The sell-off of REITs has been an over-reaction, says SG Hiscock & Co’s Grant Berry

SG Hiscock & Co director Grant Berry.

Funds manager SG Hiscock & Company believes the listed Australian real estate investment trust sector is oversold even as the Reserve Bank ratchets up interest rates.

The sector has been heavily sold off, with rate rises factored in by investors, although some stocks have stabilised after being dumped, potentially throwing up opportunities.

“We are in a cycle and REITs have sold off quite meaningfully this year,” SG Hiscock portfolio manager Grant Berry said.

“REITs have sold off and they’ve overreacted.”

Mr Berry added that the disconnect between the direct market, in which buildings trade, and the stockmarket may not last.

“There are parts of the direct market which are almost complacent,” he said. ”You’re seeing some transactions at prices which don’t recognise that there has been a shift in the market.” This was throwing up opportunities for investors, he added.

Global markets have been unsettled by private equity giant Blackstone raising gates to allow it to limit the quantum of assets redeemed in the unlisted Blackstone Real Estate Income Trust.

Mr Berry declined to comment on the manager but pointed to the benefits of investing in the listed market. “Liquidity is available when the market is running hot but tends to dry up when the cycle turns down,” he said. “I can understand investors potentially wanting to withdraw out at yesterday’s prices, because it’s potentially an arbitrage opportunity, to swing back and invest in REITs,” he said. But he pointed to the difficulty in doing so due to transaction costs and the need to take discounts when exiting some funds.

Mr Berry said that he was taking a careful approach to the office market where the situation was more difficult. “I’m quite cautious on office, because we’ve got very elevated vacancies in the order of 15 per cent. Work from home is obviously a lot more enduring and the economy is expected to slow,” he said.

But he added that some real estate investment trusts were trading at even deeper discounts than warranted. He also pointed to the comeback of retail shopping centres as customers flocked to them, notably in the lead-up to the festive season.