Post on 16-Oct-2020
transcript
SUGI CAPITAL MANAGEMENT
Global Real Estate Securities Market
2018 Year in Review and 2019 Outlook
January 8, 2019
The information contained in this presentation is strictly confidential and intended solely for use of the persons to whom it has been delivered. It is not
to be reproduced or distributed to any other person.
This presentation contains information which is based on, or derived from, information provided by independent third-party sources. Sugi Capital
Management, Inc. (“Sugi Capital”) believes that such information is accurate and that the sources from which it has been obtained are reliable.
However, neither Sugi Capital nor any related companies or principals guarantee the accuracy, timeliness or consequential losses arising from its use. All
such information contained herein is for information purposes only and does not constitute an offer to sell or a solicitation to buy any securities and is
subject to change without prior notice. Readers should not assume that their performance will equal or exceed historical results and/or averages.
Past performance is not indicative of future performance. Except as required by applicable law, Sugi Capital is under no obligation to update this
presentation or the information herein, other than its obligation to provide quarterly portfolio performance reports to its investors.
This presentation may contain forward-looking information that involves risks and uncertainties, and readers are cautioned not to put undue reliance on
these forward-looking statements. Forward-looking statements speak only as of the dates noted, except as required by applicable law, we undertake no
obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. No assurance can be given that the
results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ
materially. Set forth for these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act. The information contained herein does not constitute a recommendation to buy or sell anything and should not be considered by
anyone to be a substitute for their own judgment. This is not and may not be used as a solicitation.
All references in this presentation to “$” or to dollars are references to U.S. dollars unless otherwise noted. For more information, please contact our
investors relations team at: ir@sugicapital.com.
Sugi Capital Management, Inc. 1
DISCLAIMERS
Sugi Capital Management Inc. 2
GLOBAL MARKET PERFORMANCE
2018 PERFORMANCE – EQUITIES, BONDS, REITS, OIL, AND PRIVATE REAL ESTATE
Source: S&P Global, January 8, 2019
US private real estate returned 5-6%
Most other assets fell in 2018, with REITs outperforming equities but underperforming bonds
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
1/1/2018 2/1/2018 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018 9/1/2018 10/1/2018 11/1/2018 12/1/2018
Global REITs Global Oil Global Equities US REITs US Private Real Estate US Bonds
• Global REITs = S&P Global REIT (US Dollar) Gross Total Return
• Global Oil = S&P Global Oil Index TR
• Global Equities = S&P Global BMI (US Dollar) Gross Total Return
• US REITs = S&P United States REIT (US Dollar) Gross Total Return
• US Private Real Estate = Green Street Commercial Property Return Index (CPRI)
• US Bonds = Dow Jones Equal Weight U.S. Issued Corporate Bond Index
Sugi Capital Management Inc. 3
EQUITY MARKET VOLATILITY SPIKED
0
5
10
15
20
25
30
35
40
1/2
/2
01
8
1/1
6/2
01
8
1/3
0/2
01
8
2/1
3/2
01
8
2/2
7/2
01
8
3/1
3/2
01
8
3/2
7/2
01
8
4/1
0/2
01
8
4/2
4/2
01
8
5/8
/2
01
8
5/2
2/2
01
8
6/5
/2
01
8
6/1
9/2
01
8
7/3
/2
01
8
7/1
7/2
01
8
7/3
1/2
01
8
8/1
4/2
01
8
8/2
8/2
01
8
9/1
1/2
01
8
9/2
5/2
01
8
10
/9
/2
01
8
10
/2
3/2
01
8
11
/6
/2
01
8
11
/2
0/2
01
8
12
/4
/2
01
8
12
/1
8/2
01
8
1/1
/2
01
9
Volatility rose precipitously in February 2018; had not been this high since US presidential election in November 2015
Volatility popped again in October and December 2018; remains high
VIX INDEX
• Note: The VIX index is a market estimate of expected volatility that is calculated by using the midpoints of real-time S&P 500® Index (SPX) option bid/ask quotes.
• Source: Cboe Global Markets, Inc.
Sugi Capital Management Inc. 4
GDP GROWTH EXPECTED TO SLOW
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Australia Canada China (People's
Republic of)
Euro area Japan OECD - Total United Kingdom United States
2018 2019 2020
GDP GROWTH % FORECASTS FOR 2018, 2019, AND 2020 FOR SELECT OECD COUNTRIES
Source: OECD, as if January 8, 2019
Sugi Capital Management Inc. 5
TRADE TENSIONS – IT’S NOT JUST CHINA
TRADE SNAPSHOT, DECEMBER 2018
Source: Moody’s Investors Service
Sugi Capital Management Inc. 6
CENTRAL BANKS NO LONGER EXPANDING
BALANCE SHEETS
MAJOR CENTRAL BANKS’ TOTAL ASSETS($TRILLION)
Sugi Capital Management Inc. 7
LONG-TERM BOND YIELDS STILL LOW
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1/2
/2
01
8
2/2
/2
01
8
3/2
/2
01
8
4/2
/2
01
8
5/2
/2
01
8
6/2
/2
01
8
7/2
/2
01
8
8/2
/2
01
8
9/2
/2
01
8
10
/2
/2
01
8
11
/2
/2
01
8
12
/2
/2
01
8
1/2
/2
01
9
Germany Japan US
Source: wsj.com, 1/4/19
10-YEAR BOND YIELDS (%)
Sugi Capital Management Inc. 8
US YIELD CURVE FLATTENING
Current (January 3, 2019)
10-year yield virtually
unchanged from a year ago
UNITED STATED YIELD CURVE – NOW, ONE MONTH AGO, AND ONE YEAR AGO
Source: S&P Global Market Intelligence, January 8, 2019
Sugi Capital Management Inc. 9
MOST LISTED REAL ESTATE MARKETS TRADING
AT DISCOUNT TO NAV
-80.00
-70.00
-60.00
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
Swit
zerl
and
Be
lgiu
m
Swed
en
Jap
an
New
Zea
lan
d
Au
stra
lia
Ger
man
y
Luxe
mb
ou
rg
Au
stri
a
Sin
gap
ore
Fin
lan
d
Can
ada
Un
ite
d K
ingd
om
USA
Sou
th A
fric
a
Ire
lan
d
Spai
n
Mal
aysi
a
Fran
ce
No
rway
Me
xico
Net
her
lan
ds
Bra
zil
Ital
y
Ho
ng
Ko
ng
Un
ite
d A
rab
Em
irat
es
Ch
ina
PREMIUM/DISCOUNT TO NAV (%), BY COUNTRY
Source: S&P Global, January 8, 2019
Sugi Capital Management Inc. 10
WIDE VALUATION GAPS ACROSS SECTORS, TOO
PREMIUM/DISCOUNT TO NAV (%), BY SECTOR, US REITS
Source: S&P Global, January 6, 2019
(40.0)
(35.0)
(30.0)
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
Ma
nu
factu
red
ho
me
He
alt
h C
are
Se
lf-S
tora
ge
Ca
sin
o
Oth
er
Re
tail
In
du
str
ial
Mu
ltif
am
ily
Div
ers
ifie
d
All U
S R
EIT
s
Sp
ecia
lty
Ho
tel
Off
ice
Sh
op
pin
g C
en
ter
Re
gio
na
l M
all
Sugi Capital Management Inc. 11
DIRECT REAL ESTATE SECTOR RETURNS
DIVERGED IN 2018
GREEN STREET CPPI SECTOR-LEVEL RETURNS, DECEMBER 2018
Source: Green Street Advisors, January 7, 2019
Sugi Capital Management Inc. 12
REIT M&A MORE PREVALENT IN 2018
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2016 2017 2018
Diversified Health Care Hotel Industrial Multifamily Office Other Retail Regional Mall Shopping Center Specialty
• Prologis acquired DCT Industrial
• Brookfield Asset Management acquired Forest City Realty Trust
• Blackstone Group acquired Gramercy Property Trust
Source: S&P Global, January 8, 2019
US REIT M&A BY SECTOR, 2016-2018
Sugi Capital Management Inc. 13
ALL PROPERTY STOCKS FELL, BUT ASIA
OUTPERFORMED
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
FTSE EPRA Nareit Global
Index FTSE EPRA Nareit UK FTSE EPRA Nareit Asia
FTSE EPRA Nareit
Eurozone
FTSE EPRA Nareit North
America
December 2018 4Q18 2H18 2018
Source: EPRA,, the European Public Real Estate Association, January 8, 2019
GLOBAL REAL ESTATE STOCK PERFORMANCE BY REGION
Sugi Capital Management Inc. 14
TECHNOLOGY IS DISRUPTING REAL ESTATE
Source:
Sugi Capital Management Inc. 15
REAL ESTATE IS GETTING GREENER
• GRESB undertakes a global survey each year to assess real estate company
performance vis a vis certain sustainability goals
• The 2018 global average GRESB Score increased to 68, up from 63 in 2017
• This strong improvement reflects the industry’s commitment to further integrate
best practices related to environmental, social and governance (ESG) issues
• The focus on energy efficiency strategies is reflected in the 2.47% average
reduction in energy consumption. This is coupled with an important 4.91%
reduction in greenhouse gas emissions
• The real estate industry diverted more waste from landfill: 56.5% (compared to
52.9% in 2017)
Global equity markets savaged in 2018
▪ Fourth quarter was particularly tough
▪ Equity market volatility spiked in February and then October and December
Private real estate continued to gain, but at a slower pace
Trade tensions brewing, but not just with China
Central banks, the fuel of the extended post-GFC bull market, are slowly turning off the tap
GDP expected to slow in 2019 and then again in 2020
Though many still talk of a “rising interest rate environment,” the yield curve has merely flattened, with
long-term rates only slightly higher than end of year 2017. The need for yield persists
REITs reacted negatively in 2018, performing more in line with equities than bonds or private real estate
▪ Asia outperformed Europe and North America in 2018, but all three regions delivered negative total returns
▪ Globally, property stocks now trade at 20%+- discounts to NAV on average
▪ US REITs are now at an 18% discount, ranging from an 8% premium for manufactured homes to a 37% discount for
regional malls
Technology is disrupting real estate while pressure mounts for the asset class to be greener – there will
be winners and losers
Tremendous opportunities, but new risks will challenge investors in 2019 and beyond
Sugi Capital Management Inc. 16
CLOSING THOUGHTS
THANK YOU!
For more information, contact us at:
info@sugicapital.com
Sugi Capital Management, Inc.