Matthew Sgrizzi

The outlook for global REITs is positive following the Federal Reserve’s 50 basis point rate cut, according to Matt Sgrizzi, CIO and lead portfolio manager at LaSalle.

“The Fed’s 50 basis point rate cut is a tailwind for the listed property sector and we expect a global monetary policy easing cycle to kick in further as more central banks cut policy rates or are forecasting to do so.

From a valuation perspective, Mr Sgrizzi says REITs offer positive but mixed valuation signals in a broader market context.

“REITs are trading at moderate premiums to our marked down private market real estate values, with certain sectors and regions continuing to offer sizable discounts. Private values remain challenging to pinpoint but should become clearer as the ‘bid-ask’ spread continues to narrow and transaction activity continues to increase, with the potential for an uptick in values.

“Our forward outlook for REIT returns remains constructive with financial conditions likely to be less of a headwind, growth remaining solid and strong financial positions for many REITs positioning the sector to perform well and take advantage of opportunities as they arise.

Further easing in financial conditions could serve as an additional tailwind to the sector and would be further support to real estate values,” said Mr Sgrizzi.

The SGH LaSalle Concentrated Global Property Fund was ranked 1st out of 52 funds for 5 years to 30 September 2024 within Morningstar’s Australia Fund Equity Global Real Estate Category. The fund returned 7.74 percent per annum, 2.78 percent higher than the next fund in its category for the given 5-year period*.

Mr Sgrizzi said that despite the backdrop of heightened inflation and interest rates the fund was still able to provide positive returns to its clients thanks to its strategy.

“This strategy was developed to fulfil a market gap – pursuing global investment opportunities that provide solid fundamentals over the medium to long term through a truly dynamic, high conviction approach.

“Our team was able to continue providing attractive absolute returns by investing in real estate companies offering deep value and identifying property sector and market dislocations.”

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Matt Sgrizzi

Global real estate securities firm LaSalle Investment Management (LaSalle) in partnership with Australian fund manager SG Hiscock and Company (SGH) have won the Global Real Estate Investment award for its SGH LaSalle Concentrated Global Property Fund at the 2023 Zenith Fund Awards.

The fund is distributed exclusively in Australia by SGH. The fund is an actively managed portfolio that invests primarily in global real estate investment trusts (GREITs) and real estate operating companies (REOCs). The fund seeks to provide total return through long-term capital appreciation and rental income.

Chief investment officer at LaSalle and lead portfolio manager for the fund, Matt Sgrizzi, said the win reflects the fund’s strong performance over the long term and its investment process, which is a testament to the calibre of the investment team.

“We’re fortunate to have a highly credentialed team which gives us the ability to identify good opportunities in the market and capitalise on assets with untapped potential.

“Our approach gives investors access to the benefits of global diversification given an investible universe spanning both Australian and international securities.

“Winning this accolade acknowledges both the skills and expertise of our investment, together with a strong distribution network made possible through our partnership with SGH,” said Mr Sgrizzi.

The 2023 Zenith Fund Awards recognise and encourage excellence in funds management across all asset classes and disciplines. The awards aim to raise the standard of funds management in the local market, to the benefit of institutional, wholesale and retail investors.

The winners are selected based on long-term factors derived from Zenith’s research and due diligence process. Quantitative aspects of the funds longer-term returns to investors are examined, in addition to other factors including the organisation and investment team strength, investment philosophy, security valuation and selection, portfolio construction, risk management, and fees.

The win coincides with the 20^th anniversary of the partnership between LaSalle and SGH, with the alliance forming in October 2003.

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Matt Sgrizzi

After a challenging 2022, the headwinds which pressured global real estate investment trusts (GREITs) should begin to moderate, providing opportunities within subsectors to generate better returns, according to chief investment officer of US-based LaSalle Investment Management Securities, Matt Sgrizzi.

Mr Sgrizzi said while a US recession could dampen any significant rebound for GREITs, the coming 12 months are unlikely to mirror the sector’s underperformance of last year.

“There’s no doubt it is going to be a more challenging economic environment. After a strong recovery from the pandemic in 2021, in which REITs gained 27 per cent, 2022 was a much tougher year and GREITs recorded a 22 per cent decline as central banks pushed back against higher inflation.

“However, as a result, a large portion of the GREIT universe has now been repriced. The performance of GREITs is justified within the context of the tightening financial conditions. However, we don’t run from risk; rather, we try to price risk so that we’re properly compensated when it’s particularly high.

“GREITs are now priced to deliver high single digit returns this year, which is in line with historical returns from moderately leveraged real estate assets. The adjustment was painful but the forecast on the sector is constructive and real estate should also be viewed by investors as a good hedge against inflation,” he said.

Key opportunities within GREITs will be in areas which can access durable growth at attractive prices. Although growth rates are decelerating, sectors such as self-storage, data centers, residential and industrial will continue to offer healthy growth in their earnings over the next few years.

“Megatrends like digital transformation, insufficient affordable housing and e-commerce will further support the fundamentals of these sectors.

“This durable growth will be especially valuable in a lower economic growth environment. There had been concerns about the impact of tighter financial conditions on these sectors, but this impact is largely behind us and these sectors have been repriced to attractive levels,” he said.

According to Mr Sgrizzi, there are currently two high-risk factors within the sector, including property assets with high leverage, and the office subsector.

“The cost of debt has risen so that puts pressure on private real estate values, and while we don’t see volatility as a risk in itself, the potential for the permanent loss of capital is a risk, so we’ll be steering clear of companies with high leverage.

“The woes of the office market have also been well documented, and we don’t see this improving anytime soon. Ultimately, the hybrid work environment is here to stay and it’s unlikely we’ll have people back in the office permanently five days a week, and it costs money to maintain buildings,” he said.

“So, while there are some evident headwinds, exacerbated by the threat of a global recession, GREITs are set to offer sound investment prospects over the coming year. And importantly, real estate is a highly durable asset class, and this is an opportune time to appreciate that durability,” said Mr Sgrizzi.

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