abrdn Closed-End Funds
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Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments.Concentrating investments in the specific regions subjects the Fund to more volatility and greater risk of loss than geographically diverse funds.Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).The Fund’s use of leverage exposes the Fund to additional risks, including the risk that the costs of leverage could exceed the income earned by the Fund on the proceeds of such leverage. Additionally, in the event of a general market decline in the value of the Fund’s assets, the effect of that decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.Your portfolio may not have the same asset class weightings. Asset class weightings are subject to change.Diversification does not ensure a profit or protect against a loss in a declining market.Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations, as he/she may consider necessary or appropriate for the purpose of such assessment.Any opinion or estimate contained in this recording is made on a general basis and is not to be relied on by the reader as advice. Neither ABRDNnor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.
abrdn Closed-End Funds
abrdn AWP - Fund Update February 2024
In this episode, Portfolio Manager Bill Pekowitz joins Mike Taggart to give an update on AWP and the real estate market.
AWP’s top ten holdings as of December 31, 2023:
Prologis Inc 8.2%
Equinix Inc 4.6%
Public Storage 3.9%
Welltower Inc 3.8%
Digital Realty Trust Inc 3.7%
Realty Income Corp 3.4%
Simon Property Group Inc 3.1%
AvalonBay Communities Inc 3.0%
Equity LifeStyle Properties Inc 2.7%
Mitsui Fudosan Co Ltd 2.6%
00:00:00:00 - 00:00:32:10
Mike Taggart
Welcome to the latest podcast for the Aberdeen Global Premier Properties Fund, ticker symbol AWP. I might tagged Aberdeen's U.S. Closed end Funds Specialist. Today we have Bill Pedowitz, a member of Aberdeen's Real Assets Investment Team and a portfolio manager on AWP. Bill, thank you for joining us today.
Bill Pekowitz
No problem, Mike. Glad to be here.
Mike
Bill, the news on commercial real estate has been pretty bad and causes many investors to balk at the notion of investing in anything related to property or real estate.
00:00:32:10 - 00:00:58:06
Mike
But really the news paints with broad strokes, right? And performance was actually good last year. So what's been going on and why should investors put money to work in a global properties fund like AWP right now?
Bill
Yeah, Mike, you know, it feels like headlines around the demise of commercial real estate have really been all the rage since the start of the pandemic in 2020.
00:00:58:08 - 00:01:21:12
Bill
Meanwhile, performance of the fund and the sector has basically actually been flat since that time. Well, there was a big sell off in 2020 as the world shut down and no one was ever going to congregate in groups again. We had a really strong rally in 2021 as the world reopened, people started to reemerge and they were traveling.
00:01:21:17 - 00:01:56:00
Bill
They were shopping, They were dining out. And then, you know, 2022 came along and inflation really picked up. There was a spike in interest rates, and that led to a sharp drop in the sector. And then last year, you know, in 2023, we had a lot of volatility in the market, but we were still able to put up, you know, low teens kind of returns like you talked about as you know, people kind of got more comfortable with the pace of economic growth and maybe the rate outlook going forward.
00:01:56:02 - 00:02:39:17
Bill
You know what I think should be highlighted in these concerns around the sector is that, you know, we've seen a wide discrepancy in terms of performance between different segments of the real estate market.
Mike
Right. Because commercial real estate's just one sliver of the broader overall market. Right. That you can invest in. Right.
Bill
Yeah. So so when you know, when we're talking about commercial real estate, that includes things like offices, it includes malls, cars, shopping centers, apartments, data centers, industrial warehouses, cell towers, you know, there's a wide range of things.
00:02:39:17 - 00:03:11:16
Bill
And so what we've seen is, you know, there is a lot of weakness in the office market. And that we think is really there is be honest with you, there is too much office space, too much commodity office space, which is, you know, under a magnetized it's older space. It may not be as well located. You know, employees don't want to be in that space and therefore the tenants also are looking to move out of that space into better space.
00:03:11:18 - 00:03:38:17
Bill
And so that's causing a lot of stress in the office market. And that's where you're seeing a lot of these defaults and a lot of those negative headlines. At the same time, we have other segments of the real estate market that are actually quite strong. You know, you look at data centers as a area, you know, they are the big beneficiary of cloud computing and the growth of cloud storage.
00:03:38:17 - 00:04:06:23
Bill
And now on top of that, they are the big beneficiary from artificial intelligence and all of that development. And creation that everyone is very much excited about relies on a great increase in the amount of just computing capacity and where these things are located. Well, that's driving now a data center operator. They're landlords. They're able to increase rents and see double digit rental increases.
00:04:07:00 - 00:04:35:15
Bill
Similarly, the industrial warehouse space, as you know, the global supply chain gets re gets restructured. We're seeing a demand for space there. Again, those landlords, they're able to see rental increases, the value of their property is going up. And then I'd say lastly, like the last sector we're really excited right now is in the health care space. We look at an aging demographic globally.
00:04:35:21 - 00:05:07:23
Bill
We look at, you know, the leading edge of the baby boomers are approaching their eighties. As that happens, unfortunately, that requires more care and more and more medical care, more, more, more assistance. That's going to drive significant increase in demand for for things like skilled nursing and for senior housing. So those property types now we're starting to see those landlords start to see again, double digit increases in rents.
00:05:08:01 - 00:05:35:05
Bill
So those are areas of the market where we think you're seeing value creation in real estate versus other parts of the real estate market, which as you know, have problems like we talked about in office.
Mike
So you mentioned industrial REITs. The fund has nearly 20% of the portfolio invested in industrials REITs. What exactly are those and why should investors be excited about their prospects?
00:05:35:07 - 00:06:20:02
Bill
So so I would say the industrial sector, it's effectively the backbone of the global economy. These are the warehouses where goods are manufactured and the locations where goods are stored and will travel through as they move from production to their end user and to the consumer. You know, we've had this large overweight position in the sector for some time due to our belief that the growth of e-commerce and the need for faster delivery time increases the need to improve and reinvest the supply chain globally.
00:06:20:04 - 00:06:59:06
Bill
This is going to be just a big beneficiary to the owners of warehouses. You know, an example of that is our research has looked into this and said e-commerce, which everyone is much more involved in. And you see just from the number of Amazon packages that come to your house every day, you know, you look at that a e-commerce transaction requires two and a half to three times more space than a traditional retail sale would require in terms of storage, because in a traditional retail environment there would be a pallet of goods.
00:06:59:08 - 00:07:22:14
Bill
It comes through your warehouse and then it moves from there to a store, which is where it gets broken up and a consumer would go to go and buy it. In e-commerce, you have to break up that pallet of goods inside the warehouse to ship it out to the individual. And then also you have to be able to take returns back to you in that warehouse, which also requires more space.
00:07:22:18 - 00:07:51:00
Bill
And so because of that, that's a big beneficiary to the to the warehouse space. Another big factor that we think industrial warehouses are going to benefit from is the trend to near shoring. And this trend is really becoming more important because of the bottlenecks and disruptions that have emerged in the supply chain from the geopolitical risks that we see in China in the Red Sea, you know, the war in Ukraine.
00:07:51:00 - 00:08:18:21
Bill
All of these have kind of just put greater strain on the movement of goods throughout the global economy. And so because of that, we think markets like Mexico, markets in Central Europe, which can serve some developed markets in the US and in Western Europe, those markets are now going to be used as near shoring locations. And with that, we're seeing considerable increase in demand for space there.
00:08:19:01 - 00:08:40:21
Bill
And we think that is going to be a big beneficiary for the landlords who own that real estate.
Mike
So, Bill, I want to go back here because of our earlier discussion, how we started this off. You know, I noticed about 5% of the portfolio is in office REITs. And why is that, given the risks in the annual report, it seemed that most of these were just in three countries, the U.S., France and Japan.
00:08:40:23 - 00:09:04:09
Mike
But is there any light you can shed on this, given your earlier comments?
Bill
Yeah. So I think first off, I'd say, you know, that 5% position that we have in the portfolio in office, you know, that is a that's below the index weight. So we are clearly indicating that we're not indicating that we have a belief that all is going to be good in office and that there's a recovery there.
00:09:04:11 - 00:09:33:11
Bill
That said, we've identified, we think, a select case of best in class landlords who own Class A properties in a plus plus locations. You know, things like think like Park Avenue in New York City, right close to Grand Central Bank of London's West End. And some of these properties we think, are trading at 40 to 50% discounts to the value of the underlying real estate.
00:09:33:13 - 00:10:00:06
Bill
So we think therefore, on a risk adjusted basis, these companies have already priced in the majority of the potential downside that we see in in the office market. And like I said earlier, you know, we think that a lot of the problems in office are in the more commodity type space that their landlords have not spent capital on and have not been improving.
00:10:00:11 - 00:10:24:15
Bill
So the tenants will move out of those locations into these better locations and these better properties. And so therefore, we think, you know, the amount of value degradation that has occurred has probably been overdone in some of those cases. So because of that, you know, that's a reason why the few you know, a few of the names that we are in are from there.
00:10:24:20 - 00:10:53:20
Bill
The other thing is I think, you know, real estate is a very local market situation. And so with a broad brush, we could say office is a difficult property type. We could look at other select markets and things are not as bad. So we look at Japan. The office market there does not have the same level of oversupply that we're seeing in a lot of the Western cities.
00:10:53:22 - 00:11:20:09
Bill
Also, the utilization of the space is much higher. Their employees are back in the office five days a week. The culture is just to be in the office much more. So there's not as much of a push to give up space by by potential tenants. Therefore, we think some of these Japanese landlords, they still can provide an attractive, risk adjusted return to us as a shareholders.
00:11:20:11 - 00:11:50:05
Mike
Well, thank you, Bill, for that update on AWP. It's always a pleasure speaking with you.
Bill
No problem.
Mike
And thank you, everyone for listening to this podcast. There are three convenient ways to learn more about AWP on the internet. Visit abrdnawp.com. Email us at Investor.Relations@abrdn.com, or give us a call at 1 800-522-5465.
00:11:50:07 - 00:12:11:03
Mike
I'm Mike Taggart of Aberdeen. Thank you for listening.
00:12:11:05 - 00:12:38:05
Unknown
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and did not necessarily reflect those of Aberdeen.
00:12:38:07 - 00:13:04:24
Unknown
The companies discussed in this podcast have been selected for illustrative purposes only or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up, and investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.
AWP’s top ten holdings as of December 31, 2023:
Prologis Inc 8.2%
Equinix Inc 4.6%
Public Storage 3.9%
Welltower Inc 3.8%
Digital Realty Trust Inc 3.7%
Realty Income Corp 3.4%
Simon Property Group Inc 3.1%
AvalonBay Communities Inc 3.0%
Equity LifeStyle Properties Inc 2.7%
Mitsui