BofA update shows where active managers are putting money
UBS issued a report on the real estate sector, highlighting the potential for stocks that pursue growth through acquisitions, exhibit strong pricing power, and maintain robust cash flows.
The firm is positive on companies with profitable pipelines and attractive yield gaps, particularly those trading at discounts with opportunities to strengthen their balance sheets. Despite a slight increase in average capital costs, UBS believes selectivity is crucial for investors in this environment.
The report suggests real estate values may benefit from a combination of further rental growth and interest rate cuts over the medium term, with increasing transaction volumes also playing a supportive role.
Japanese developers have seen strong recent performance, prompting UBS to adopt a neutral stance towards them. In contrast, Real Estate Investment Trusts (REITs) in Japan are facing challenges due to gradually rising interest costs.
In Europe, the real estate market has been impacted by short-term uncertainties, but UBS anticipates gradual improvements. The UK real estate market, while relatively inexpensive, lacks immediate catalysts to drive growth. UBS expressed a favorable view of US REITs, which have slightly underperformed due to recession concerns.
Looking at the broader international landscape, UBS sees potential in Australian real estate, which could benefit from gradually decreasing financing costs.
However, the firm is awaiting more substantial fundamental improvements in Singapore and Hong Kong REITs before adopting a more bullish stance. Meanwhile, Hong Kong developers might experience gains due to stabilizing fundamentals in mainland China.
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