Robeco Sustainable Property Equities I USD

Folmer Pietersma is Portfolio Manager of the Robeco Sustainable Property Equities fund and member of the Sustainable Global Equities team. Prior to joining Robeco in 2007, Folmer worked at ABN AMRO Asset Management as a Portfolio Manager and Analyst Financials. He started his career at ING in 1997. He holds a Master's in Economics from the University of Tilburg and has a CEFA registration. Frank Onstwedder is Portfolio Manager of the Robeco Sustainable Property Equities fund and member of the Sustainable Global Equities team. He rejoined Robeco in 2018. Prior to that, Frank worked at NN IP in the period 2009-2018 as Head of Financials and Analyst Real Estate in the global equity research team, and as a portfolio manager at Lehman Brothers/Neuberger Berman in the period 2007-2009. In the periods 1994-1998 and 2000-2007 he worked at Robeco in various roles, including Portfolio Manager Robeco Property Fund, between those periods he worked at Aegon Investment Management. He holds a Master's in Econometrics from Erasmus University Rotterdam.

The fund is established in Luxembourg and is subject to the Luxembourg tax laws and regulations. The fund is not liable to pay any corporation, income, dividend or capital gains tax in Luxembourg. The fund is subject to an annual subscription tax ('tax d'abonnement') in Luxembourg, which amounts to 0.01% of the net asset value of the fund. This tax is included in the net asset value of the fund. The fund can in principle use the Luxembourg treaty network to partially recover any withholding tax on its income.

Investors who are not subject to (exempt from) Dutch corporate-income tax (e.g. pension funds) are not taxed on the achieved result. Investors who are subject to Dutch corporate-income tax can be taxed for the result achieved on their investment in the fund. Dutch bodies that are subject to corporate-income tax are obligated to declare interest and dividend income, as well as capital gains in their tax return. Investors residing outside the Netherlands are subject to their respective national tax regime applying to foreign investment funds. We advise individual investors to consult their financial or tax adviser about the tax consequences of an investment in this fund in their specific circumstances before deciding to invest in the fund.

The fund incorporates sustainability in the investment process via exclusions, ESG integration, ESG and environmental footprint targets, and voting. The fund does not invest in issuers that are in breach of international norms or where activities have been deemed detrimental to society following Robeco's exclusion policy. Financially material ESG factors are integrated in the bottom-up fundamental investment analysis to assess existing and potential ESG risks and opportunities. In the stock selection the fund limits exposure to elevated sustainability risks. The fund also targets a better ESG score and at least 20% lower carbon, water and waste footprints compared to the reference index. In addition, where a stock issuer is flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to exclusion. Lastly, the fund makes use of shareholder rights and applies proxy voting in accordance with Robeco's proxy voting policy.

This month, First Republic was added to the list of troubled US regional banks, with the bank's seizure by the State of California. As the trio of FDIC, Fed and US Treasury have stepped in to calm markets, credit markets have remained relatively calm. However, with bank deposits moving to higher yielding money market funds, US banks' lending standards are tightening. In absolute terms, US REIT investment grade yields moved down slightly. The yield gap between US investment grade REITs and corporates dropped below 50 again this month. The US earnings season continued, with most of the REITs reporting a 23Q1 earnings beat or matching Street estimates. More importantly, 2023 guidance was raised for over 40% of companies, while 50% maintained guidance. Not surprisingly, sectors with more secular growth trends have reported better numbers than those facing structural and macro headwinds. From a valuation perspective, sector multiples have contracted in 2022 because of the higher (real) interest rate environment. As long-term interest rates are stabilizing and the economy is slowing down, structural growth sectors might start to win again.

Based on transaction prices, the fund's return was 1.63%. From a regional perspective, continental Europe stocks bounced back, outperforming the global real estate universe. The region's highly indebted real estate stocks traded higher as the rally in German Bund yields seem to have paused. Although German residential landlords have underperformed YTD, earnings results and comments gave investors some comfort. Still, leverage ratios of 12x net debt/EBITDA, more than twice the global average, are creating refinancing risks. Japanese real state stocks outperformed as the BoJ's new governor Ueda struck a dovish tone, keeping the yield curve control (YCC) unchanged. In the USA multi-family REITs outperformed, as Q1 earnings numbers and full-year guidance came in better than expected.

Commercial real estate fundamentals are decelerating, but from very healthy levels. Labor markets are tight and employment growth is strong, though decelerating. Historically, employment growth has been a key demand driver of real estate space. The supply of new real estate space is being curtailed, as construction costs increased and financing has dried up. Developed economies are expected to remain in an inflationary environment. In general, it is easier for a landlord to negotiate rent increases when other goods and services are also going up in price. While fundamentals remain supportive for property stocks, financing costs have risen sharply. As the listed real estate sector has repriced trading below NAV, declining property values have already been priced in. Looking at longer-term periods in history, we find that the sector has generated attractive returns versus general equities. Ownership of property assets offers an attractive income stream and the opportunity to benefit from land value appreciation. Its attractive yield is even more valuable due to the sector's inflation-hedging attributes.