Interview with Alexis Bossard, Fund Manager CM-AM Pierre at Crédit Mutuel Asset Management.
How has the asset class performed year to date?
With the Covid crisis, changes in life and behaviour have disrupted the real estate sector. The listed property sector grew by +20.4% YTD * but this conceals significant disparities between the segments once again. The re opening and economic recovery did not reverse the dynamics that began in 2020. On one hand, demand and prices for storage and logistics spaces continue to rise (ViB Vermoegen +48%, Segro +43%, Argan +35%). Safeguards benefit from the rise of e commerce (Safestore +66%, Shurgard +65%). And, Scandinavian property companies benefited from a stronger economic recovery that has led to generalised price inflation (Balder +65%, Fabege +25%). On the other hand, valuations of hotels (Pandox +4%), shops (Unibail 0%) and offices (Colonial +6%) continue to suffer from lack of visibility related to teleworking and successive confinements.
The biggest novelty 2021 is the underperformance of German residential property. CM AM Pierre, a long term, holds back from its exposure to: VONOVIA -5%, Deutsche Wohnen +5% or LEG Immobilier +4%. This relative underperformance could be explained by 3 factors. First, the reduced appeal of a defensive sector amid a strong economic recovery. Second, and it's specific to German real estate companies, last October's federal elections also raised fears of a tightening of rental regulation. Last but not least, the lack of transparency and suspicions of manipulation at Adler (-60% YTD) raised many questions about the valuation of the assets and their debt level. Despite these factors weighing on the short term, the current discount on ANR of a value like Vonovia or LEG seems unjustified to us in view of the ongoing revaluation of their assets (> +10% per year).
What is the sector's growth prospects?
In this context of historically low rates, the valuation of listed real estate remains attractive. The sector is not risk free and will suffer from equity market volatility. However, we continue to favour exposure to Scandinavia (SelfStorage, JohnMattson) and logistics (Argan, Segro), residential and development (Instone) which offer growth profiles with high cash flow visibility. Since September, developers have struggled to launch new projects. Genuine players in the green transition, they are facing major supply problems and labour shortages which should ultimately increase the inflationary pressure of the quality assets most sought after.