20 May 2021
Andrew Chambers, Portfolio Manager Martin Currie | Daniel Fitzgerald, Portfolio Manager Martin Currie
The continued easing of social restrictions is now a driving force getting life in the Asia Pacific region back to normal, and for income growth across Real Assets.
Throughout 2020, there was no escaping that listed Real Assets such as retail REITs, office REITs, and transport infrastructure, were at the epicentre of social distancing and enforced government lockdowns.
During the depths of the crisis, the total return drawdown of the asset class reflected the sizeable impact on cash flows and the ensuing dividend income hit.
Here, we would like to stress that it was the forced nature of these lockdowns that impacted company revenues and income. We might have seen empty streets and closed shops during lockdowns, but this was not a permanent behavioural change, rather, we were just temporarily prevented from doing what we naturally do, every day.
Humans are instinctively social creatures, and with Real Assets structurally embedded in so much of our everyday lives, it is not surprising to see how quickly Real Asset related activity levels have recovered as curbs on movement and contact have been removed.
We see that the continued easing of restrictions is now acting as a driving force for income growth across certain sectors in the Real Asset space right across the Asia Pacific ex Japan region.
“Our willingness to return to our everyday life augers well for a rebound in cashflows and dividend income from real assets.”
As restrictions have started to ease across the region, what our own experience has shown is the willingness for people to get back to everyday life: to go to that shopping centre, to visit that restaurant or to take that local holiday.
And it is not just our own personal experience of feeling that the shops and roads are busier than ever. Real-time activity indicators like road and public transport movements clearly demonstrate that society is in fact moving quickly back towards pre-crisis levels.
For example, the charts below show mobility data based on driving and public transit route search requests to Apple Maps across most of the key Asia Pacific countries and cities we invest in.
Driving Requests
Transit Requests
The freshness of the daily data is matched only by its clarity of message: even after a series of lockdowns, driving activity has really recovered quickly in most regions, either above or close to pre-COVID-19 levels.
Data for travel by public transport are not available for all countries in the same format, but are also steadily recovering from its lows, albeit a bit more slowly than car travel. We would note that as concerns linger on the transmission of COVID-19, we expect that private transport such as cars and bikes will continue to take share and recover faster than public transport and airline travel.
What is also clear from the data is that further outbreaks can occur and as such the recovery is not always linear. An example is in the Philippines, where we have seen a large pickup in cases since March 2021 and further lockdowns have been announced in the Metro Manila region impacting traffic movement. China's recent case number rise also resulted in some movement restrictions during Chinese New Year, however data suggest a pickup again in traffic in key cities should be expected.
Most Real Assets have generally shown a strong bounce-back in activity once the artificial constructs of lockdown were removed, and this is also evidenced by reported company data.
A key thematic from the recent company results seasons in Asia and the Pacific was the recovering cash flows and dividend profile that accompanied the recovery in people movement.
Some key Real Asset management commentary examples include:
“We’re very encouraged to see the sequential improvement from on-the ground. Shopper traffic has recovered to almost 68%… And tenant sales for fourth quarter we are just above 5.5% below last year.”
Tony Tan, Chief Executive Officer & Managing Director,
CapitaLand Integrated Commercial Trust
21 January 2021
“Total tenant sales recovered to near pre-COVID levels… Shopper traffic stabilised around 60-70% of pre-COVID level.”
Business update,
Frasers Centrepoint Trust
5 Feb 2021
“(While) overall it has stabilised, we still have challenging discussions with some tenants, some trades are still affected obviously. Food & beverage is one sector that further easing of social distancing restrictions will help... the attraction of our properties to our tenants has allowed us to maintain very high occupancy, we have been able to fill voids very quickly.... We have had over 450 new retail shops and restaurants open in last 15 months.”
Mr George Hongchoy, Chief Executive Officer,
Link REIT
13 April 2021
“The arrival of COVID-19 brought widespread uncertainty to New Zealand, however many parts of the retail sector continue to track ahead of predictions. In addition, our office portfolio has remained very resilient to the impact of the pandemic…. (Our) revised guidance reflects stronger than anticipated trading conditions, with Kiwi Property’s retailers performing ahead of expectations, despite COVID-19 related disruptions. ”
Clive Mackenzie, Chief Executive Officer,
Kiwi Property Group
12 March 21 update
“Customers want to come to our (Westfield) centres, because we're in close proximity to people's homes and workplaces. But we want to be that third place, we want to be the place where people decide to come and spend their time with us. And we're seeing that now. When you think about the last quarter, we had some 46 million customer visits per month for the last quarter.”
Peter Allen, Chief Executive Officer,
Scentre Group
27 February 2021
“In markets where restrictions have lifted, for example Brisbane and Sydney, we have seen traffic largely recover to pre-COVID-19 levels, however it will remain sensitive to Government responses and economic conditions.”
Scott Charlton, Chief Executive Officer,
Transurban Group
11 February 2021
Past performance is not a guide to future returns. The information provided should not be considered a recommendation to purchase or sell any particular strategy/ fund/security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
Source: Martin Currie Australia, company report
Of course, during the crisis not all Real Assets were impacted in the same way, with some subsectors continuing to collect their cash flows and rents, even as everyone was ‘sleeping’.
Examples of this included utilities such as electricity grids, water supply utilities and gas pipelines, that deliver essential services to our homes. Other examples include data centres and mobile tower providers, which provide internet and mobile data coverage, REITs specialising in ‘everyday needs’ that anchored suburban malls, or logistics properties that are part of the e-commerce supply-chain. These are examples of Real Assets that were in fact beneficiaries of people spending more time at home.
Despite this robustness in income and earnings stability, we believe many of these assets are still significantly undervalued by the market and being unfairly priced for a permanent reduction in income. An example here would be the retail REITs, where we still see the market discounting many names in the sector despite improving metrics, with foot traffic returning and with it tenant sales.
“The Pandemic has caused adverse impact on the global economy including China. The Group’s businesses, in particular the hotel and department stores operation businesses, were affected to various extents. Nevertheless, the operation of the Group’s core business, water resources business, remains stable.”
2020 Annual Results Announcement,
Guangdong Investment
26 March 2021
“Against a backdrop of what have been challenging market conditions, APA has again delivered another solid financial performance for the half with strong volume growth in some key markets. Our performance for the period demonstrates the underlying strength and resilience of our (gas pipelines) business.”
Rob Wheals, Chief Executive Officer & Managing Director,
APA Group
22 February 2021
“Our centres are trading strongly. Throughout the COVID-19 pandemic, our convenience-based centres have benefited from a shift to shopping locally. Our (supermarket) anchor tenants have experienced strong sales growth and turnover rent has increased. Specialty sales have recovered following the easing of restrictions and we have continued to complete leasing deals.”
Anthony Mellowes, Chief Executive Officer,
Shopping Centres Australasia
8 February 2021
The information provided should not be considered a recommendation to purchase or sell any particular strategy/ fund/security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
Source: Martin Currie Australia, company reports
While nobody can predict the future, the mobility statistics and comments from company management are very encouraging to us. Our willingness to return to our everyday life augers well for a rebound in cash flows and dividend income from Real Assets.
Given their attractive growth and valuation characteristics, in our view, as well as improving sentiment from the re-opening of borders, we believe that Asia Pacific Real Assets are uniquely positioned as an income asset class.
The attractive valuations (in many cases, still well below COVID-19 levels) of both Real Asset sub-sectors impacted by shutdowns and also those that had benefited, offer the potential for not only strong growth in income but also capital in the years ahead as Asia Pacific ex Japan economies re-open.
Therefore, we think now is an exciting time to be investing in listed real estate, utilities and infrastructure names across the Asia Pacific ex Japan region.
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