2024 Opportunities in Real Assets

On December 12, 2023, CenterSquare Investment Management’s Eric Rothman and London-based Foresight Group’s Eric Bright discussed the rare investment opportunity in high-quality REIT securities and companies that own and operate sustainable infrastructure assets. The following are highlights.

Eric Rothman
Cromwell CenterSquare Real Estate Fund

  • The Federal Reserve’s rate actions for the past 2 years have negatively impacted real estate investment trust (REIT) valuations despite the durability of their cash flows.
  • As of 9/30/23, REITs traded at a 20% discount to forward net asset value. A 15% discount level has only been breached 9 times over the past 25 years and tends to be an important signal that REITs are oversold.
  • REITs are more than just retail, industrials, office and apartments. The new economy sectors—data centers, cell phone towers, cold storage, life science, biotechnology, self-storage and single family rentals—now represent a majority of the overall REIT market.
  • The combined weight of traditional office, regional malls and hotels in the FTSE Nareit All Equity REITs Index is only approximately 10.5%. In fact, data centers make up more of the Index than those three subsectors combined.
  • 2024 Opportunity: REITs are currently trading at a mid-teen forward earnings multiple compared to its mid-20s historical range. Also, REIT dividend increases have averaged 9% with almost 90 dividend increase announcements in 2023 as of mid-December.

Eric Bright
Cromwell Foresight Global Sustainable Infrastructure Fund

  • The Fund invests in companies that own and operate infrastructure assets across three broad areas: renewable energy, core and social infrastructure and digital infrastructure.
  • We believe the infrastructure sector is attractively valued, especially renewable energy and digital infrastructure given the forecasted decade-long tailwinds behind those businesses.
  • Many infrastructure companies have suffered from negative sentiment driven by concern around higher interest rates, but the reaction is overdone in our opinion.
  • The Fund offers diversification compared to the broader equity market as infrastructure companies have different return drivers and generally less correlation.
  • 2024 Opportunity: A stable rate environment should improve sentiment. Importantly, many companies do not need ultra-low rates to operate profitably. We believe many companies offer defensive earnings growth due to their long-term contracted revenue streams.