Why listed property is in a better position than it was in the 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. Clearly, today is just a point in time and market volatility continues to be high at this stage, but the extent of the sell-off in the GFC was much greater.”

The property investor highlighted the challenge facing certain sub-sectors from a cash flow point of view, but said the overall asset class is in better shape when compared with the last financial crisis a decade ago. 

“Boards and management teams have mostly heeded the cautionary tale of 2008. They’ve resisted the temptation of cheap credit, instead shoring up their balance sheets through equity raisings and asset sales. They have lower loan-to-value ratios, lower debt and higher interest rate coverage.

Looking at which real estate sectors will come under pressure in coming months, Mr Hayes said that it’s difficult to generalise. Retail, for example, covers a broad cross-section of assets.

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

“Take, for example, convenience and subregional shopping centres offering high levels of non-discretionary spend.” 

“They are not as exposed to the greater adoption of 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,” Mr Hayes explained.

For the larger regional shopping malls, the situation is different.

Despite the COVID-19 situation continually evolving, First Sentier Investors is confident that the strength of the global property securities sector will leave it in good stead in the medium term. 

“We believe that many securities in the listed property sector have been materially oversold, as the extent of the repricing does not reflect the long economic lives of many of these assets, which are typically underpinned by secure, long-dated and recurring cash flows.

“This ultimately gives investors with a long-term horizon the opportunity to invest into high-quality businesses at material discounts to their intrinsic valuations – many of which will make it through this crisis and deliver solid returns for many years to come,” Mr Hayes concluded.