Sugi Capital – Fourth Quarter 2024 Global Real Estate Securities Update (January 2025)
Three months ago, the REIT market seemed poised for a breakout after a +16% return in the third quarter, raising year-end expectations. However, the fourth quarter proved disappointing as the Fed executed its hawkish cut and new administration policies emerged, leading to rising long-term interest rates.
While data centers and retail REITs delivered positive returns, most other sectors struggled. Nevertheless, key sectors like data centers, seniors housing, shopping centers, and high-quality office buildings continue to experience strong demand.
Looking ahead, we remain optimistic that a Goldilocks economy will emerge, with moderating interest rates and sustainable growth creating a favorable environment for REITs.
Sugi Capital – Third Quarter 2024 Global Real Estate Securities Update (October 2024)
Last quarter, we wrote that “the time is ripe for a REIT comeback after two and a half years of underperformance.” It seems REITs took note, as Q3 2024 was one of their strongest in recent memory, up 16%.
Looking ahead, we anticipate the recovery to continue, supported by a potential “Goldilocks” macro environment of easing monetary policy and steady and improving earnings growth.
Segments like ๐๐ฒ๐ป๐ถ๐ผ๐ฟ ๐ต๐ผ๐๐๐ถ๐ป๐ด, ๐ฑ๐ฎ๐๐ฎ ๐ฐ๐ฒ๐ป๐๐ฒ๐ฟ๐, and even high-quality ๐ผ๐ณ๐ณ๐ถ๐ฐ๐ฒ spaces are seeing demand outpace supply, while sectors like ๐๐ฒ๐น๐ณ-๐๐๐ผ๐ฟ๐ฎ๐ด๐ฒ and ๐ต๐ผ๐๐ฒ๐น๐ face headwinds. While valuations are no longer as attractive after recent gains, there are still untapped pockets in underperforming sectors that haven’t fully rebounded.
Sugi Capital – REITs and the Fed Easing Cycle (September 2024)
It’s time!
This 10-minute video highlights potential opportunities for REITs in light of anticipated U.S. Federal Reserve rate cuts starting in September 2024. Historically, REITs have performed well following rate cuts, often outperforming broader equity markets. We anticipate a positive inflection point for REITs, with earnings growth expected to accelerate from 3% in 2024 to 5% in 2025, driven by lower interest rates and reduced supply in certain real estate sectors. Additionally, the current economic landscape shows declining inflation and rising unemployment, making rate cuts more likely. We emphasize the importance of remaining fully invested in REITs, especially in sectors with solid dividend yields and strong lease structures, as the Fed’s policy shift unfolds. Enjoy.
Sugi Capital – Second Quarter 2024 Global Real Estate Securities Update
Break on through!
Global central banksโ two-and-a-half-year tightening cycle has not been kind to commercial real estate. Public REITsโ dramatic underperformance relative to broader equities during this period raises the question: Is the time ripe for a rebound?
The REITsโ valuation case remains compelling, with REIT stocks trading at discounts to both broader equities and private market values. REITs are growing organically, with management teams grinding out income, but refinancings at higher rates hurt earnings, and acquisition opportunities are limited.
The Fed looks poised to cut rates at least once in 2024, with the โdot plotโ suggesting another 100 bp of cuts in each of 2025 and 2026. We see this as the shot in the arm the market needs. In the meantime, our portfolio is populated by strong businesses run by capable operators, harnessing growth in digital infrastructure and healthcare while mining value in net lease, residential, and shopping centers.
Sugi Capital – First Quarter 2024 Global Real Estate Securities Update
Turn the page
Are public REITs signaling the end of the real estate bear market? Key takeaways from our report:
- Market Performance: Global REITs continued to lag equities but showed resilience compared to bonds
- Sector Performance: Digital infrastructure and health care sectors stand out, reaffirming our strategic positioning towards growth and innovation in these areas
- Market Dynamics: While inflation concerns persist and central banks become more accommodative, real estate markets are adapting, signaling important nuanced shifts
- Investment Opportunities: With most U.S. sectors trading at discounts, the current environment presents compelling entry points