In a devastated sector, listed real estate investment companies – or listed real estate companies – seem to have a head start on the physical property market. These companies aim to manage a real estate portfolio: offices, businesses, residential, etc. The objective: to collect rents and return the majority of it to their shareholders in the form of dividends. The solution has advantages since it offers the liquidity inherent to the stock market: it is possible to buy and sell securities as quickly as possible. In addition, diversified funds or ETFs (exchange-traded funds or index funds) allow exposure to this sector. Finally, earnings are taxed at the flat tax of 30%, unlike property income which is subject to the income tax scale.
Alas, the performances are not there: over five years, the category of European equity funds in the real estate sector shows a loss of 5% according to Quantalys. The closure of businesses during the pandemic and then the rise in interest rates penalized these traditionally highly indebted players. Has the market bottom been – finally – reached?
One thing is certain, current stock prices reveal a record gap between the valuation of companies and that of their real estate assets. It is on average 35% in the euro zone, indicates Nicolas Lasry, manager of the MAM Global Property fund at Meeschaert Asset Management. Among certain players, such as Unibail-Rodamco-Westfield (URW), this discount even reaches 60%, according to the Mazars firm. “There is an asymmetry between the probabilities of a rebound and the downside risks which seem limited to us, given the current low valuation levels of the listed real estate sector in the euro zone,” underlines Laurent Gauville, manager of the Immobilier 21 fund, at Management 21. Another reassuring factor: the debt accumulated by listed real estate companies has been reduced by 30% since January 1 in the euro zone, according to a study by Kepler Cheuvreux.
But to get out of the rut, listed real estate companies will need a trigger. “We need to regain visibility on the level of interest rates,” believes Laurent Gauville. Who wants to be optimistic: “We are no longer very far from a normalization of the monetary policy of the Central Banks”. In the meantime, it is better to be patient because, even if they are betting on real estate, these funds can withstand high volatility.