Liquidity and interest rates: two bogeymen for property investors worldwide – inextricably linked yet warranting very different discussions.
With both currently at the forefront of market consciousness and property as an asset class having seen ever-increasing popularity as investors seek income alternatives, the road ahead for real estate investment trusts could be a bumpy one.
However, despite the double-threat of both a liquidity-induced dash for the exits and the interest rate impact on debt-leveraged investments, Tiltman, manager of Neuberger Berman’s Global Real Estate Securities Fund, is confident that the very nature of interest rate hikes spells good fortune for global property.
“The biggest issues in global markets at the moment is around interest rates and how interest-sensitive companies, such as REITs, will be affected,” she expanded. “That said, I do not think that there will be a shock; any interest rate rise will be in very measured way, and while REITs may underperform in the short-term, after that they will continue their trajectory.
“We have to think about the reason why interest rates are rising – the economy is improving, which can only be good for real estate.”
Tiltman, who arrived at Neuberger Berman in 2014 after running M&G Global Real Estate Securities, explained that a key difference between now and the financial crisis is not only in the way that REITs are run, but, crucially, the fundamentals behind the current cycle.
“If we take a step back, REITs were first introduced to the UK in 2007, which with hindsight was arguably the worst possible time,” she said.
“Companies had to pay 2% of a very inflated asset value to become a REIT, without truly taking on board what it meant to be a REIT i.e. paying out 90% of taxable income as dividends. So when February 2009 came, companies had rescue rights issues and went to shareholders and begged for money at very steep discounts.
“A lot of that has changed; trust management has changed and debt levels are much lower.”
Tiltman’s fundamentals view is most applicable to the UK – particularly the London retail and office space – which represents her biggest portfolio overweight at 9.1%.
