Baron Real Estate Income Fund: Latest Insights and Commentary

The Review and Outlook for period ending June 30, 2024, is not yet available.

CONTRIBUTORS

• Welltower Inc. is an operator of senior housing and life science and medical office properties. The company was a contributor during the quarter on strong cash flow growth in its senior housing portfolio, an improved full-year outlook, and execution on highly accretive capital deployment opportunities. We are optimistic about the prospects for both cyclical and secular growth in senior housing demand against a backdrop of muted supply. Welltower is a best-in-class operator with a high-quality curated portfolio, a conservative balance sheet, and astute capital allocators who have been successful in capturing outsized organic and inorganic growth opportunities.
• Equity Residential operates 80,000 apartment units in high barrier-to-entry coastal locations. Shares increased on strong operating updates, an improved full-year growth outlook and faster-than-expected improvement in the company’s West Coast markets. Longer term, we retain conviction given the company's premier asset base in desirable locations, attractive valuation, lack of housing supply relative to population growth, increasing construction and financing costs limiting new supply, and well-regarded management team.
• AvalonBay Communities, Inc. operates 80,000 apartment units in high-barrier-to-entry coastal locations. Shares increased on strong operating updates, improved full-year growth outlook, and faster-than-expected improvement in the company’s West Coast markets. Longer term, we retain conviction due to AvalonBay's premier asset base in desirable locations, attractive valuation, lack of housing supply relative to population growth, increasing construction and financing costs limiting new supply, and well-regarded management team.

 

DETRACTORS

• Prologis, Inc. is the largest global REIT and owner of industrial warehouse real estate. Shares detracted from performance during the quarter. On its first quarter earnings call, the company provided an incrementally cautious outlook on near-term business trends and modestly lowered full-year guidance, both of which weighed on the stock. We view the current business headwinds as transitory and at least partly reflected in the current share price. We remain excited about the company's multi-year growth prospects.
• Shares of Equinix, Inc. lagged in the second quarter after a short report in late March questioned the company’s accounting practices and the Board subsequently launched an independent investigation. Over the course of nearly two months, a highly respected forensic accounting firm completed an in-depth outside review and concluded there were no issues with either the GAAP or non-GAAP financial metrics the company presented to investors. Equinix filed its quarterly financials and reported results that were above expectations. Equinix should compound its earnings per share at approximately 10% over the next few years, and we believe the prospects for outsized shareholder returns remain compelling given the superior secular growth prospects combined with a discounted valuation. Equinix benefits from a long demand runway behind cloud adoption and IT outsourcing, AI as an evolving demand vector, its unique ability to offer a global platform and continued execution on strategic M&A transactions to enhance its moat.
• Wynn Resorts, Limited owns casinos in Las Vegas, Boston and Macau. A slowed recovery in Macau due to the deceleration in China's economy and concerns that Las Vegas was peaking in visitation and spending levels pressured shares during the quarter. We retain conviction. Macau and Las Vegas numbers remain robust, and the global consumer continues to spend on leisure and experiences. We believe the company's Macau assets should return to pre-COVID levels in 2025 while Las Vegas and Boston will continue to grow modestly, which, in turn, should produce strong cash flow generation that can be used to reduce debt and invest in new projects, including a casino in the UAE slated to open in early 2027. We believe valuations remains attractive at current levels as the stock is trading at a multiple point discount to its historical average.