Listed property stronger than 2008

Although some listed property securities face short-term challenges, the asset class is well-placed during COVID-19, according to First Sentier Investors (FSI). 

Stephen Hayes, head of global property securities, said the dislocation facing real estate securities was different to the Global Financial Crisis (GFC). 

“One noted difference between now and 2008 is the extent of the drawdowns. It was much less extreme than what we experienced in the GFC,” Hayes said. 

“Clearly, today is just a point in time and market volatility continues to be high at this stage, but the extent of the selloff in the GFC was much greater.” 

Hayes said boards had learnt their lesson from 2008 and resisted the temptation of cheap credit and instead shored up balance sheets through equity raising and asset sales. 

“They have lower loan-to-value ratios, lower debt, and higher interest rate coverage,” Hayes said. 

“We believe the sector is well positioned, with a capital buffer to help it weather the headwinds of this crisis.” 

Because there was limited transactional evidence to date, FSI did not expect significant declines in many private market valuations.  

“We’re yet to see any forced asset sales or extensive capital raisings arising from distress, like those seen post-2008,” Hayes said. 

“Whilst there may be some poor-quality outliers that come to the market, they are atypical. The great majority of companies in this sector are well-capitalised at this point.” 

Figuring out which real estate sectors would be under pressure was difficult to generalise. For example, retail covered a broad cross-section of assets but the larger regional shopping malls were a different situation entirely. 

“Given the localised nature of the assets, there are some distinct differences between different forms of retail real estate,” Hayes said. 

“Take, for example, convenience and sub-regional shopping centres offering high levels of non-discretionary spend; they are not as exposed to the greater adoption e-commerce. 

“For instance, I'm yet to have a virtual haircut. Shopping centres should continue to be a viable part of the retailing landscape for decades to come.”