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Paul Reuge, Portfolio manager of Martin Maurel Pierre Capitalisation
Why invest in listed real estate?
Paul Reuge: Listed real estate provides access to a diversified universe that is generally reserved to institutional investors. Buildings owned by property-management firms include offices, shopping centres, warehouses, healthcare facilities (retirement homes and clinics), and student residences. In Europe, this amounts to about 300 billion euros worth of properties. Listed property-management companies benefit from tax-transparency laws, exempting them from corporate tax... As a consequence, these firms are required to return the majority of their revenues in the form of dividends, structurally making this asset class attractive from a yield generation perspective. Regular studies, including those from NAREIT and EPRA, have demonstrated the benefits of including property-managers within a global portfolio. In fact, higher returns with stable volatility have been experienced. It is important to keep in mind that, over a holding period of at least five years, the correlation to the underlying assets (i.e., the real estate owned) is 0.8.
Could you tell us more about Rothschild & Co’s expertise in this asset class?
Paul Reuge: Martin Maurel Pierre Capitalisation has been around for almost 30 years. It is a “pure play” fund, meaning that we invest solely in property-management companies. We exclude any company whose main activity is not leasing buildings, such as developers and construction companies, to reduce the portfolio’s risk. As conviction investment managers, our stock-picking is based on clear choices and a medium-/long-term horizon. Hence, our asset selection and allocation may differ significantly from our benchmark. Originally, this fund was launched for our private bank’s clients, who wished to have a lower volatility profile than other funds in this category, in addition to protecting capital in downward-trending markets.
How is the current environment favourable to this investment theme?
Paul Reuge: The Central Banks’ recent U-turn regarding their monetary policies, postponing potential rate hikes as fears of slower economic growth resurfaced. The macroeconomic environment remains thus favourable to property-management companies so long we don’t experience a reversal of the economic cycle. Observing valuations, the current risk premium (i.e., the gap between capitalization rates and interest rates) is still far above its historical average and could therefore provide some cushion in the event of a rate hike. For the full year, we expect well-positioned sectors to continue to fare well, driven mainly by higher rents (as yields stop compressing). We remain particularly vigilant to mergers and acquisitions given the valuation gap between listed and non-listed real estate. The sector’s current discount could attract private investors.
Find all the information available on the fund Martin Maurel Pierre Capitalisation
