SGH LaSalle Concentrated Global Property Fund update – Q1 2025

SGH LaSalle Concentrated Global Property Fund update: Strong relative performance in a volatile start to the year

In this fund update, Portfolio Manager Matt Sgrizzi recaps the March 2025 quarter. He highlights strong relative performance, shifting global positioning, and the continued appeal of global REITs. The SGH LasSalle Concentrated Global Property Fund holds a concentrated portfolio of 10–20 high-quality real estate companies. It focuses on undervalued sectors across the US, Europe, and Japan. These positions offer attractive yields, durable cash flows, and defensive characteristics amid rising macroeconomic uncertainty.

Transcript

Global markets and relative performance

The global capital markets experienced yet another significant reversal to begin the calendar year. Expectations for strong growth in the US gave way to concerns about protectionist trade policies, slowing economic data and scepticism of some highly valued areas of the equity market. REITs performed relatively well due to less demanding valuations and durable cash flows. They were up about 1% in the quarter, while equities fell about 2%.

Our relative performance was strong in the quarter, and we outperformed the REIT market by about 90 basis points. That brings our trailing one-year return to 6.6%. More than 300 basis points better than the index. We began the strategy just over five years ago. Since then, we’ve outperformed the GREIT Index by over 600 basis points annually. That’s an outstanding peer-leading result.

Focusing on valuation: Avoiding overhyped growth and leaning into safety

The portfolio only invests in the best 10 to 20 real estate companies that we can find globally. Lately, we’ve leaned against high-flying, highly valued companies, particularly in the US, and leaned into Europe, Japan, and less cyclical companies in the US.

These sectors offer investors the key benefits of REIT ownership: durable cash flows, high income, and strong operating platforms. They also provide much higher margins of safety in their valuations. For example, REITs in the UK are at multi-decade high discounts compared to the US. In the US, there are REITs that are out of favour, offer lower growth, but have higher yields. Examples include cell towers, triple net leases, and cold storage.

Portfolio overview: High yield, low leverage, strong cash flow growth

The following chart shows that we hold just 18 stocks in the portfolio with an attractive dividend yield of 4.7%. Very strong forecasted cash flow growth of about 3.7% over the next couple of years. Modest leverage of 34% liabilities to assets, a very attractive implied cap rate or implied yield on the company’s real estate assets of 7%. A significant discount to private market values or NAV of 20% and a large discount to our primary valuation metric intrinsic value of 12%.

We underwrite an attractive 15% annualised return for this portfolio over a three-year hold. This reflects the high in-place yields and growth of the companies we hold. Especially noting that our portfolio is far more attractive than the universe of GREITs represented by the FTSE Index on our key valuation metrics like intrinsic value and expected return.

Geographic and sector allocation: The case for Europe, Japan, and undervalued US REITs

Then, on the right, you can see that about 55% of the portfolio is invested in the US. Europe makes up about 30%, and we have very good diversification across unique property types.

Last quarter, I mentioned that the second REIT in our portfolio was taken over by private equity firm Blackstone at a large premium in the calendar year. In this past quarter, Blackstone bought about 20% of the assets of another one of our key holdings in the residential sector. These transactions boldly underline the attractive valuation of the companies in the portfolio.

Strategic adjustments: Industrial REIT rotation and selective data centre re-entry

Otherwise, also changed our preference in the US industrial sector after seeing strong performance in our holding there. We moved to an industrial REIT with higher exposure to the US manufacturing hubs and less exposure to markets where supply is driving down rents.

We also modestly increased our position in data centres after the underperformance of those companies as expectations came back down to earth for that sector around AI. Previously, we had reduced our position in data centres. This shows that our valuation signals work in this dynamic market.

Why now: REITs are undervalued and under-owned

Why should you look at our fund today? Firstly, REITs are under-owned and trade at undemanding valuation levels compared to equities. REITs and real estate have several special attributes – attractive income, durable cash flows, falling supply levels, low leverage, and strong operating platforms. These features have been overlooked for years, but in this economic environment, they could come back into heavy favour.

Outlook: Defensive positioning, solid fundamentals, and market share potential

Secondly, the outlook for real estate fundamentals is solid, underpinned by several dynamic real estate sectors that are enjoying strong pricing power and limited or declining levels of competitive supply. REITs are also in very strong capital positions and are poised to grow their market share compared to private investors.

Third, this fund’s track record has been very strong, as you can see on the following chart. We’ve proven our ability to outperform in up and down markets over a really challenging period of time with an unrelenting focus on only investing in the best opportunities in the global real estate markets.

Final thoughts: Attractive entry point in global real estate markets

We expect to continue to prove that we can help investors navigate these global markets while retaining the many benefits of including liquid real estate in their portfolios. The announcement was worse than feared. I don’t think that the tariff announcements are a positive for almost anything. But I do think that given this tariff and the dynamic that we have to now navigate, REITs overall and our positioning within the REIT market are as good as can be.

We are very well positioned given this market dynamic. First of all, REITs are undemandingly valued compared to the equity market. When you know you have a change in the economic outlook like this, the first thing to worry about the most is the valuation or the price you’re paying for growth – and REITs are undemandingly valued.

And then our positioning within the REIT market favours companies that have really underperformed over the past couple of years, don’t have super high growth expectations, and are a little bit more bond-like in their characteristics. Like cell towers, triple net leases, and some residential formats we have in the portfolio.

We feel really good about those positions. And not to mention positions in Canada and Europe and things that have already taken a pretty big hit from concerns about this trade war. I think that those are good places to hide out, get a lot of income, and not pay a high price for them. And I expect us to do a heck of a lot better than the broader equity market.

*The text has been edited for clarity.

For more information about the fund, click HERE.

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Disclaimer

The document contains general information only. Reference to either individual securities or other investments should not be considered as investment advice. We strongly encourage you to obtain professional advice before making an investment in securities that have been mentioned. Documents you should consider prior to making an investment could include the relevant Product Disclosure Statement and the accompanying Target Market Determination. If you would like further information on financial products that SG Hiscock & Company Ltd (AFSL 240679) is the investment manager for, contact the Client Services team on 1300 133 451, visit the website www.sghiscock.com.au or contact your financial adviser.  Any investment is subject to risk, including possible loss of income or capital invested.