The Fund posted a negative return in April but outperformed the benchmark. Outperformance was broad based with noteworthy highlights being the US Triple Net cluster as well as US Housing and J-REITs. In the US Triple Net Lease cluster, it was our overweight position in gaming landlord giant VICI Properties that drove the strong outperformance as the company has cleared all its hurdles (including securing well priced debt financing in a volatile time for interest rates) for its MGM Growth Properties acquisition. In US Housing, outperformance was in part due to reassuring first quarter results from both companies acting in the manufactured housing segment (our overweight) increasing their full year outlook, mixed results in the large cap coastal apartment REITs (our underweight) and catch up from the single-family rental REITs (our overweight). In Singapore, we experienced negative performance over the month largely due to our overweight position in Keppel DC REIT, as it reported rising energy costs impacting its Distribution-per-unit “DPU” guidance. However, as the landlord is only responsible for the common spaces, the impact looks to be materially less than the company intimately estimated.

April saw a bit of a reversal for Global Real Estate with the benchmark falling just under 4% in local currency, after a strong 5% move in March. As inflation and global interest rate moves continue to be in the spotlight, volatility remains higher than usual. We reiterate that whilst the situation is as volatile as ever, real estate is a local business, and barring outright further military expansion, we believe that the worst-case scenario for global developed listed real estate is relatively minor in the near future.

The month of April marked the commencement of earnings season. Initial earnings coming out of the Nordics region generally show strong inflation pass-through on rental growth and thus far limited impact from energy price increases. This is because many of the companies in the region can reinvoice the energy bills to the tenants, and with the common space energy bill being immaterial for those landlords with high occupancy, the overall surplus ratio (gross to net rent) impact appears limited, especially as the first quarter is traditionally the toughest with respect to energy costs due to the winter. We do, however, factor in our models an increase in operating costs for the 4th quarter of 2022 and the first quarter of 2023 as we suspect that the energy price increases will continue to be sustained in absence of any resolution to the ongoing geopolitical issues and supply chain issues. Early earnings in the US also showcase a strong return to activity particularly in US Housing where same property growth is in the double digits. US Triple Net Lease is also seeing continue strong acquisitions activity despite higher cost of capital at the moment. This of course has an effect on the deal accretion which will be lower than in the past, and in part explains the weak absolute performance of this cluster year-to-date.

China’s Zero Covid policy is also beginning to rattle disproportionately Hong Kong based landlords with assets in China. After two years of success in the containment of COVID, China is struggling to dampen the spread of the Omicron variant with its Zero Case COVID policy. In particular, its two main cities Beijing and Shanghai are currently dealing with all the negative impacts of the strict lockdowns both in economic and social terms. Our overweight position in Hang Lung Properties is excessively volatile and has recently given up much of its year-to-date outperformance. We believe that the impact will be temporary as China has proved time and again its discipline in handling outbreaks with some severe short-term pain (in lockdowns) followed by early re-openings.

At the end of the month, Italian commercial landlord Coima Res received a tender offer for all shares by its long term strategic shareholder, the Qatar Investment Authority. The offer is €10/share and it represents a 22% discount to its year end EPRA Net Tangible Assets “NTA” but a near 39% premium to the undisturbed share price. This is another listed office vehicle being privatized and joins Irish landlord Hibernia and German office landlord Alstria as high quality office landlords that were privatized earlier in the year. The tender offers unlock short term value for the equity shareholders with the promise of significantly higher longer term shareholder value for their new private shareholders. It’s a public to private arbitrage that we see continuing, particularly in out-of-favor sectors such as offices.

We saw this arbitrage continue across the pond in the US as well. US student housing landlord American Campus Communities received a takeover bid from Blackstone at 14% premium to last unaffected share price and around NAV. Blackstone continues its shopping spree as it also agreed to acquire PS Business Parks in a cash transaction of $187.5 ($7.6bn total value) or a 12% premium to the last closing price. The takeover candidate had assembled a portfolio of industrial assets as well as suburban and flex office assets. It is possible that the angle of the deal is in the value-add/reconversion or land assembly play.

The Kempen real estate investment strategy strikes the balance between qualitative and quantitative analysis. Through application of data-analysis technology our Real Estate Team collects over 20 million relevant data points for 200,000 real estate buildings around the globe, processing this quantitative data in our data infrastructure and turning it into valuable fundamental investment information. The continuous increase in available data helps us make better assessments of the quality, value and risk of each real estate investment. This leads to better investment decisions and results in higher investment returns at lower risk for our clients.

Next to the quantitative approach the investment strategy contains three key qualitative parameters that determine the warranted valuation: management added value, balance sheet strength and ESG. The portfolio managers score each company covered on these three parameters. Companies that excel in ESG for example will be assigned a higher score and hence the warranted valuation for an investment increases.

During April we initiated an engagement with large US headquartered logistics real estate landlord Prologis on its environmental practices, particularly focusing on its majority Scope 3 emissions. We will continue to check for updates and look forward to further progress as the company has good bargaining power to influence its tenants’ emissions. We also launched an engagement with Swedish logistics landlord Catena, to help improve its executive remuneration program. The initial feedback has been positive and we look forward to further discussions with the board of the company.

Portfolio construction of the Strategy is based on cluster neutrality. The Global portfolio has 18 clusters defined as homogeneous groups of real estate companies with similar underlying currency exposure. Examples are Australia, US Offices and Switzerland. The portfolio weight of each cluster is approximately equal to the cluster’s benchmark weight. This ensures a diversified portfolio and neutralizes currency and macro-economic exposure versus the benchmark. The Fund assigns its risk budget on the real estate portfolio level only.

During April we only made incremental changes to our existing holdings based on relative expected returns. In Australia, we rotated from Vicinity to Shopping Center of Australasia due to a quick share price recovery in the riskier enclosed mall name. In US Triple Net, we trimmed our position in WP Carey in favor of Broadstone and EPR Properties. We see Broadstone once again as attractive based on its healthy acquisition pipeline in attractive sectors (restaurants, healthcare and industrial). With respect to EPR, the Covid-challenged theatre space (and other experiential locations) are also appearing as good value as box office figures ramp up to near pre-pandemic levels. However, the true value of EPR lies in its well located theatres, as per the relatively high property score that we calculate based on our proprietary data model.