Grant Berry, a director and portfolio manager of Australian real estate investment trusts at SG Hiscock, identifies compelling value emerging in the property sector. The Melbourne-based firm oversees $3.3 billion in assets, specialising in Australian real estate investment trusts. Following recent Reserve Bank of Australia rate hikes, Berry acknowledges current restrictive monetary policy. However, he suggests rates are nearing peak levels, with no materially higher rate environment expected, framing property as a long-term asset class less affected by short-term rate movements.
Berry notes that while elevated real yields on inflation-linked 10-Year Australian bonds are limiting further falls in property yields, many A-REITs now trade at significant discounts to both direct property and their historical valuations. SG Hiscock’s fund, despite recent negative net returns, has outperformed the S&P/ASX 300 A-REIT index, maintaining top peer rankings over five years. This success is attributed to a “valuation discipline” and a diversified, value-oriented portfolio with exposure to smaller REITs offering strong balance sheets and mispriced assets. Current market settings, with implied capitalisation rates broadly comparable to 2011, suggest a compelling setup for medium- to long-term returns, as 2011 proved an attractive entry point.
The firm’s disciplined approach is evident in portfolio adjustments, including exiting Aspen Group after a strong run to redeploy capital into Ingenia Communities, now offering attractive value. Berry highlights overlooked opportunities such as the Dexus Convenience REIT, a high-quality service station portfolio trading below asset value with a yield close to 8 per cent and a buyback program. Additionally, Dexus, with its high-quality office portfolio and funds management platform, is viewed as significantly undervalued by the market, prompting a recent buyback program. Berry’s core investment philosophy emphasizes staying disciplined, focusing on tangible assets, resilient cash flows, and pricing relative to history and replacement costs.
