The New Winners in Global Listed Real Estate Markets

Hello and welcome to the Investment Markets podcast, where we aim to discuss investment matters that impact self-directed investors. I'm your host Darren Connolly, CEO at Investment Markets, and with me today is David Cruth, Global Portfolio Manager for the DEXIS Global REIT Fund. David has more than 30 years experience in global real estate markets. He is an adjunct assistant professor at the Columbia University Master's Program in Real Estate Development and Investment. and a member of the Investment Advisory Council at the Ithaca College School of Business. Today we're going to dive into global real estate and REIT funds or GREITs. However, before we get into it I need to remind you that this is general advice and general information only and nothing in this podcast should be construed as an investment recommendation. You will need to decide what is right for you. Welcome to the investment matters podcast david. thank you very much darren pleasure to be here now david let's start with the big picture rightly or wrongly a lot of australian investors associate REITs with office property but that's no longer the case can you Thank you very much Darren pleasure to be here. Now David let's start with the big picture, rightly or wrongly a lot of Australian investors associate REITs with office property but that's no longer the case can you maybe give us an overview of all of the different sectors that comprise global REITs and what you look at when you consider each of those sectors.

That's a very good starting point. When you go back 30 years ago to the beginning of the global REIT market, US, Canada, Australia, etc., office and malls were the two largest sectors by far. I think they were dominant say 50-60% of the assets that would be in the index. You fast forward 30 odd years with the changes in the way the capitalization is, the companies coming public, the sectors that are emerging over the years. And now, for example, office is roughly about 4%. 4% of the global index. The largest would be industrial and self-storage and now healthcare assisted living, which is an area that we very much love. So for example, assisted living across the world, we got 12% of the index today. Industrial will be about 15%. So when you think about the changes in the underlying index it really reflects the types of real estate that have been winning versus losing and growing over the past 20 or 30 years.

So that perception of office is hugely outdated.

Hugely outdated.

What are the sort of the key changes you've seen recently in terms of new sectors?

Well, in the past decade, you've seen, for example, technology. We have mobile towers, cell towers, or mobile towers as you call them. Some people think they're an infrastructure, but they're structured as REITs around the world. So there's three major ones. There are data centers, which is obviously a huge area of growth.

Very popular at the moment.

There are five or six around the world that we look at. We own three in the portfolio today. As I mentioned, there's healthcare for seniors. which if you think about the demographics, perhaps the biggest positive demographic trend we're going to see in the next 20 years.

Across all Western economies.

Western civilization, yeah. You name me one country that doesn't have people that have a 5% growth rate in 80 and older, and I'd be very surprised. So that's a huge area. It's 12%. Industrial, like I said, has been growing. Self-storage is something that's growing more popular across the world. Just a few smatterings of hotel companies, which we tend not to look at. We don't like the duration of the business. It's daily. And of course, housing, multifamily residential type housing, whether it be multifamily apartments or manufactured housing, which is sort of like a land lease business that you have like an Ingenia here would be a good example. Single family rentals. So there's a lot of different sectors. And last but not least is a sector called retail that you know very well. It's been very popular in Australia. That's about 15% of the world's real estate markets in the global index. That's retail of all types. You have malls, you have what we call lifestyle centers, outlet centers, and grocery anchored, which is like in the U.S. you would drive there to go grocery shopping and go to restaurants and things of that sort.

I think we call it convenience retail.

Sort of. We would call convenience retail here in the States a little bit like a net lease where you go in to get your gasoline and petrol gasoline and buy some stuff, but it's similar.

So with all of those different sectors now, so it's a plethora of choice compared to 20, 25 years ago, how do you identify the right sectors to play in? Or do you ignore the sectors and play the companies?

No, we pretty much, to set the table, when we look at the world's real estate markets, we do two things. One is region. So North America is about 72, 73 percent. Australia is only five, Asia is another 10 or 12, and then you have another 10 or 12 in Europe. We tend to be more agnostic by region because indices, regions tend to move in lockstep, but we're very focused on sector because that's where you get your outperformance in real estate is knowing where the, as I like to say, where the puck is going. where there's a positive movement in fundamentals and pricing versus a degradation in fundamentals. And that just comes from our bottom-up research that we do on all the sectors and all the companies. We have an investment team of seven people, three of which focus on the US and Canada. One works with me in the US and one is in Melbourne. And we spend all of our time focusing on the sectors, the underlying growth in the business, the supply and demand dynamics, the management teams, and try to pick the ones and the sectors that we think are actually on the front foot. You really don't want to be buying things when they're reversing. It never works well in the hard asset market or in the public market especially. You want to tend to be on things that are that we think are going to work for the next two or three years and try to get there early.

So buying well always counts?

Cost basis is everything. I'm a private equity guy from background and I can tell you you buy something wrong and you work for the next 10 years just to break even. So I'm very big on making sure our cost basis is right. Getting in at the right price.

And there's been a lot of re-pricing that's happened over the last couple years for the for the industry in general. Where do you think we are now with regards to that re-pricing cycle? And I know there are different sectors go through these cycles at different times. But maybe if you can just touch on a couple of examples for us.

Right. So broadly, I would say that because we've been through a hyperinflation, thank you COVID, and hyper interest rates, thank you COVID, we've had a major re-pricing in most asset classes. So that's the baseline. So we're back to the egg, we're back to the beginning, and things are kind of moving forward. There are certain sectors that are definitely more on the front foot with less supply, strong demand, like I mentioned, assisted living, seniors housing. Retail is in the best shape it's been in 20 years because there's, at least in North America, the retailers are finally doing really, really well. There's less of them and there's less real estate to fill. So everybody's happy. However, for example, in multifamily apartments in markets like Austin, Texas, the poster boy for tech growth, they've been building new supply for the past four or five years.

It's just flooding the market?

Twelve percent vacancy rates. So you cannot grow your rents in Austin, Texas. when everyone's giving away concessions like crazy. That will work itself through. So in our portfolio, we have about 5% multifamily. The index is three times that, something like two times that. So as you can see, we really focus on the repricing and the sector and where we are in that cycle. And there's as you know cycles are always continuing to move but they all don't go lockstep so we have to understand you have to be able to decipher one from the other.

And when you look at the regions I assume they move in lockstep either right they'll move differently to each other?

Yeah Japan's a perfect example.

Yeah so when you look at Australia maybe compared to some of the other regions where do you picture Australia in that sort of repricing map?

I would say, no, I'm not the Australia specialist. Luckily we have a whole team that manage an AREIT product. So, you know, I'm the GREIT product, if you will. Our Australia experts, Mark and Mario and Cindy would tell you that Generally speaking, things are pretty good. Retail is very strong. Office is getting better at the margin, which we can talk about in a second because that's a theme that we're leaning into globally. But obviously, you've got a little bit of an inflation issue, spending issue, and maybe rates are likely to go up from what I hear. I think as of this week, that probably won't happen. So I think Australia is good. but maybe not the best, but it's good. Good solid placement. We have about five or six percent of the portfolio here and about three names. There are highly specialized names that we like.

But again, Australia being three to four percent of the overall market globally, it is always a small slice.

It used to be much bigger. I mean, I think back in the day, it may have been 10 to 12 percent. I mean, I think also depends on where you put Goodman in that bucket, frankly, because Goodman is just so large. It really depends on where you put it.

Distortion index.

Totally distortion index.

Now going back to my first question, office again still what a lot of people think about although we've sort of disabused that notion a little took a hammering through pandemic but you alluded to it's something you're starting to look at a little bit differently or lean into so maybe could you just tease that out for us and explain why that?

That's a good question, I mean I think what highlights before I get into why we're leaning into office I want to just highlight how being in the liquid real estate market business, and I was in the private equity business, and why I joined the world of liquid real estate back in 1995, 96, is simply because of what I'm telling you now. We have been able to change the portfolio as we see fit based on the supply demand dynamics.

Nearly on a day-to-day basis if you wanted to?

Yeah, pretty much. I mean, it's a lot faster than private. I like to tell people I can drive the bus around the corner as opposed to going off the edge of the road and crashing. Because I saw that happen a lot in my private equity days. And I said, there has to be a better mousetrap. And when I saw the REITs coming back, I was like, that's the mousetrap that I think I can do better. And if you go back six years ago, we've been doing this at DEXUS for six, seven years. Zero office until last year. Zero office. Zero. We also had zero in Seniors Healthcare three years ago. Now we have 24% in healthcare.

That's a huge pivot.

We see where the opportunity is, we see the pricing, we see the NAVs that we think they are, not the market, but where we think it is, and we go. That's the decision that we make. So if you look at Office six, seven years ago, no. Never loved the business, frankly. It could be very capital intensive. But now we see the best markets like New York City, where you can buy buildings at well below replacement costs, a third of replacement costs. They're not building it anymore. And vacancy rates went from 14% for the premier assets, like at QQT, which is DEXUS' headquarters, to 10%, 9%. And I've been around a long time and I've lived in New York my entire career. Every time we get to under 10% vacancy rates within two years the rents are spiking. So we are oddly back to that scenario yet most people just will refuse to accept. that that's going to happen.

Or maybe they're looking in the rearview mirror a little bit.

They're scared. But I think fundamentals of office, they have changed, but the reality is that New York City is a premier market, if not the most premier market in the world, and they're not building any more office buildings. I mean, they're building three in a market where that's a drop in the bucket.

Because it's too expensive to do so?

Yes, it takes a year. It's the zoning. You've got to get 50 pre-leased and it takes soup to nuts seven years to finish. If you're building in New York City today you have to take down a building year and a half, get it approved, build another one and lease it up that's minimum five years wow very hard very sticky very hard to do.

So hard to get it out of the ground before you can really crystallize any value.

There's no land in new york city you're just taking down an old building like you would do here you're just kind of assembling blocks, and it just takes years. And the cost to do it is really high. I mean, to build today, for those who don't understand, it's dollars and it's square feet, it's not metric, but it costs $2,000 a square foot to build. And before COVID, a few years before COVID, it would cost 1,400 or 1,000. So the cost is insane. You need $200 a foot in rent, and most market rents in New York City prime are $100, $125 for the prime. So you need companies to step up and pay $200 a foot to sign on the bottom line just to get a building out of the ground.

So that could be nearly double the rent that they're actually paying at the moment.

That's right. So we don't have to be 100% right for office to work. We only have to be half right and these stocks will do really well. So you forget like we're not trying to get to the end game or kick it between three posts. I think you play a three post, we have two posts. I don't understand that. We just have to get like from the 20-yard line in a football parlance to 50, right? And people start thinking we're going to get to the final and the stock goes up by 50%. We may not be there when it gets to the 50-yard line. We may be gone. And that's the beauty of what we do. We can play it more effectively, I think.

So that's obviously an advantage of the structures that you use. What are the other advantages of playing in the listed market? So you've got the flexibility, you can pivot very fast. What else attracted you to that?

Transparency. The public market, when I started, there was no transparency in the real estate industry. Things would happen and lenders would even not get transparency. And because we've been through one or two major cycles, including the global financial crisis, which I lived through when I was at Goldman Sachs, there's more transparency as what the companies are doing every day, every quarter, and they have low leverage. They're 30% levered, five times interest cover, no credit issues that you're seeing in the private credit market. Sure, there's some small operators in the U.S. who don't have any capital so they put on crazy cost of capital and they're not going to do very well. But the REITs are as bulletproof as you can get in terms of balance sheet and quality because they're all high-graded, they all own the best assets. This is not like secondary, tertiary, every company owns very high quality assets. So you've got great assets, great balance sheets, very smart management teams, and they pretty much own a piece of their company. So their incentives are aligned with you. So that's why I like it for all those different reasons.

And you think there's a little bit of survival of the fittest happening there because the industry suffered on the back of the GFC and a lot of the weaker players probably got weeded out.

They've gotten acquired. And we're in that part of the cycle right now, which is a very interesting part of our business, sort of our, a part of our, a little bit of our secret sauce these days has been to focus on what we call the mid-cap space. So you have very large companies like a Goodman or a Prologis or even a Simon Property, right? These are the biggest companies in the REIT world and a well tower. We have tended to move toward the next tier, not because the quality is lower, it's because they're less covered. when they traded bigger discounts or discounts to their net asset value or what we call fair value. And because we're doing that and moving down that size, but not quality, we've seen private equity fish around and take a lot of companies private. because they have lots of money. They have way too much money and they're finding opportunities. We've had in the last five years, I think it's eight or nine companies that we've owned in our portfolio that have been privatized or merged with a smaller company, merged into a bigger company. And just this year alone, in the first three months, we've had two announcements of privatizations. One by a group run by Kushner, which is affiliated, not affiliated with Donald Trump, but his son-in-law. And the other one is Brookfield buying an industrial REIT, a small industrial REIT. And we own both.

Those corporate transactions are additional...

Alpha. 25 to 150 percent return we've had from the cost basis, average about 45. So that's pretty crazy. And people who might be listening to say, how is that possible? Like, well, that's the inefficiency of the market right now, right? It's five years ago during covid we were buying hybrid securities you know those hybrid securities that you can't do anymore.

Yup, they're nearly phased out here in Australia.

We call them preferred equity. I'm not sure what you call them but they were called here. What were they called? Something shares. What did you call them?

Preference shares.

Yeah, so preferred equity. Some of the REITs have had preferred equity, still do, but it's about 5% of the capital stack. During COVID, a lot of moms and pops who own these or whoever own them had a, what do they call it, a come to Jesus moment and they all sold them. And these stocks were trading at 50%, 60% discounts to par with 12% yields. They were issued at 6% yields. Well, we know all the companies, so we were calling them up saying, why is your preferred trading at this discount? And we would work out the cash flow. Here's the cash flow. And the ability to pay that preferred equity was very high. And in the States, preferred equity is under a cumulative structure. If you cut your dividend, You have to pay it back in the future. You have to make it's a make-all. Everybody has to get paid So we're like, this is crazy So we bought a bunch of it and we honed about 12% of our portfolio was in preferreds and in a year We made a hundred percent of money.

Wow.

Now we don't own any because now they trade at par, now maybe next week if the credit markets continues to unravel we might find a few opportunities but you know, that's kind of gives the people on the podcast to get an understanding of how we are a little bit different than some other people in the global real estate scenario. We play all cap and we play all parts of the capital structure as well.

This podcast is for self-directed investors so they're looking for both income and the potential earnings upside.

Yes. Value upside.

How should they be thinking about the sustainability of that in the current environment?

Very good question. I mean, I can only tell you a few anecdotes. One is I've been doing this since 1996. That's a pretty long time. Over that period of time and the six years I've been doing it here with DEXUS, we have been able to outperform the index by 1.3x. So right now, for example, since the beginning, before our fee, we're at 9%, index is 6%. That's a 50% outperformance. You take off our fee, it's a little bit less because our fees are running between 75 and 100 basis points, depending on who the investor is. And that's a very typical, I mean, we launched the fund during COVID. I mean, you can't get a worse time to launch a fund and we're still at 9% or 8% net, 8.5% net. So you look at that and you look at through cycle, all the years I've been doing this, always beat the index. Always beat the index. I think there's always an opportunity somewhere. I mean, people are running away right now or being scared. I'm just staring at the market saying, where is something going to give us an opportunity, right? Of course, we're always looking at the risks, but I just think that that the volatility is our friend. if you're thinking about it right. And I think a lot of people don't understand that. They think the volatility is the risk. I think the volatility is the opportunity.

Volatility is the price you pay to be in the market.

That's right. And you tell someone in the private credit market or some other market that's private that if they really wanted to get their money out and they can't, that's the price that they're paying.

Yeah different dynamic.

Different dynamic right so if we think about interest rates for example we've got different regimes and different countries seem to be now moving interest rates in different directions whereas around the pandemic

So if we think about interest rates for example we've got different regimes and different countries seem to be now moving interest rates in different directions whereas around the pandemic They're sort of all the major banks, central banks. They all went to zero, but they were all in lockstep going to zero.

To save the world, yeah. That was sort of it.

But now we seem to have maybe the Feds, well, God, what's going to happen? I guess that's a million dollar question.

The question is, is it dovish or hawkish? I think of it that way. Do we have a hawkish regime or a dovish regime? I think the US is definitely more of a dovish regime. I mean, if Powell is replaced by, I think you already mentioned who they're going, I forgot who it is that's going in. I think you mentioned it. Regardless of how you think about the separation between church and state and whether or not the presidency can control that, I believe that it won't happen. But the reality is that rates in the states have to stay where they are a little bit lower to keep the economy moving ahead. The housing market is not that robust. People won't buy houses in a big way if mortgage rates are six, which is not a super high number, but if you're thinking about 2.5, eight years ago.

Yeah, it's a big difference.

And you know, the US, we lock in our interest rates for 15 to 30 years.

Yes.

Unlike here.

Unlike Australia.

Or anywhere. We're the only ones in the world that do that. That creates a very difficult scenario if you want to move and you just won't give up that rate. I think it's dovish. I think that Europe is probably dovish, and I think that Australia is a little bit more hawkish. And interestingly, of all the places in the world that was a really shocker is that there's inflation in Japan.

For the first time ever.

And rates are up, and the stock market did the best in the world last year. Our portfolio did 30% in Japanese REITs last year, which some of our competitors, if you look closely, don't even touch the Japanese REITs, the JREITs as we call them. They're like, well, there's no demographic growth, there's no this, there's no that. The office market in Japan, in Tokyo, is 3% vacancy. And rents are going up.

For the first time in a long time probably?

Yeah. Raising rates, raising rental rates. The Japanese to raise rental rates, New York, they're just going to zing it. It's a little bit more, thank you, but I'm raising a rate type of scenario, but it's going up and our stocks in Japan were one of the best performing last year. So I think it it's not always interest rates that drive the value it depends on what's going on right in that case japan had inflation and interest rate rising interest rates rising which i think was a good thing for them.

Yeah well it's been something that people have been looking forward to happening for a while.

Like 30 years?

Ever since I can remember for sure.

Right it's always been a negative spiral ever since like 1980 something.

Yeah well the capital has always flowed out right and now it's some of it at least is staying at home.

I think so and there are big investors around the world in real estate I mean in New York City there's some of the biggest investors now and I think here too.

Well historically certainly 20 years ago yes without a shadow of a doubt.

Big global world we have.

And when you're investing in a big global world in the States, maybe a little bit in Australia, Japan, Europe, all those.

Canada, big market in Canada.

How do you manage the... What do you do with the currency risk? Because it's not just about interest rates, right? It's currencies can fluctuate quite substantially as well over a period of time.

So historically, two things. First, because we don't deviate from the index too much in terms of region, we're sort of hedged, if you will, to the index movement. The index is unhedged that we look at. So our fund, which has been unhedged since we started, has been basically fluctuating along with the index in terms of currency, which has kind of worked in our favor a little bit. So that's number one. Number two is because the companies are low levered in their own local denomination, that's also kind of a hedge on the equity. However, there are investors, we've been on our most recent marketing tour this year, more and more of the investors that really want to be in the fund, some of them have said to us, can you start a hedged sleeve of the fund? And we're actively looking at doing that because that seems to be where the demand is. I as an American investor looking abroad, it's not something that I really focused on much, but as an Australian investor looking at the rest of the world, it makes total sense.

When you're 3%, it's a bit different versus when you're 75%.

Exactly. So I defer to Mark, my co-PM, and our marketing team, headed by John Taylor, to, if that's what the market wants, I have no problem doing it. It's not an expensive endeavor to put a currency hedge on. So we're more than open to do that for investors and have a new share class to do that.

Do you think it's going to make a difference for them?

I don't know. Honestly, again, that's one area that it's not my expertise, but I've noticed over the long term things come out in the wash. If it's not too expensive and you're comfortable having a hedge product, do it. If not, our returns have been 8 to 12%. You know, we're at 8 now, we're at 6 years with a very bumpy ride. I think we're at 10 to 12 the next few years. maybe even higher with low volatility compared to where we were. Global equities are going to be in that range. I think real estate stacks up really well with a 4% dividend. Stacks up really well. So I think the investors themselves have to figure out if they want to hedge product or not.

And for those long-term investors, maybe it's the mums and dads or the sophisticated investors in Australia who've, or wholesale, What role do you think the GREIT should be playing in their portfolio when you look at equities, fixed income, private markets?

You're talking to a person who really believes in the real estate world. So my personal portfolio is heavily weighted to real estate, both global through our fund and tracking our fund and also personally back home in the US.

But everybody in Australia talks about property. So every barbecue...

I know, I know. But they think about their home and that's not the way I think about commercial real estate investing. So let me back up and give you a couple of anecdotes. When I was back in my early days at Alliance Bernstein, Alliance Capital is a big, big investment manager. Bought Bernstein, another big investment manager. And I was at Alliance. Why we bought Bernstein is they had this massive private wealth platform. that we could get access to. And when I met them for the first time, they said, we want all your data on REITs because we don't have any real estate in our portfolios for any of our clients and we're thinking we'll do it through the listed real estate fund that you have. Great. Gave them all our back data, everything we did, and they ran the numbers and they said, are these right? I said, yeah, they're right. They said, well, why is it coming out and saying we should have 33% of our portfolio in REITs? This is going back from the 1990s to early 2000s. I said, I don't know, you tell me, because the risk-adjusted return was really, really good. And this is, of course, prior to the GFC and prior to what we're seeing now with the MAG-7, so the world has changed. So they said, well, we just can't put 33%.

Well, zero to 33 would be a rather large step.

Yeah, they didn't want to give 33% of their client portfolios to this one little team, three people. So they wound up kicking it back to 12 to 15, and they were very happy. When I was at Goldman, the number was always 10 to 12, institutionally and through the high net worth platform. Right? So when I look at today, when we're talking to asset allocators and they're talking about splitting the baby of infrastructure and global REITs, five each, in total 10, maybe not even total 10, I shake my head because I know that we're entering a period of time, I think, don't quote me, but I think, where we are now in a growth cycle for real estate on a risk-adjusted basis.

Given the supply and demand dynamics that you mentioned.

Exactly. Interest rates in a box, inflation in a box, supply zero, mostly zero, low.

Very close to zero.

Rents at or above inflation. That's always good for real estate. So 2010 post GFC to 2020 before COVID, some of the best years I've ever seen. I think we're heading that way. So is it 5%? No. Is it 30%? No. But is it 10, 15? Yeah, I think that's right. Otherwise, it's a rounding error. And I think duration matters, real estate fundamentals matter, and at the end of the day, we can value this stuff. There's a good value premise on the market. So that's where I could fall out.

And when we look at the global REIT universe you've got a very big opportunity set. Cross geographies, cross sectors, all different types of companies even if they're the big ones or the middle market you referred to. If you were to pick one or two of the most compelling opportunities that you see and then maybe just for contrast one or two of the areas that you kind of staying well away from. Can you just tease those out for us?

Well I don't want to beat a dead horse but I'm gonna beat the dead horse on seniors housing. I want your investors to understand that in the US it's private pay so it's people like us getting older, sell their homes, they want to be in a really nice really nice property with independent living that eventually becomes helping me get dressed, helping with meds, helping me with my social activities.

And I never need to move.

Hopefully, right? Paying 6,000 or 7,000 US per month, so high quality. And I think the number of people that are heading that way, if you only assume 10 to 15% of the population uses it, we are woefully undersupplied. And I think demographics like that and the fact that they're not tied to GDP growth, it's just demographics, it's hard to beat that. So we're going to see very good growth and rents and NOI and FFO and all the different metrics you would look at. Until such time as those stocks are revalued, I think that's a really interesting play. And we see it in Canada, we see it in the US. We have two Canadian companies that do it. and they're trading at half the multiple of a well tower, which is what everybody, you'll talk to, say, oh, I own a well tower. It's so expensive, right? So we own two companies in Canada that trade at half the price, half the multiple. So I think that's something that we really lean into. We've leaned into it for a couple of years. I think there's a few more years left. An area that I think that is under pressure is, for example, is self storage. it's not a big sector but they've got some really big names. Extra space and public storage are very well known to many investors around the world. You have storage here?

We've seen private equity play in that space pretty recently.

Public storage came in and started that whole thing right? The problem we have in the states is during COVID from 2019 to now or last year it was the the fastest growth in earnings of any REIT in the country or those in self-storage because you had to clear out your bedroom to make your office there and then right so everybody kind of bedded down and the company's just doubled the rents on you right that's all coming off.

And all the capital came in as well after that.

Cap rates went from six to three some private deals happen at three caps and on top of that There is some pricing mechanisms that they use. They have what I call an incentive strategy. You come in first month free and then they bingo bango take you up 20, 30, 40 percent within six months. There are some state governments that are looking at that as usury. You never know what could happen. And I think it's in LA right now where post the fires, they don't allow you to increase rates more than a certain percentage. So they're putting some regulatory issues. So that coupled with deflating rents and a little bit too much supply and housing, which is slow, leads us to believe that there's just no real growth in the sector. So we are very minimal in self storage. Some people like it a lot more than we do. I don't know why, but we incrementally, we don't. Those are just two examples.

And David, if you could finish with a message to investors as they're looking at the G-REIT sector, what would you say?

I think it's akin to quality. on offer because I don't know if the investors on this podcast really understand just how quality the real estate is that these companies own and their balance sheets are really, really good and they have spent a ton of money becoming more efficient. This is real estate companies that are acting really efficiently and using AI to their advantage and creating more higher margins and these are real operating companies in a REIT wrapper. So they're not just a portfolio. The companies are looking to develop, improve, sell bad assets, high-grade their portfolio, always looking to add value and cash flow.

So they're recycling their capital?

Totally. There's ways to do that on a tax-efficient basis. And more importantly, They're not the companies they were 30, 40 years ago. So they're very high quality and most of them are on the front foot. Aside from some of the ones they talked about, eventually they're all gonna be on the front foot. And that's a really good thing on a risk-adjusted basis when you have a property underlying your security and not something that can be dislocated very easily, quickly, like we're seeing in the credit, the private credit market is worried about. So I think that property has a big underpinning and I think we're in a good part of the cycle.

David, thank you very much for your insights today. That was illuminating and thank you for sort of expanding out our universe past just the Australian commercial property market.

Thanks for having me.

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