Alaina Anderson: Among my sectors of coverage are global utilities and global real estate. Stocks in these sectors are typically thought to be quiet defensive in nature because the dependable, recurring cash flows they generate makes them somewhat bond-like. While year-to-date through mid-May global utilities have held up their end of the bargain, global real estate stocks have been one of the worst-performing sectors given uncertainty surrounding the dependability of those cash flows as we navigate the COVID-19 pandemic.
You can imagine it’s costly to retrofit real estate assets for the current environment, which likely requires more distance and privacy rather than openness and accessibility.
As crisis forces adaptation, we look for innovation from well-capitalized and thoughtful real estate operators, as well as consolidation across property types. Within retail real estate, in the near term we expect owners of retail real estate to look to preserve cash. In the intermediate term, we would expect them to invest with their tenants to deliver an omnichannel experience for shoppers while continuing to consolidate space.
Logistics real estate has been resilient, and in this time of dislocation has seen increased importance as a key component of the ecommerce supply chain. As we all consume more goods off premise in this time of isolation, logistic operators who own the right locations, have the right tenant base, and have invested in technology will continue to thrive. As we contend with quarantines globally, multi-family property has remained quiet stable. Some operators have had to and will have to manage rent holidays for tenants, as well as new investments related to health and hygiene. But, multi-family, we expect to be stable. Within that, student housing, however, has been hard-hit and the outlook is uncertain given lower expected international student arrivals in the U.S. and in the U.K. and general uncertainty around the delivery of instruction on college campuses. Conversely, the outlook for utilizes seems less uncertain. While utilities navigate lower volumes of electricity delivered to businesses and industrial customers, volumes delivered to homes and residences are stable to growing. Within the renewables complex, which is a growth engine within utilities, there is a chance that we might see increased investment as low oil prices accelerate the energy transition from high CO2-emitting, power-generating types to green energy. Even in sectors that have old-economy business models, we are finding companies that employ models that are less capital intensive, more flexible, and management teams that have the growth mindset needed to adapt through the COVID-19 crisis.