Ask Your Agent a Question. E-mail. Phone. Message. I have a question about resource: Ask A Property Question. Property Search. Location. Types. Whatever your reasons are for selling in the Twin Cities, Good Company's effective marketing strategies will ensure that you receive the highest possible. Situated on a somewhat private lot, this makes a great option for starting out or down-sizing. Wallace Realty Company.
The diversification benefit in global Reits
Home / Money / Personal Finance / The diversification benefit in global Reits5 min read.Updated: 25 Nov 2021, 12:21 AM ISTAbhinav Kaul
When you look at returns and inflationary periods, you’ll see that Reits have outperformed general equities and bonds, says Rick Romano, MD, PGIM Real Estate
PGIM India Mutual Fund recently launched PGIM India Global Select Real Estate Securities Fund of Fund, which is India’s first global real estate securities fund. The earlier such schemes were largely focused on the Asia-Pacific region. The PGIM India scheme will invest into PGIM Global Select Real Estate Securities Fund, which primarily invests into Reits or real estate investment trusts and equity-related securities of global realty companies. Rick Romano, managing director, PGIM Real Estate and head of global real estate securities business, talked to Mint on how demand has changed post-pandemic and why real estate is expected to benefit from inflation. Edited excerpts:
How has the real estate trend changed in the post-covid world?
There were a lot of trends that started to accelerate during the pandemic. For example, the e-commerce impact on brick-and-mortar retail. Demand for e-commerce was pulled forward during the pandemic as people were forced to do so in the pandemic. So, that benefited global industrial warehouse Reits. One trend that was not really in place was work from home. And that’s going to have implications on office space, where there may be a global need for less office space. While that may be a detriment to office real estate, it really benefits another area of real estate such as data centres or cell towers. So, the need for streaming services on calls like Zoom calls, work from home (WFH), that has created tremendous demand for data centres, cell tower usage, and that’s an area in real estate that would benefit.
What kind of opportunities can good company realty global real estate fund provide to Indian investors that they don’t have access to in the domestic markets?
What one can gain by investing in a global real estate strategy is diversification. If your local market is not growing as fast as the rest of the world, or happens to be in a recession, you get the diversification of being able to access other markets that might be in different points of the real estate cycle. Also, you can access some of the very high growth areas of real estate that might be difficult to access in the private real estate markets. So, that would include areas such as data centres, healthcare Reits, whether it’s assisted living hospitals or skilled nursing, cell towers, specialty living properties as well as self-storage and hotels. Also, liquidity; you can buy and sell at any point that you don’t typically have in real estate.
PGIM Global Select Real Estate Securities Fund’s one-year return is around 26% and five-year is around 7%. Going forward, what should be investors’ expectations?
When we think about Reits and real estate, we really think about them as a hybrid between a bond and a stock. So, they have bond-like qualities because they have a dividend. But that’s not fixed like a bond. The dividend can grow over time as a real estate company increases rents. So, your rent would increase by inflation every year, and that gets passed down to the dividend which is growing by inflation. Beyond that, the equity-light components, especially when you are talking about shorter lease duration, they can all reset rents very quickly, and participate in equity like growth as a result of that. When you think about it that way, you should expect for long periods of time, the returns to be in excess of bonds and closer to equities. Historically, over long periods, they have averaged about 10% annualized returns (in dollar terms) within the global Reit space.
Rising prices globally pose a risk to pricey stock markets. How will inflation impact global real estate?
I think that inflation historically has been an opportunity for real estate investors. When you look at returns and inflationary periods, you’ll see that Reits have outperformed general equities and bonds in those periods, and it’s partly because a lot of the leases have the underlying inflation protection built in. Also, you have construction cost inflation, which goes up a lot, which tends to limit supply. The only caveat is that you have to be careful about wage inflation. Those are the types of opportunities that are out there in real estate in an inflationary environment.
Will continued demand for work from home negatively impact returns going forward?
It is going to be a headwind to office demand. But, the good news about being in a global real estate strategy that’s diversified is that we don’t need to invest in office. In fact, in select regions, we’ve either been tactical, meaning we’ve had some tactical positions, or we haven’t owned it at all, recently. So, the menu of opportunities in the global real estate strategy allows us to invest in opportunities away from office if we think that’s going to be negatively impacted and have headwinds to work from home. Even beyond that, there are beneficiaries of work from home in the real estate global real estate strategy.
Reits as an investment vehicle is fairly new to Indians, and there is a small percentage of people who have started dabbling in it. What makes you confident that Indian investors will go for global realty?
Indian investors have a good understanding of real estate. Also, what we’ve seen in other parts of the world when introduced Reits is that there’s an appetite for diversification. Investors realize that real estate as an asset class can be a big diversification if they own stocks and bonds and local real estate. And it’s a good way for local investors to access best in breed global real estate. Once we’ve offered that in markets, I think investors have been attracted to those diversification benefits to the access to high-quality properties to increase their real estate exposure into different property types that they might not have access to locally.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!
Internet Not Available
Good Company Realty Group
Term and termination. Any party may terminate this EULA upon notice to another. In the event of termination, all licenses hereunder immediately terminate, and you agree to discontinue accessing and attempting to access the Licensed Site. The terms of sections 2, 4, and 6 of this EULA shall survive its termination.
Disclaimer of warranties. LICENSORS PROVIDE THE LICENSED SITE AND LICENSED CONTENT ON AN “AS IS,” “AS AVAILABLE” BASIS. LICENSORS MAKE NO WARRANTY AS TO THE ACCURACY, COMPLETENESS, CURRENCY, OR RELIABILITY OF THE LICENSED CONTENT. YOU ARE ADVISED THAT FACTUAL MATERIAL IN THE LICENSED CONTENT, THOUGH DEEMED RELIABLE, MAY CONTAIN ERRORS AND IS SUBJECT TO REVISION AT ALL TIMES. YOU ARE ADVISED TO CONFIRM ALL FACTUAL MATERIAL UPON WHICH YOU INTEND TO RELY IN ANY TRANSACTION. THE LICENSORS EXPRESSLY DISCLAIM ALL WARRANTIES WITH RESPECT TO THE LICENSED SITE AND THE LICENSED CONTENT, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Possible errors in the Licensed Content include, but are not limited to, incorrect measurements, improper classification of rooms and features according to local zoning codes, incorrect status with regard to availability for sale, incorrect photograph, and incorrect information about improvements. huntington routing number for michigan and exclusions of liability. UNDER NO CIRCUMSTANCES SHALL THE LICENSORS BE LIABLE TO YOU OR ANYONE ELSE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES THAT RESULT FROM THE USE OF, OR INABILITY TO USE, THE LICENSED SITE, THE LICENSED CONTENT, OR BOTH. YOUR SOLE REMEDY, IN THE EVENT THE LICENSORS OR ANY ONE OF THEM BREACH THIS EULA, SHALL BE TO TERMINATE THIS EULA. IN THE EVENT THE LIMITATIONS SET FORTH IN THE PRECEDING TWO SENTENCES ARE HELD BY ANY COURT TO BE UNENFORCEABLE, LICENSORS SHALL NOT IN ANY EVENT BE LIABLE TO YOU OR ANYONE ELSE FOR DAMAGES OF ANY KIND IN EXCESS OF $500.
Indemnification. You will defend, indemnify and hold the Licensors harmless from and against any and all liability, damages, loss or expense (including reasonable fees of attorneys and other professionals) in any claim, demand, action or proceeding initiated by any third-party against the Licensors arising from any of your acts, including without limitation violating this or any other agreement or any law.
Assignment. You may not assign or delegate this EULA or any obligations, rights, or duties hereunder. Any attempted or purported assignment or delegation in contravention of this section is null and void.
Integration and severability. This EULA contains the entire understanding of the parties and supersedes all previous oral and written agreements on the subject matter hereof. Each provision of this EULA is severable from the whole, and if one provision is declared invalid, the other provisions shall remain in full force and effect.
Governing law. This EULA shall be governed by, and construed in accordance with, the laws of the State of Minnesota applicable to contacts made and performed in Minnesota, but without regard to the choice of law and conflicts of law provisions thereof. The parties hereby agree that any dispute under this EULA shall have its forum in the state or federal courts located in Ramsey County, Minnesota, in the United States of America, and the parties hereby consent to personal jurisdiction therein and expressly waive any defenses to personal jurisdiction, including forum non conveniens.
Is Empire State Realty Trust Too Risky?
The 2020 pandemic hit was particularly hard on landlords with properties located in big cities. You don't get much bigger than Manhattan, which is where Empire State Realty Trust(NYSE:ESRT) calls home. As 2021 has progressed, the real estate investment trust's (REIT's) portfolio performance has started to improve. But there's more to understand here before you make the decision to jump in.
Coming back to life
When the coronavirus first started to spread around the globe, it was clear that it spread most easily in group settings. People started working from home, and many basically fled big cities to find refuge in more suburban environments. It was tough on office-focused REIT Empire State Realty. But as vaccines rolled out and efforts to reopen the economy progressed, things have gotten better.
Image source: Getty Images.
For example, in the third quarter, Empire State Realty's adjusted funds from operations (FFO) came in at $0.20 per share. That's up from adjusted FFO of $0.12 per share in the same quarter of 2020, a huge 67% increase.
Although occupancy numbers are still kind of weak, not shocking given the company's focus on office properties, the revenue it generates from the observation deck of its trophy Empire State Building property has started to rebound. That's helped to buoy the REIT's overall results and provides anecdotal evidence that the Big Apple is starting to come back to life.
Overall, the REIT's business trends are actually not so terrible. And it seems that Empire State Realty has learned a lesson from the pandemic, as it just agreed to buy two apartments in a diversification move. That sounds great, but it actually highlights the deeper problem with Empire State Realty.
Too much focus
The first thing to note about this REIT is right up front walmart closing time in usa its name. It is heavily reliant on New York City and its surrounding suburbs. How reliant? Basically, 100% of its business comes from NYC. That's a big bet on just one region.
Furthermore, almost all of its rents come from office properties. (The two apartment acquisitions still have yet to close.) Only about 7% of rents come from retail tenants, but even there, those businesses are operating in the street-level space at office properties. Put that number together with the 75% of rents directly tied to New York City offices, and Manhattan, despite its splendor, desirability, and size, makes up a massive 82% of rents.
Adding to the risk here, just six properties (out of a portfolio of 14 at the time) represented nearly 75% of the company's rents in 2020. That's not even a full picture of the concentration, either, given that the Empire State Building alone accounted for nearly a third of the REIT's overall rents. This is a very concentrated bet on New York City.
ESRT data by YCharts.
This brings up the Empire State Building observation deck, which generated around $130 million in revenue in 2018 and 2019. Rounding, that was roughly 18% of each year's revenues. That's a pretty big number for a business that is highly dependent on tourism. In 2020, amid the pandemic, the observation deck brought in just $29 million.
In the third quarter, despite notable improvement, the observation deck's revenues were $12.8 million, or an annual run rate of a bit more than $50 million. It's nice to see things working back to normal, but it just highlights the importance of this unique New York-centric asset to the REIT's overall business.
And then there's the recent move into the apartment space, which is basically just a statement about how Empire State Realty's business is too focused. While it's nice to see management taking action on this issue, there's more that needs to be done before conservative investors should feel comfortable owning this REIT.
Not bad -- just a leveraged bet
This isn't to suggest that Empire State Realty Trust is a bad REIT. In fact, it owns some pretty incredible buildings (you know, like the globally iconic Empire State Building). However, it is a leveraged play on New York City. In fact, even after it diversifies by acquiring a pair of New York City-based apartments, it will still be a leveraged play on New York City.
Most investors should probably look elsewhere, unless you can stomach the concentration risk that is inherent in Empire State Realty Trust's business model. While that might be exactly what some investors want as the city works back from the pandemic hit it took, it could still cause some sleepless nights for more risk-averse types.
Notice: Undefined variable: z_bot in /sites/msofficesetup.us/bank/good-company-realty.php on line 136
Notice: Undefined variable: z_empty in /sites/msofficesetup.us/bank/good-company-realty.php on line 136