Listed real estate is an attractive investment opportunity offering a differentiating risk/return profile and driven by a combination of growing dividends and value appreciation. We believe that long-term cash flow generation is often underappreciated, creating opportunities for alpha.
A sustainable approach is crucial given that the sector is a major CO2 emitter, and investments are needed to mitigate the risk of taxes and stranded assets. Since not all property companies face the same risks, an active, bottom-up approach is used to select the winners.
Alpha drivers
The investment process for this strategy is organized along two key sources of alpha:
Top-down trend selection
Exploiting trends with long-term economic impact
Bottom-up stock selection
Identifying those companies that can best monetize such trends
Our approach
Real estate is driven by multiple long-term global trends. The portfolio managers focus on such trends and avoid short-term noise. They prefer companies that capture a strong growth trend through better execution and/or active management.
Long-term cash flow generation in the real estate sector is often underappreciated and creates opportunities for alpha. The Real Estate strategy focuses therefore on future free cash flows instead of the static use of net asset value and dividend yield. Furthermore, companies with financially sound balance sheets and business models are preferred, as are ESG-focused companies.
Trends
The strategy will always have a minimum of three trends in the portfolio for diversification purposes. The strategy currently has four trends, which are as follows:
PropTech
An increased demand for high tech and specialized assets. Underlying secular growth and barriers to entry are high.
Prime Offices
Companies tend to move to the central business districts. Tenants want to cluster together.
Prime Retail
Ecommerce is driving the split between prime and non-prime retail. Prime retail has a unique location, high entry barriers and is part of the multichannel strategy.
Lifestyle
There is a housing shortage and an increased demand for rental housing. A social shift to rental lifestyles and tightening lending conditions drive growth.
Team
Our Sustainable Property Equity strategy is managed by two passionate and experienced portfolio managers. With over 40 years’ worth of investment expertise between them, they have built up a highly robust knowledge base and combine fundamental research and portfolio management within one position.
The Property Equities team cooperates closely with other investment professionals covering the property sector both from a regional and ESG angle within Robeco, including proprietary sustainability research, our in-house active ownership team, other fundamental equities teams, and quant equity research.
Folmer Pietersma
Portfolio Manager
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Listed real estate offers a differentiating risk- return profile driven by growing dividends and value appreciation
Sustainability
This strategy promotes, among other characteristics, environmental and/or social characteristics, which can include exclusionary screening, ESG integration, ESG risk monitoring and active ownership. It is classified as Article 8 under the EU Sustainable Finance Disclosure Regulation.
The Sustainable Property Equities team has fully integrated ESG criteria into its investment analysis and decision-making process. They take ESG directly into account the valuation of stocks by making adjustments to the value drivers of a company, if appropriate. The strategy has both a lower ESG risk profile and significantly better environmental footprint than the reference index.
Ingredients
High conviction
Concentrated portfolio to reflect our highest-conviction stocks
Trend exposure
Looking to take advantage of long-term, underestimated socioeconomic changes