Building wealth with global real estate

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<b>Subtitles are AI Generated</b>

 

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Hello, and welcome to Fidelity Connects, I'm Pamela Ritchie.

 

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Higher bond yields, shifting rate expectations and uncertain economic

 

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backdrop here could continue to shape the global real estate market.

 

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But beneath the headlines, opportunities are emerging for active investors,

 

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particularly in data centres.

 

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So where is our next guest finding value?

 

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Which sectors stand out?

 

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And what are the key drivers for real estate markets going forward?

 

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Joining us here today to highlight the forces driving global real estate

 

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markets. And for a look at how the fund is positioned to navigate the evolving

 

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landscape is Fidelity global real-estate fund portfolio manager,

 

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Steve Buller. And Steve, a warm welcome

 

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to you first of all. We haven't seen you in a while. Great to see you.

 

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Thank you for joining us from Boston. How are you?

 

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I'm very good. Thank you. Good morning to you.

 

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Delighted to have you with us here today.

 

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Let's begin our conversation.

 

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We'll invite everyone to send questions in for Steve over the next half hour or

 

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so.

 

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Let's, if you don't mind, just address kind of the interest rate story that's

 

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floating around markets and leading some to wonder about all

 

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kinds of different things. Broadly speaking, uncertainty about interest

 

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rates is sort of what we're sitting with at this moment.

 

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What does that do one way or the other to real estate broadly?

 

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And then we'll take it down to what you do specifically.

 

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What would you say to that?

 

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Yeah, real estate is a capital intensive industry

 

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so obviously the cost of capital is impacted by interest

 

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rates first and foremost throughout the world.

 

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So we have lived in a rising long-term interest rate environment

 

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which has impacted a little bit the performance of global

 

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REITs over the last couple of years, but I need to remind people

 

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over long periods of time we've actually seen very little

 

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correlation of the performance of global REITS in

 

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interest rates. That's not to say a day, a week, a month or sometimes

 

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even longer will see that impact.

 

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Actually, the statistics don't clear that out.

 

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One of the reasons for that is this ...

 

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I like to call this tug of war that goes on between interest rates, cost

 

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of capital and the fundamental side of the business.

 

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When fundamentals are good that can offset oftentimes the

 

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interest rate [audio cuts out].

 

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So let's go through a little bit about how the fund invests.

 

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Fundamentals are obviously an enormous part of that, ultimately.

 

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Give us a little bit of a reminder of how the fund invest mostly in REITs,

 

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mostly in the public markets, ultimately.

 

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Just take us down that road a bit.

 

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Yeah, it only invests in listed public real estate securities,

 

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of which some of them are in a REIT structure.

 

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There's nothing magical about a REIT structure, all it is is an advantageous

 

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tax structure that you have to then follow certain rules in certain

 

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environments. One of the big rules is that you have to distribute the majority

 

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of your net income which equates sometimes a little bit to cash flow out

 

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in the form of dividends. So, hence you usually have higher dividend yielding

 

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securities in REIT structures.

 

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The other ones are just called developers or something like that.

 

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They're like any other company listed on a stock exchange that their activities

 

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happen to be just involved in real estate.

 

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So I'm going to ask you a little bit how within the fund you are

 

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weighted, overweighted, underweighted, we'll get a sense of the positioning

 

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ultimately. There's absolutely no way to avoid a very large piece of this

 

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discussion is going to be about data centres.

 

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That is what a lot of people are talking about and it is certainly

 

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partly what you're invested in.

 

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The landscape for data centres that we hear about an awful lot

 

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is basically the Mag-7, plus some others, that are

 

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plowing what used to be tons of free cash flow, still tons, but

 

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really into data centres to build them fast.

 

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Tell us if that's what you're invested in.

 

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Not really. Now, data centres can mean a lot of different things when you look

 

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underneath the rock. It can mean the AI hyperscale, which the

 

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majority of their capital and activities is going in now, but

 

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people have to remember there's also Cloud and Colocation which

 

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had been growing nicely till this thing called AI kind of showed up

 

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18, 24 months ago.

 

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And then there's what I like to invest in as much as possible, is

 

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interconnection. People don't realize that you need to

 

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connect somewhere and it's usually in a carrier-neutral site where,

 

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for example, Amazon's AWS and Microsoft's Azure, where

 

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they actually meet. That can be very profitable.

 

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So actually, the listed world has very little exposure to that hyperscale

 

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AI build that you're seeing a lot of publicity about going on.

 

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It's more with the bread and butter, which is growing nicely.

 

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Don't get me wrong, they see a positive impact from all this AI activity,

 

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but in a very different way than just building a gigawatt data centre in

 

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the middle of nowhere.

 

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It's really interesting. So the Colocation is where everyone can

 

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connect, and that happens, but as you said, the interconnectivity

 

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is really a neutral ... it's a little bit, I mean, if you were thinking about

 

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it and sort of playing a game of risk or something, it's sort of neutral

 

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territory. It's a bit of Switzerland, isn't it?

 

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It is a bit of a Switzerland. That's the interconnection where they meet,

 

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exactly.

 

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That's where they meet.

 

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You can see if you took the Switzerland analogy further why it's interesting to

 

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invest there but just sort of take that further for us.

 

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What is there that isn't elsewhere?

 

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Well, it's very hard to get that position, i.e.

 

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you're in many different cities or locations which over time have

 

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become the interconnection point.

 

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So even though you may want to tomorrow, hey, I want to get involved in

 

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interconnection, it's not that easy.

 

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This has evolved over time.

 

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Where these relationships, where this trust, where these locations

 

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are, where latency does matter, that's a huge competitive

 

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advantage. We see that to some extent in the publicly listed, quote

 

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unquote, data centre space.

 

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Don't get me wrong, they are a little bit at the margin building some of the

 

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larger AI ones but that's not the bread and butter business.

 

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And because they've been building, and there's also relationships and there's

 

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sort of, probably web is the wrong word for it, but that strikes

 

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me that they would be more stable should you want to be in a situation to

 

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hedge against market movements that can swing very quickly.

 

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There's a lot of discussion whether there's overbuilding or underbuilding.

 

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We don't really know where that's going yet.

 

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How might such a REIT work in such

 

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a moment? It should be somewhat protected?

 

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It should be somewhat protected. Interconnection, it's very less capital

 

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intensive. All these megawatts and gigawatts that you're hearing

 

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now being built it takes real ...

 

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I actually say it's where the chips meet the real world where

 

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you actually have to use bulldozers and dig something, you have to build

 

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something, you have hook up to substations and the electrical

 

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grid. That's very difficult, very time consuming and

 

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what we're finding increasingly costly.

 

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The interconnect is not as capital intensive because in some ...

 

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I'm simplifying it, you're usually taking a one metre cord connected

 

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in this box to this box and then you're charging both of them quite a bit of

 

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money. So I like that business better than just dumping money in

 

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where these Nvidia chips are all gonna be running and cool.

 

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The data centre in and of itself is just a large refrigerator.

 

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It's just cooling all the heat that's being generated by these chips.

 

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So from that are there offshoots, opportunities to invest in large plants

 

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that are sort of the cooling places and all those pieces that go together?

 

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Are those also, from your perspective, real estate investments?

 

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Yeah, I mean, not only the list of data centres, I

 

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do have exposure to some extent on the development side.

 

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Many of the large logistics players around the world have

 

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become quasi data centre plays because many of their

 

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development pipeline, their locations already have access to power.

 

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Right now you can, you know, it's much more profitable to

 

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build a data centre than it is a logistics facility.

 

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So you're often seeing these kind of morph into, you know what, I'll build this

 

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data centre here, lease it out, I can make two or three times more money than a

 

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logistics facility. So there are some actually, I'll call latent data centre

 

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plays that the fund does invest in.

 

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That's really interesting. So are we seeing sort of takeovers in those

 

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particular? Or actually, are the companies transforming themselves?

 

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They're transforming themselves. We have seen a merger more recently that has

 

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been publicly announced where Prologis is buying SEGRO in the UK,

 

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and SEGRO has a large exposure to data centres in the UK

 

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and continental European countries.

 

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I would say that as difficult as it's becoming to build a North America

 

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data centre it's already been very difficult in Europe and

 

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only going to get so. So one could argue in Europe overall is,

 

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I would guess, maybe two to four years behind the whole data centre cycle.

 

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But I would argue that a site that has power today in Europe

 

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is almost worth more than North America because of those prohibitions and

 

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difficulties.

 

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That's fascinating. There's probably more to that and more of them around

 

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the European zone and other areas.

 

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If you contrast that to Canada, or just a

 

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place where there's an awful lot of space and actually, an awful a lot of

 

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power, I was wondering to what extent do you make sure,

 

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you've mentioned it a couple of times, that you're investing in places that can

 

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build and have access to power.

 

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Sometimes that's in the middle of nowhere.

 

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I wonder if you can just take us into that part of it.

 

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You've got to have power but maybe not at any geographical cost.

 

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Yeah, you have to ... and remember a lot of these ...

 

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I'm simplifying it, I'm not trying to insult, middle of nowhere, but

 

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it is that access to power.

 

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But right now that's being driven primarily by the AI, the

 

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training models, where latency, and latency is closeness,

 

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you know, simply defined, doesn't matter as much.

 

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But we've all lived in a world where it's our computer or our phone where you

 

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see the spinning thing on, that's latency, if you will, so it's making the

 

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time it takes when you put in Chat GPT a question for it to answer.

 

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Increasingly, people will care about latency so you want to be

 

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closer. One of the old adages of real estate is location matters and

 

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I think you're going to see that increasingly in data centres, want to be close

 

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to where people, businesses, et cetera, are doing that latency matters.

 

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It doesn't matter when you're just running some AI training model trying to

 

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figure out the outcome but to employ that AI model

 

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you want to be close.

 

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Okay, that's really interesting. They are two separate areas.

 

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Take us a little bit into some of the other areas where you have

 

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leaned in recently. I mean, there's lots we've discussed over the years that

 

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have to do with office and geographically where that's been more

 

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useful to invest in and less and the work from home discussion as well

 

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as all aspects of sort of condo markets all over the place.

 

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But it's actually retail that I found quite interesting.

 

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You said the other day when we spoke prior to this that it's having a

 

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little bit of a renaissance and it's kind of because we haven't built a lot of

 

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malls lately. Is that partly where that goes?

 

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Yeah, a global phenomenon in the developed world over

 

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the last 10 to 15 years has been a lack of new retail

 

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real estate.

 

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Ao supply has been very close to zero, and in some cases it's actually

 

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been negative. For example, here in the United States we had approximately

 

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1,200 malls. The mall typically is characterized by

 

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something that's 800 square feet or 1,000 square feet or above.

 

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Today that number is a little over 800 because those malls

 

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have died and they become actually, their land was worth more

 

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as something else, or HBU is the phrase that's often used in real estate,

 

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higher and better use than as a mall.

 

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Maybe a data centre.

 

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Maybe some of them have turned into a data centre so you've actually shrunk the

 

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amount of retail space. I am overweight all forms

 

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of retail real estate, whether it's malls, whether it's convenience, strip

 

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centres, or power centres, or grocery anchor type stuff.

 

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Because of that lack of supply we have rising rental

 

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rates, we have tenants, and yes,

 

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the global economic environment now for retail sales, I would characterize as

 

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okay. But then at the same time, if they're only getting okay

 

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same-store sales growth they need unit growth.

 

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That unit growth is driving their demand for new spaces.

 

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One final thing I'd like to emphasize is many bricks

 

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and mortar retailers, they haven't made money online.

 

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If you're just shipping something online to somebody it's not very profitable.

 

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They make most of their money in their stores.

 

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The Omni retail channel and their technology has finally become

 

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so sophisticated, especially in this post-COVID world,

 

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whereby it's a seamless thing where you can go into the store but get it

 

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delivered online. You can go online to investigate but buy

 

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it in the store. One of the big things is when you return an item.

 

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That is huge because when you return an item, statistically

 

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here's a likelihood you're going to spend much more in that store than

 

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you actually did on that item you returned.

 

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Very possible [audio cuts out].

 

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And you come in slightly annoyed because you have to make the return in the

 

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first place and then you leave with that, yeah, sort of high because you've got

 

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something new.

 

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It's an overall return business model, isn't it?

 

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That's really, really interesting how that works.

 

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I'm surprised ... I know there's always the final mile, and you can talk a lot

 

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about online commerce and how that's evolved, and it's obviously evolved

 

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incredibly well, but it's interesting that the margins story

 

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really is in the in-person experience.

 

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That has always

 

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been the case. How does that kind of

 

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... they smaller places where people come into, smaller actual stores

 

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but at least they get you in the door.

 

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Is that sort of the model there or are they building quite large stores?

 

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A little bit. It really depends on what you're trying to sell

 

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often times and what the store size is.

 

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The retailers in and of themselves have always made

 

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money, as long as they've had enough traffic in inventory, versus the shipping.

 

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The shipping is such an expense for the online retailer,

 

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especially when you add and in on the return side of things,

 

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that whereby they've always made their money in the store or

 

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then online. You can see public disclosures

 

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of more pure online retailers how little they actually make in their

 

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retail online business.

 

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That's fascinating.

 

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And another area that we've spoken to you over, and also has a little bit of a

 

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connection to the COVID story, is broadly healthcare but I think

 

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specifically the area of assisted living, which can be retirement homes.

 

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For some time people were shying away from them because it was

 

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a place where their relatives got sick in a lot of cases.

 

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Take us through the progression of where we are now.

 

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This is more of a North American, both in Canada and US, story whereby it's

 

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private pay, which is very important here, not government pay.

 

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With private pay, and you have, obviously, a very ageing demographic,

 

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there's more people in both our countries, the US and Canada, turn 85 more than

 

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any other time. That's, on average, an age that you may enter

 

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into an assisted living facility.

 

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Then we had with COVID a stop of supply, new supply

 

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given you had the health-related worries,

 

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the accelerated deaths, unfortunately, during that period.

 

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Now you have demand going up, you have a limited amount of new supply,

 

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whereby you're seeing occupancies continue to tick up and the ability

 

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to push rental rates higher way above inflation exist.

 

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Now, that's a very good thing.

 

16:32.324 --> 16:35.527

I must tell you, though, that this story is not new.

 

16:35.527 --> 16:39.098

We are arguably in the second, third year of the story.

 

16:39.098 --> 16:43.369

Most of the assisted living REITs or healthcare REITS really

 

16:43.369 --> 16:47.673

reflect this. I do own them but I'm very leery about the valuation

 

16:47.673 --> 16:50.242

in some of them. We've also seen

 

16:52.277 --> 16:56.048

[audio cuts out] bordering on a very feeding frenzy in terms of external

 

16:56.048 --> 16:58.784

growth, that is what they're out there buying.

 

16:58.784 --> 17:03.789

There's a lot of competition, or increasing competition, by new facilities.

 

17:03.789 --> 17:08.093

we're talking about it now, it's probably in the middle

 

17:08.093 --> 17:11.663

innings of this story that has gone on for a couple of years.

 

17:11.663 --> 17:15.067

Okay, that's fascinating. I do see a lot of them, just sort of my own

 

17:15.067 --> 17:19.138

experience, being built, retirement homes that are pay for

 

17:19.138 --> 17:23.575

retirement homes just speaking to the overall demand there.

 

17:23.575 --> 17:27.679

When we come back to the data centre conversation, just for a second, give us a

 

17:27.679 --> 17:31.383

sense of the positioning that you have, ultimately.

 

17:31.383 --> 17:35.421

You are overweight but take us through the underweights and overweights

 

17:35.421 --> 17:36.922

and perhaps some nuance in between there.

 

17:38.390 --> 17:43.295

In terms of the data centres, yeah, the fund is overweight data centres.

 

17:43.295 --> 17:46.765

And if you look through bases like I talked about earlier, not just the pure

 

17:46.765 --> 17:50.769

data centres but we own, you know, logistics companies in

 

17:50.769 --> 17:55.007

both Europe and the US that have the

 

17:55.007 --> 17:58.944

underlying data centre story in terms of development, including Australia

 

17:58.944 --> 18:01.313

and also in Spain.

 

18:01.313 --> 18:05.250

There's a diversified REIT that over time was one of

 

18:05.250 --> 18:09.354

the first movers within the Spanish data centre market and it's

 

18:09.354 --> 18:13.692

in the process of being that's the primary thesis of their investment

 

18:13.692 --> 18:17.429

story [audio cuts out] data centres, not their office, retail [audio cuts out].

 

18:21.433 --> 18:25.437

When you take a look at real estate, the US, particularly

 

18:25.437 --> 18:29.475

sort of US REITs, there is a

 

18:29.475 --> 18:33.579

discussion about being slightly concerned about where AI

 

18:33.579 --> 18:36.248

spending is going. I mean, if you look at the fundamentals earnings stories

 

18:36.248 --> 18:40.986

look pretty fabulous. There's a lot of things to argue in favour of

 

18:40.986 --> 18:42.921

nothing really going that wrong.

 

18:42.921 --> 18:46.024

We've got fundamentals such as the ones that are here right now.

 

18:46.024 --> 18:47.025

But that said,

 

18:50.028 --> 18:53.966

there's lack of correlation really between, I think it's the NASDAQ, this is US

 

18:53.966 --> 18:57.336

REITs particularly. Take us through that because it's sort of this ballast

 

18:57.336 --> 18:58.337

within a portfolio.

 

18:59.671 --> 19:03.509

Yeah, and we talked about interest rates at the beginning of our discussion,

 

19:03.509 --> 19:07.546

lots of people want to focus on interest rates and the performance of global

 

19:07.546 --> 19:10.649

REITs. I like to change it a little bit.

 

19:10.649 --> 19:14.987

I actually, and people are very surprised by this statement, care more about

 

19:14.987 --> 19:19.024

how the growthier part of the equity markets are performing

 

19:19.024 --> 19:23.228

and that you see the most, the NASDAQ here in the United States and

 

19:23.228 --> 19:26.798

many other markets outside the United States, there's not as much growth or

 

19:26.798 --> 19:31.003

equity stocks to begin with, or pure AI stocks.

 

19:31.003 --> 19:35.107

We have seen over the last couple of years as the growthier

 

19:35.107 --> 19:39.144

part of the equity market has performed well, for example,

 

19:39.144 --> 19:42.948

global REITs have not performed as well up until recently.

 

19:42.948 --> 19:46.985

And we do see then ... if I had a chart and would flip it up here you'd

 

19:46.985 --> 19:51.056

see an increasingly like almost negative correlation

 

19:51.089 --> 19:54.960

on a day, a month or even longer type basis.

 

19:54.960 --> 19:59.765

This then leads to the punchline which is diversification

 

19:59.765 --> 20:03.835

benefits. In your portfolio we all would rather talk about those

 

20:03.835 --> 20:07.839

growth stocks that have kept going up but we've seen periods of times

 

20:07.839 --> 20:10.642

when they don't go up, they actually go down.

 

20:10.642 --> 20:14.580

This does add the other side, as you alluded to,

 

20:14.580 --> 20:16.281

kind of a balancing act.

 

20:16.281 --> 20:20.152

It does what it's supposed to do, it provides the diversification benefits to

 

20:20.152 --> 20:24.756

that growthier you're part of the market. It's a real asset

 

20:24.790 --> 20:28.427

[audio cuts out] income oriented. They don't have as much growth but they have,

 

20:28.427 --> 20:32.231

they have actually pretty good growth right now for what they are, just they

 

20:32.231 --> 20:35.934

can't keep up with the exponential growth that we have seen with AI

 

20:38.704 --> 20:39.705

or [audio cuts out] stock related.

 

20:40.572 --> 20:43.909

So you mentioned a chart. I mean, literally through the month of July, for

 

20:43.909 --> 20:47.813

instance, you could see, you would be able to see that play itself out.

 

20:49.114 --> 20:51.149

You would be able to see that play itself out.

 

20:51.149 --> 20:55.320

So in other parts of the world, just to get sort of the global footprint that

 

20:55.320 --> 20:58.390

you're discussing, you mentioned Spain, this is particularly in the healthcare

 

20:58.390 --> 21:00.692

side of things — or, sorry, was that data centres?

 

21:00.692 --> 21:01.393

That was data centres.

 

21:01.393 --> 21:02.394

That was data centres.

 

21:03.295 --> 21:07.432

Where else geographically? Just take us through how the portfolio leans and

 

21:07.432 --> 21:09.534

is diversified geographically.

 

21:10.736 --> 21:14.706

Yeah, it doesn't have actually huge geographical or country bets

 

21:14.740 --> 21:16.475

versus the benchmark.

 

21:16.475 --> 21:19.411

But there is ... let me answer this question one way.

 

21:19.411 --> 21:23.515

The fundamentals around the world are pretty similar in the

 

21:23.515 --> 21:27.352

developed work for real estate. We have this lack of supply, except in data

 

21:27.352 --> 21:31.957

centres, whether it's retail, whether it is logistics facilities,

 

21:31.957 --> 21:35.527

whether it's apartments for rent type ones.

 

21:35.527 --> 21:39.698

That's leading into very good fundamental, even with just this stable demand

 

21:39.698 --> 21:43.735

picture. Next, you get this capital side of

 

21:43.735 --> 21:47.072

the business. We talked about that. Unfortunately, cost of capital around the

 

21:47.072 --> 21:50.942

world, because long-term interest rates have gone up, so their cost of capital

 

21:50.942 --> 21:54.813

is a little higher, offset by those good fundamentals.

 

21:54.813 --> 21:56.782

And then you have valuation.

 

21:56.782 --> 22:01.453

On average today global REITs trade at a 10 to 20%

 

22:01.453 --> 22:05.457

discount to their net asset value, to their real estate value.

 

22:05.457 --> 22:08.126

You go, huh, that's pretty good.

 

22:08.126 --> 22:12.331

Where there is geographical disparity, though, there's a huge geographical

 

22:12.331 --> 22:15.167

disparity around that valuation.

 

22:15.167 --> 22:19.204

For example, here in the US we actually trade closer or

 

22:19.204 --> 22:21.673

slightly above that asset value.

 

22:21.673 --> 22:26.078

That's because we have more data centres and more assisted living exposure.

 

22:26.078 --> 22:30.082

Other place, for example, Europe, they trade arguably at a 20

 

22:30.082 --> 22:32.484

to 50% discount to their net asset value.

 

22:32.484 --> 22:36.555

We are seeing some opportunities based more

 

22:36.555 --> 22:40.125

on the valuation in those markets.

 

22:40.125 --> 22:44.129

One thing that I do have a small little thematic going on in

 

22:44.129 --> 22:48.066

my portfolio, which is owning some of those companies that trade

 

22:48.066 --> 22:52.704

at large discounts that I think could be privatized or go away.

 

22:52.704 --> 22:55.807

We have seen this privatization wave.

 

22:55.807 --> 22:59.578

There is a lot of money in the private real estate world.

 

22:59.578 --> 23:03.548

Remember, the private real estate world today is arguably

 

23:03.548 --> 23:07.652

80 to 90% of all the institutional quality

 

23:07.652 --> 23:11.256

commercial real estate in the world, the listed part is plus or minus 15%.

 

23:11.256 --> 23:15.827

So when you do trade at this discount

 

23:15.827 --> 23:20.165

I always believe it's incumbent upon the board, the management

 

23:20.165 --> 23:24.069

to, quote unquote, do the right things. Perhaps sell yourself for cash.

 

23:24.069 --> 23:28.473

We've seen that in the Canadian REIT market recently with

 

23:28.473 --> 23:31.176

Mint, apartment [audio cuts out].

 

23:31.176 --> 23:35.814

We've seen that HR  last week, sell and slightly merge into another

 

23:35.814 --> 23:40.118

apartment REIT. And then we've seen that outside of

 

23:40.118 --> 23:44.656

Canada, we've seen that in Europe more recently in a couple transactions.

 

23:44.656 --> 23:48.727

Those are those, you can get a nice one-day pop where

 

23:48.727 --> 23:52.697

it can be realized there, which you won't see as much, in

 

23:52.697 --> 23:55.133

my opinion, in the US [audio cuts out].

 

23:56.535 --> 24:00.539

When you're looking at some of those steep discounts that you mentioned in the

 

24:00.539 --> 24:04.509

UK, for instance, is there a way to connect

 

24:04.509 --> 24:08.780

the idea that data centre buildout and land for

 

24:08.780 --> 24:12.951

it is available to those that can power it?

 

24:12.951 --> 24:16.421

I mean, you mentioned that earlier and what sort of premium in a way in the UK

 

24:16.421 --> 24:20.592

if you've got a site, be it a logistics site or whatever it is,

 

24:20.592 --> 24:22.494

with power is unique.

 

24:23.762 --> 24:27.766

Can you sort of follow that trend around the world, those areas that have power

 

24:27.766 --> 24:31.837

to connect ultimately are gonna be very interesting investments for you,

 

24:31.837 --> 24:35.941

and maybe change that discount piece of the story?

 

24:35.941 --> 24:40.045

In some instances, it more is found

 

24:40.045 --> 24:44.282

in the logistics space more than any other one right now, rather than

 

24:44.282 --> 24:47.285

other types of property types.

 

24:47.285 --> 24:51.323

So yes, there is partially what you just said but I would slightly

 

24:51.323 --> 24:53.158

disagree that it's not the full story.

 

24:53.158 --> 24:57.429

Okay, and therefore is there any connection as we watch the

 

24:57.429 --> 25:01.366

oil price and the geopolitical story go up and then come back down

 

25:01.366 --> 25:05.470

again, that is obviously a crude oil story but it's

 

25:05.470 --> 25:09.641

certainly related to the various other areas of energy

 

25:09.641 --> 25:10.642

products.

 

25:11.376 --> 25:15.347

Yeah, I mean, where that flows into is obviously

 

25:15.347 --> 25:19.584

we've seen with energy prices elevated what does that mean for inflation

 

25:19.584 --> 25:21.887

and then ultimately what does that mean for interest rates.

 

25:23.388 --> 25:27.492

We've talked about that where would it hypothetically lead

 

25:27.492 --> 25:32.097

to even higher long term interest rates which could have, unfortunately,

 

25:32.097 --> 25:35.433

a negative impact on that cost of capital.

 

25:35.433 --> 25:39.671

As long as the fundamentals keep up ,or they trade at a discount, that

 

25:39.671 --> 25:42.407

can offset some of that cost of capital [audio cuts out].

 

25:43.909 --> 25:47.379

So as a bit of a final tie-up to some of the areas that you mentioned, we

 

25:47.379 --> 25:51.483

talked through real estate, which is of interest, the data centre story kind

 

25:51.483 --> 25:55.487

of around the world and particularly what type of data centre, as

 

25:55.487 --> 25:59.457

well as related to the healthcare industry, how would you

 

25:59.457 --> 26:03.929

like to discuss or sort of leave a message with investors about what

 

26:03.929 --> 26:06.665

this fund provides kind of at this moment for everyone.

 

26:08.300 --> 26:12.604

I alluded to a little bit but just to reinforce, we have very good

 

26:12.604 --> 26:16.675

fundamentals within almost all sectors of

 

26:16.675 --> 26:20.912

real estate. Second, yes, we've had a slightly higher

 

26:20.912 --> 26:24.683

cost of capital but the good fundamentals are offsetting a lot of that.

 

26:24.683 --> 26:28.920

One thing I failed to mention is credit spreads are pretty tight

 

26:28.920 --> 26:33.458

for any forms of real estate so you're seeing some benefit from that.

 

26:33.458 --> 26:36.828

Thirdly, we have this overall valuation discount

 

26:37.929 --> 26:40.498

on a global type basis.

 

26:40.498 --> 26:44.336

So that's the three legs of the stool I always like to talk about, strong

 

26:44.336 --> 26:48.807

fundamentals, slightly less cost of capital, that leg, and

 

26:48.807 --> 26:51.743

then the third leg, valuation, pretty good.

 

26:53.812 --> 26:57.816

To reinforce once again, in a diversified portfolio this

 

26:57.816 --> 27:00.885

helps offset what you could experience

 

27:02.020 --> 27:06.358

or ... in terms of other parts of the market going down this historically

 

27:06.358 --> 27:10.495

has been an offset [audio cuts out] that negative correlation.

 

27:10.495 --> 27:14.265

It's a fascinating moment to hear you discuss data centres from this

 

27:14.299 --> 27:17.569

perspective. We're hearing it from a lot of other perspectives.

 

27:17.569 --> 27:20.271

Steve Buller, thank you very much for joining us and filling us in on how

 

27:20.271 --> 27:22.007

you're positioned at this moment through the markets.

 

27:22.707 --> 27:24.776

Thanks for watching or listening to

 

27:24.809 --> 27:27.012

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27:27.012 --> 27:28.880

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