We believe that the returns of real estate securities are driven by a combination of local real estate fundamentals and capital market conditions.
The efficient allocation of capital requires a very clear understanding of the current and anticipated real estate fundamentals at a local level, and of the macroeconomic conditions that can influence real estate market cycles and expectations.
Our investment process is driven by active stock selection based on stock-specific factors. These factors include the quality of the assets, management expertise, strength of the company's capital structure and access to capital markets.
Led by Stephen Hayes, team members are located across the world's major property markets with offices located in Sydney, Singapore, New York and London. This gives the team a global reach, and on-the-ground local property access. Team members are experienced industry experts, focused solely on investing in publicly-traded property securities.
The team's RI lead is Iddo Snir, Investment Analyst, who has 4 years of industry experience.
We have implemented sustainability considerations into our investment process. We believe the consideration of ESG issues will lead to better risk/return outcomes, which will ultimately improve long-term returns for investors.
Corporate governance is a particular focus, where board independence as well as respect for shareholder rights is of paramount importance. We also consider any specific sustainability initiatives implemented by a company and the environmental impact of existing assets and developments. A company's history as a good corporate citizen is taken into account, as well as evidence of meaningful contributions it might have made to benefit society more broadly.
Assessment and monitoring
We have developed a tailored ESG framework that is part of our stock review process. When an analyst reviews a property company, an ESG review will also be done. While the primary source of ESG information is company dialogue, the team also utilises Sustainalytics and MSCI Governance Ratings to streamline the sourcing of data and information. Despite sourcing third party research, in-house research remains the most important source of reference when integrating ESG considerations into the investment process.
ESG issues are assessed using a two-pronged approach. Firstly, ESG considerations are one of the variables in the initial screen that we use to determine our defined investible universe. A low ESG score (in combination with low scores on other factors) can lead to a stock being excluded from our investment universe.
Secondly, each company in our universe is rated on specific ESG factors. These are used in determining the beta in the capital asset pricing model, which directly impacts our valuation of a stock. The higher the team rates a company's ESG profile, the lower the beta, which leads to a higher target valuation. This outcome would make it more likely that we would invest in the stock.
We are firm believers in investor rights and take a proactive stance on ESG issues, especially with regards to corporate governance. Communication with CEOs and board members is undertaken where it is deemed appropriate in order to try and influence and enforce change.
"Despite sourcing third party research, in-house research remains the most important source of reference when integrating ESG considerations into the investment process."
"We are firm believers in investor rights and take a proactive stance on ESG issues, especially with regards to corporate governance."
|Average turnover across all funds
(Five years annualised)
|Stock name retention over five year period||16%|
Number of holdings
|% of portfolio companies met with||100%|
|Top five holdings
(as at 31/12/2016)
All funds aggregated
National Storage REIT
Vicinity Centres NPV
|Top five active holdings
(as at 31/12/2016)
Wholesale Global Property Securities Fund
Performance and investment characteristics are as at 31/12/2016
Performance is quoted pre-fees and in $A terms.
Source: First State Investments
Please follow this link for information on how our RI and Stewardship Measures are calculated.
|Portfolios outperforming their relevant benchmark over five years
(Weighted by size of fund)
|Weighted average of outperformance
(Five years annualised. Weighted by size of fund)
|Absolute return over five years
Wholesale Global Property Securities Fund
The following tables incorporate third party information to provide additional context. We believe that providing an independent view of some typical ESG issues facing the industries and countries where we invest helps to emphasize the importance of considering ESG factors, as well as the value that this approach can add to investment outcomes. These risks are not company specific, but are relevant to the team's larger industry and country exposures.
This contextual information should be considered alongside the description of the team's approach to integrating and engaging on ESG issues, and the company-specific case studies provided. Taken together a more complete view can be formed on how the team is able to generate value through responsible investment and stewardship.
Typical ESG Risks by Sector
The bar chart below counts the number of times different risks have been flagged by Sustainalytics as being material for the different sectors the team invests in. The line graph does the same, only as a weighted average based on the value of the team's holdings in each sector across all portfolios. These risks are generic for the industry and may be different for individual companies. They also don't reflect how individual companies are managing the risks.
ESG Country Profile
The table below provides ESG information for the top 10 countries invested in. For country profiles, we provide a number of indicators for countries where the companies we invest in are domiciled. Like the industry risks, we include a weighted average based on the team’s exposure and also include a global average.
Sector and country exposure percentages are as at 31/12/2016
Source: Sustainalytics (sector risks), United Nations (HDI and carbon), Transparency International (CPI).
Fossil Fuel and carbon information are as at 31/12/2016
The section below provides additional, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement.
Team Climate Change Statement
Carbon emissions from REITs are generated by the combustion of fossil fuels providing heating, cooling and lighting and powering of appliances and equipment. The effective management of carbon emissions through energy efficiency measures provides real estate companies with the ability to lower their energy costs. It also enables them to reduce their carbon footprints and subsequent contribution to climate change.
Our team has a focus on REITs with clear initiatives in place to reduce their property portfolios' carbon footprints through energy-efficient practices. We also have a focus on REITs that are improving their overall portfolio quality and reducing obsolescence via the development of new properties with sustainable and renewable design features.
REITs with the above characteristics receive a better rating during our ESG assessment of the company, resulting in a positive impact on our valuation assumptions for those stocks. In contrast, those that do not follow the above approach receive a lower ESG rating, resulting in a negative impact on our valuation assumptions.
The table on the right provides an overview of the team's carbon exposure. The first measure provides an equity ownership approach to accounting for the emissions, while the second set of numbers provides a guide of how efficient the average company held is versus other companies in that industry group. The chart below shows the difference between the two.
The carbon emissions, fossil fuel and revenue data have been provided by MSCI. 44% of the carbon emissions data has been estimated due to gaps in company disclosure and 1% were not covered. Companies without carbon or revenue data have been excluded. Please see Explaining Our ESG and Carbon Metrics page for more information on how these and other metrics have been calculated.
|Equity Share Carbon Emissions||Number of Companies Team||Average Team Company Intensity||Number of Companies (GICS) Industry Group (Global)||Average Industry Group Intensity (Global)|
|Software & Services||47.1||1||10.9||135||17.1|
Difference Team Average Intensity vs Industry Average Intensity
Fossil Fuel and carbon information are as at 31/12/2015 (most recently available), holdings information is as at 31/12/2016
The team's live proxy voting record is available here
Proxy voting history by type of resolution
The table below contains the proxy voting history for the team by issue type. The chart provides the same information for 2016.
The chart below shows the number of times the team has voted against management recommendations, proxy advisors' recommendations, or against both. The purpose of this table is to show the independent judgement which is applied by the team when making voting decisions.
Votes by Region
The chart below shows the number of times the team has voted in each region and the percentage of votes against management and our proxy advisors' recommendations, or against both. The purpose of this table is to show the regional difference in voting patterns and governance concerns.