Global Real Estate Strategy_A year of volatility

Summary of Global Real Estate Strategy Conference Call Industry Overview - The global real estate sector experienced a return of only +1.6% in 2024, underperforming the global stock market by 16.4% [9][4] - The variance in performance was wider by sectors than by countries, with a sector variance of 40%, which is 9 percentage points larger than the historical average [2][4] - The US real estate market saw a decline of -7.4% in December 2024 due to Federal Reserve rate jitters [2][4] Key Performance Metrics - The global real estate index returned +1.6% in 2024, with the US being the strongest region for most of the year but ending negatively [2][9] - The US 10-year bond yields rose by 77 basis points, impacting real estate returns [2][4] - The estimated return for global real estate coverage (excluding emerging markets) is ~14% with a 10.2% discount to NAV [4][10] Sector Performance - Healthcare (+21.0%) and Specialty (+18.7%) were the best-performing sectors, while Industrial (-18.4%) and Diversified (-5.9%) performed the worst [3][4] - In Australia, real estate returned +10.5% over the last year, outperforming the global average by 8.9 percentage points [42][43] - The Australian REIT sector saw significant performance dispersion, with GMG leading at +42% [43][44] Regional Insights - In China, the real estate sector is expected to continue destocking into 2025, potentially ending by mid-2026 [2][65] - Hong Kong real estate returned -10.8% over the last year, underperforming the global average by 12.4 percentage points [64][65] - Japan's real estate returned +2.9%, outperforming the global average by 1.3 percentage points [55][56] Investment Outlook - The US market is expected to experience transitional volatility in early 2025, favoring companies with high-quality portfolios in subsectors with strong demand visibility [2][85] - The forecast for US REIT total returns in 2025 is between 5.0% and 7.0%, driven by improved earnings growth and dividend yields [87][85] - Preferred REIT subsectors include Triple Net, Single Family Rentals, and Shopping Centers, while caution is advised for Malls and Office spaces [85][86] Valuation Metrics - The global real estate sector is trading inline with its historical average on a P/NAV basis, with a current discount of 10.2% [10][13] - The 12-month forward P/E ratio is priced at 15.9x, trading 0.7 standard deviations below the 10-year average [10][4] Notable Stock Picks - Top picks include CapitaLand Ascendas REIT, Mapletree Pan Asia Commercial, and UOL in Singapore; BEKE and CR Land in China; and Agree Realty and Invitation Homes in the US [5][51][87] Additional Insights - The report highlights the importance of selectivity in investing, particularly in the US REIT market, where demand visibility is crucial for performance [86][85] - The analysis indicates that the investment market may not normalize in 2025 due to persistent gaps between buyers' and sellers' expectations [78][79]