate indices from Castellum of Sweden (+18.6%), Prologis European (+116%), Vastned Retail (+28%), Risanamento (+16.5%). In the US, Senior Housing outperformed by 11.5%, SL Green by 21.5%, Ventas by 31.4%, Brookfield Property by 7.25%, Alexandria by 21%, AMB by 18.9%, Kimco by 15.25%, Macerich by 17.8%, Regency by 14%, and Prologis by 245%. In Canada, Calloway outperformed by 14%. In Asia, CapitaLand of Singapore outperformed by 5%, Suntec by 7.3%, Charter Hall by 17.5%, Dexus by 15%, Champion REIT by 49%.
With debt markets slowly freeing up and interest rates falling globally, we believe discounts on many REITs are excessive and the dividend yields offered on many quality names are attractive. According to a survey by the Urban Land Institute and PriceWaterhouseCooper, Tokyo overtook Shanghai as the Asian city with the best prospects and lowest risk for real estate investment in 2009. Just as real estate appeared overbought in January 2007, by mid-Nov 2008 the sector was yielding 7% and at a discount to asset value of over 40% and appeared oversold. Since 20th Nov the global real estate market has risen 33% and both Merrill Lynch and UBS are among brokers who are confident of strong rises in markets over the next 12 months.
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Sarasin CI Real Estate Equity comment - Sep 08
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Thursday, 27 November 2008
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Fund Manager Comment
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· The sector has been buffeted by the global credit crisis as real estate is highly capital intensive and bank lending has all but dried up; and with a dearth of market transaction evidence, investors have been questioning the value of real estate assets. Compounding this it is clear that what started as a financial crisis is now affecting the real economy with retailing closures, and job losses in the office sector.
· However, there is strong evidence in the US of rotation out of broader financials into REITs seen as providing strong and growing dividends, underpinned by quality assets, with seasoned management and transparent balance sheet strength; something that many banks cannot offer. Year to date, there have been positive inflows of $5.9bn into US REITs. Furthermore, 14 REITs have been added to the "No short" list.
· In Q3, global real estate outperformed the MSCI World index by 4%, and the US REIT index outperformed the S&P 500 by 13.9%.
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Sarasin CI Real Estate Equity comment - Jun 08
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Friday, 29 August 2008
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Fund Manager Comment
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Global real estate still faces significant pressure from the credit crisis and slowing global growth, and is down14.6% during the first half of the year, outperforming global equities. We have been defensively positioned, favouring REITs, which have outperformed developers. Australia has suffered the greatest underperformance, down around 28.5% during H1 08 following issues of Centro, overstretched balance sheets in smaller REITs, earnings downgrades and a re-pricing of fund management businesses shattering of investor confidence.
In June, global real estate fell 12.3% the worst month since the credit crisis began in February 2007. Europe fell12.1%; Asia fell 14.0% and North America fell 11.5%. We reduced our European holdings, selling Citycon, IVG, and a portion of Klepierre and Unibail-Rodamco, acquiring stakes in Castellum, Cofinimmo, Prologis European Properties and Vastned Retail. The global real estate sector is offering a 2008E earnings yield of 5.9%, with forecast strong earnings growth. The sector is offering a FY08E dividend yield of 4.2% and trading at a 15% discount to NAV (Jan 2007 - 29%premium) with estimated NAV growth of 7.3% over 2008-09.
The credit crisis, restricted access to and higher cost of capital and increasing risk premiums has resulted in forcing values downwards despite stable or growing net operating income. In the UK, property values have been adjusted down 16% and analysts expect another 10%. However, in New York the Macklowe portfolio has recently sold at 4.4% cap rates proving quality assets still demand top prices.
Leasing fundamentals will tend to lag the economic cycle. The biggest ongoing risk is capital starvation, as REITs are using up existing lines of credit. The CMBS markets remain pretty much closed. The UK sector is already priced for substantial pessimism, trading at a 33% discount, with City of London office rents expected to decline 25% over the next two years.
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Sarasin CI Real Estate Equity comment - Mar 08
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Thursday, 22 May 2008
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Fund Manager Comment
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March was a month of two halves with Europe and the US ending nicely higher but Asia, which never fully recovered from its earlier falls, ending sharply lower. The month started with weak US economic data, high oil prices and continued sub-prime write down rumours which caused global real estate securities to be volatile and generally weak across the board.
The turning point came when Bear Stearns was rescued by JP Morgan, with the backing of the Fed, swiftly followed by a further cut in US interest rates. This gave investors further confidence that the Fed would do what was necessary to stem the sub-prime issues and free up the debt markets that are so important to real estate companies.
While the sub-prime issues continue real estate securities will remain volatile. However, in the past few days the $19bn write-down by UBS and the announcement by Merrill Lynch's CEO, John Thain, that they do not need fresh capital have been taken positively by markets. In fact, for the first time since the beginning of Q4 2007 we have seen a significant narrowing of spreads in the debt markets.
Fundamentals remain solid in many markets although we continue to see a dislocation between private market and public market pricing. April will be an important month with many of the US Investment banks reporting and if they are seen to be finally drawing a line under their sub-prime issues we should see fundamentals take over and global real estate securities rally.
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Sarasin CI Real Estate Equity comment - Dec 07
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Thursday, 21 February 2008
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Fund Manager Comment
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December started with global property markets up strongly. Despite poor US housing data, markets were driven by news of sovereign wealth funds buying into banks and expectations of further US rate cuts. US Thanksgiving and Christmas retail sales were surprisingly strong. However, UBS wrote down $10bn on sub-prime news and the US launched a plan to freeze rates on some sub-prime mortgages. REIT share buybacks continued.
With credit spreads widening, access to real estate finance became significantly worse or prohibitive. We remain cautious on companies with highly leveraged balance sheets, near term debt rollover and secondary assets. Centro Properties managing A$26.6bn assets in highly leveraged funds (a unique model as for $1 invested they owned $10 of assets) and 5th largest manager of US retail property halted trading on difficulties refinancing debt. The stock fell 87% in a week (we do not hold) and CNP have now put themselves up for sale.
Sharply contrasting outlooks prevail. The Times reported more direct property funds imposing exit penalties or waiting periods triggering forced sales. The FT front page talked of property funds taking "drastic steps" to prevent a liquidity crisis.
By contrast, Jones Lang LaSalle reports that "Institutional investors are generally increasing their real estate allocations. Fundamentals remain strong and are capable of weathering a slowing global economy, while moderate-leverage investors are in a better position to secure deals at improved pricing". They view commercial real estate as a defensive asset that will weather a slowdown well. London-wide vacancy rates fell to their lowest level since 2000. Into 2009 JLL suggest rents may drop by 5%.
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Sarasin CI Real Estate Equity comment - Jun 07
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Wednesday, 26 September 2007
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Fund Manager Comment
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Bloomberg's Europe Real Estate Index has just had its most difficult quarter in a decade. In early 2007 property stocks continued to rise on the back of M&A activity, weight of flows into property and further yield compression. The fund was up over 10% before the Chinese intervened to cool their financial markets, then cracks appeared in the US Subprime mortgage market and the UK raised interest rates causing a sell-off in property stocks. Another increase in European rates - the ECB has raised 8 times since December 2005 - and a further change in the outlook for US/UK rates has put further pressure on property. With 5 rate rises this year, the UK's two largest REITs have fallen over 20% YTD. Metrovacesa, Spain's largest real estate developer (we do not own) has fallen by a third. Vector, the first UK REIT planning to purchase 71 hotels was one of five IPOs pulled, in this case due to investor concern at the structure and perceived management conflicts of interest. The Unibail purchase of Rodamco created Europe's largest property company at €14bn.
Outlook
Following the recent weakness we feel there is good value in a number of areas, although further rate rises will put pressure on company's acquisition strategies. Hence we are concentrating on companies with good management teams and development pipelines. The yield compression seen over recent years is coming to an end in the West; although continued economic and rental growth should help sustain yields for prime assets in the medium term.
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Name Change
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Wednesday, 8 August 2007
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Official Announcement
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The "Sarasin CI Global Property Fund" has been renamed " Sarasin CI Real Estate Equity Fund (GBP) effective June 2007
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Sarasin CI Global Property comment - Sep 06
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Friday, 17 November 2006
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Fund Manager Comment
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Global Property performed well with Europe up 6.88%, North America up 4.51% and Asia up 3.1% (all returns in GBP).
The Fund's performance was helped by Singapore's Capita Commercial Trust was up 21.82%, Suntec REIT 16.64% and Singapore Land 12.3%. CLSA are forecasting strong growth through to 2015. Hong Kong's residential market is showing strength as the top of the interest rate cycle is in view and Japan continues to show strong fundamentals with low office vacancies and rising land prices in the major cities. In Spain house builder Fadesa was subject to a bid at EUR35.70 - a 34% premium. Canada's RioCan was subject to bid speculation and rose 5.76%.
In the UK, merger activity continues with the approach of the REIT market in January.- Great Portland is in merger talks with London Merchant Securities while a takeover bid for Grainger Trust has been rebuffed. It looks as if the G-REIT will also be launched in January 2007 for companies with a free float greater that 15%, no shareholder stake of more than 10%, 75% of profits coming from real estate, and the REIT must have a 90% or greater payout ratio. Maximum LTV will be 60% and the exit tax will be an effective 20% on capital gains.
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Sarasin CI Global Property comment - Jun 06
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Monday, 28 August 2006
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Fund Manager Comment
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After profit-taking took the FTSE EPRA/NAREIT index down sharply in May, The CI Sarasin Global Property Fund was +3.3% during June. The FTSE EPRA/NAREIT Global Real Estate Index advanced +4.84% in £ (+4.1% in Euro and 3.05% in US$) during June. The CI Sarasin Global Property Fund was +4.8% in £ YTD, whilst the Sarasin Real Estate Equity Fund (EUR) was +4.26% in EUR. Year to date the index remains ahead 5.41% in £ (4.84% in Euro and 13.27% in US$).
The setback in May's financial markets were due to increased fears of higher interest rates and inflation. However, there are now encouraging signs that markets have settled and taken to heart positive economic and company news as well as business and consumer sentiment which directly impacts real estate markets. In many regions Property fundamentals are still very positive as lack of supply combined with strong demand drives rentals upwards and keen investor demand continues to drive real estate prices upwards.
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Sarasin CI Global Property comment - Mar 06
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Tuesday, 16 May 2006
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Fund Manager Comment
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March was another strong month for Global Real Estate and all regions posted positive returns. In the Asia/Pacific region the Japanese developers bounced back from a weak February with strong gains. Australia proved to be a laggard and more negative news was seen from Multiplex, who announced further delays to the Wembley project. The stock lost 3% in March. The major markets in Europe were all ahead strongly, with the UK producing a fifth consecutive month of impressive gains. The big news came from the Budget where the Chancellor announced the latest proposals for the UK REIT structure. This was viewed positively by investors as it addressed in a sensible manner many of the issues the market had been concerned about. Strong gains were seen in the US where Kimco and Boston Properties were included in the S&P 500.
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Sarasin CI Global Property comment - Dec 05
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Tuesday, 14 March 2006
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Fund Manager Comment
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Global Real Estate continued where it left off in November with all regions posting positive returns in December. The highest gains were seen in Asia where the Japanese developers led the way. Mitsubishi Estate headed the list with an impressive return of 39.4%. Modest gains were seen in North America after a particularly strong November. We saw continued M&A activity with GE Real Estate agreeing to buy office investor Arden Realty. The major countries in Europe were all ahead with the UK showing a second consecutive month of strong returns. Draft UK REIT legislation was published and although the news was broadly positive concerns still remain over the restrictive interest cover requirement and we still await details of the conversion charge, due to be announced with Budget 2006, alongside the final legislation.
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Sarasin CI Global Property comment - Sep 05
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Friday, 18 November 2005
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Fund Manager Comment
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Sarasin's Global Property Fund showed positive performance for the month of September. Asia was by far the best performing region, primarily driven by the excellent returns from Japan. This was based on good financial results and the first increase in land prices for 15 years. Also the Japanese election result was met positively by real estate stocks. Mitsui Fudosan led the way with a gain of 21%, as it announced it is preparing to sell shares of a residential real estate fund on the Tokyo Stock Exchange named Mitsui Fudosan Residential Management. In Europe Spain was the best performing country while the Italian and German sectors both posted falls. In North America the Canadian market was particularly buoyant in contrast to the US which struggled on the backdrop of the uncertainty over interest rates. The end of September saw a land auction in Hong Kong of three sites, fetching a combined HK$10.2bn - well above the reserve prices.
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Sarasin CI Global Property comment - Aug 05
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Wednesday, 14 September 2005
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Fund Manager Comment
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July witnessed a substantial divergence in the performance of equities and fixed income. Better than expected economic data from the US and Continental Europe spurred equity markets and led to a relatively weak bond market. Fortunately, we anticipated this development and maintained a high exposure to equities during the month. Pleasingly, our fixed income portfolio also posted a positive performance despite the overall bond market fall.
As we enter August, a 25 basis point cut in UK interest rates should give some support to UK Gilts, although this may not be enough to offset the generally weaker tone of the global bond market. For this reason, we continue to favour equities and corporate bonds based on the positive fundamentals of strong cash flows and profit growth.
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Sarasin CI Global Property comment - Jun 05
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Tuesday, 16 August 2005
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Fund Manager Comment
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Global listed property markets had an excellent month. The Epra/Nareit Global Property Index posted a return of 5.6% in GBP terms. All regions delivered positive performance with North America and Australia leading the way, both with GBP returns of close to 7%. The main performance driver was the fall in expectations for interest rate increases. In addition the listed property sector continues to attract further inflows of money as investors strive for greater levels of income and diversification. Despite the recent strong performance, we note that UBS, one of the leading brokers covering the listed property sector, believes that real estate still looks attractive relative to the moderate expected returns anticipated from other asset classes.
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