Global Real Estate Securities Fund

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Overview

Manager's Outlook

With the prospect of higher interest rates and fuel prices leading to a consumer slowdown, we have tilted the portfolio toward sectors where rents can grow at or above the pace of inflation as a result of favorable demand and supply dynamics. These segments include apartments, industrial warehouses, and self-storage. We are also selectively maintaining our overweight position in hotels given that a pickup in business travel from a low base can offset any potential weakness in leisure travel going forward. Hotels in Japan and China should also benefit from an eventual reopening of borders, and we have exposure to hotel companies in both these markets. ��

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We are cautiously optimistic for global real estate returns in the second half of 2022, especially after the year-to-date correction. Valuations on cash flow metrics are now generally in line with long-term averages, with the prospects of healthy earnings growth in sub-sectors with pricing power. Coastal apartment REITs in North America continue to benefit from a return to work and low supply in several key cities. We also have a significant bet in single family residential REITs where a tight housing market and a stickier customer base should underpin solid rental growth. Industrial warehouses is one of our biggest sub-sector overweights; several cities, such as Shanghai, Sydney, Los Angeles, and Hong Kong, have a scarcity of city center industrial land, leading to above-average rental growth. Additionally, consumer preferences for same-day or next-day delivery has led to high demand for prime locations.

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Self-storage is another sector we are positive on given relatively resilient demand driven by customers' life events, and the length of rentals continues to increase with supply building slower than expected. Self-storage landlords can also reset rents ahead of inflation since rates are adjusted on a weekly or monthly basis. While work from home will continue to be an obstacle for office demand, we selectively own Grade A office landlords in supply-constrained cities such as Hong Kong and London. In cities such as London we are already seeing a green premium for Grade A environmentally-friendly office buildings versus Grade B assets.

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We believe investing in the global real estate market offers inflation-protection potential, especially given our focus on sub-sectors that have pricing power driven by improving demand or falling supply. �We remain constructive on the earnings potential for several property types in the second half of 2022 and 2023 driven by rising rents and falling supply. Additionally, we expect to see a continued divergence in performance between high-quality Grade A real estate versus Grade B assets. We believe our well-located real estate holdings are positioned to benefit from these trends. �

Strategy

Fund Summary

We seek to make well-timed investments in undervalued real estate companies, favouring high quality real estate in land-constrained markets. We aim to identify real estate with a high asset base potential to build a well-diversified portfolio. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

30-Apr-2024 - Jai Kapadia, Portfolio Manager,

Global real estate stocks produced negative results in April, weighed down by rising yields in the US. Within the portfolio, stock selection in Australia helped performance. Our positions in a high-quality retail real estate investment trust (REIT) and a global industrial REIT held up better than their peers in a down market. Stock selection also added value in Japan, where our positions in a hotel REIT and a multi-family residential REIT produced small gains amid a broadly negative backdrop. A small non-benchmark allocation to India further supported results. Conversely, stock selection in the US hampered performance. Our position in a global industrial REIT underperformed after the company’s management reduced its earnings guidance for the year amid weaker-than-expected demand in the first quarter. In addition, a position in a data centre operator weighed on results. The company’s shares remained under pressure after a research firm accused the company in March of manipulating key metrics. We maintain a positive view of the company and increased our position. Our position in an industrial REIT focused on coastal markets also held back returns.

30-Jun-2022 - Jai Kapadia, Portfolio Manager ,

During the quarter, we remained focused on companies with quality properties, strong management teams, and solid balance sheets. We have overweight positions in market segments that we expect to benefit from their pricing power, such as lodging, apartments, industrial, and self-storage REITs. We took advantage of the downturn in industrial names following Amazon's announcement that it will slow its pace of leasing warehouse space and added to our positions in the sector. We believe that there is more than enough demand available from other sources to absorb any excess capacity created by Amazon's pullback. Additionally, there is a scarcity of city center industrial land, which is necessary for same-day delivery.

United States

The largest absolute weight in the portfolio and benchmark is in the United States, the largest and most mature market within commercial real estate.

Prologis, an industrial property landlord with significant global scale, remained the portfolio's largest holding, and we added to our position to take advantage of more attractive valuations during the period. We believe that the company is well positioned to benefit from supply chain reconfiguration and growth in e-commerce, and its focus on faster-growing markets could drive above-average rental growth.
We initiated a position in American Homes 4 Rent, which is focused on single family home rentals. We believe a lack of housing supply should drive continued strength in single family rental rates, and we like the sector's relatively defensive characteristics.
We eliminated our positions in student housing provider American Campus Communities and industrial REIT PS Business Parks, both of which agreed to takeover offers from affiliates of Blackstone Group.

Japan

We have a significant weighting in Japan. We believe Japanese real estate stocks should benefit from a lifting of coronavirus-related restrictions as well as the Bank of Japan's commitment to a very accommodative monetary policy.

We added to Mitsui Fudosan, our largest position in Japan. The company, which develops and owns numerous office, housing, and retail properties, has made progress in improving shareholder returns via dividends, share buybacks, and the removal of cross-holding shares.
We initiated a position in Katitas, a company focused on renovating and reselling detached housing. We believe the company can gain market share in a fragmented used-home market, with limited competitive pressures. ��

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United Kingdom��

We have a large allocation to the United Kingdom. In our view, London remains an attractive global city for companies, employees, and real estate investors alike.

We added to our position in Intercontinental Hotels, one of the world's largest hotel operators, amid attractive valuations. We believe the company should benefit from an accelerated pace of new unit growth, and we like InterContinental's asset-light model, which should provide some protection against wage inflation.
Derwent London and Great Portland Estates represent our largest positions in the UK. We have a positive view on Grade A office landlords given green buildings are in high demand.

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Continental Europe

We adjusted our positioning in Europe.

In Belgium, we took advantage of the recent downturn in industrial REITs and initiated a position in Warehouses de Pauw, which owns industrial warehouses across Europe. The company's leases are linked to inflation, and the limited availability of supply in its markets should be beneficial.
We reduced our position in Vonovia, a company that owns a large portfolio of multifamily residential properties in Germany. In our view, high interest rates and rent controls would make it difficult for Vonovia to grow earnings above inflation.

30-Jun-2022 - Jai Kapadia, Portfolio Manager ,

Prologis, an industrial property landlord with significant global scale, remained the portfolio's largest holding, and we added to our position to take advantage of more attractive valuations during the period. We believe that the company is well positioned to benefit from supply chain reconfiguration and growth in e-commerce, and its focus on faster-growing markets could drive above-average rental growth.
We initiated a position in American Homes 4 Rent, which is focused on single family home rentals. We believe a lack of housing supply should drive continued strength in single family rental rates, and we like the sector's relatively defensive characteristics.
We eliminated our positions in student housing provider American Campus Communities and industrial REIT PS Business Parks, both of which agreed to takeover offers from affiliates of Blackstone Group.
We added to Mitsui Fudosan, our largest position in Japan. The company, which develops and owns numerous office, housing, and retail properties, has made progress in improving shareholder returns via dividends, share buybacks, and the removal of cross-holding shares.
We initiated a position in Katitas, a company focused on renovating and reselling detached housing. We believe the company can gain market share in a fragmented used-home market, with limited competitive pressures. ��

�

United Kingdom��

We have a large allocation to the United Kingdom. In our view, London remains an attractive global city for companies, employees, and real estate investors alike.

We added to our position in Intercontinental Hotels, one of the world's largest hotel operators, amid attractive valuations. We believe the company should benefit from an accelerated pace of new unit growth, and we like InterContinental's asset-light model, which should provide some protection against wage inflation.
Derwent London and Great Portland Estates represent our largest positions in the UK. We have a positive view on Grade A office landlords given green buildings are in high demand.

�

Continental Europe

We adjusted our positioning in Europe.

In Belgium, we took advantage of the recent downturn in industrial REITs and initiated a position in Warehouses de Pauw, which owns industrial warehouses across Europe. The company's leases are linked to inflation, and the limited availability of supply in its markets should be beneficial.
We reduced our position in Vonovia, a company that owns a large portfolio of multifamily residential properties in Germany. In our view, high interest rates and rent controls would make it difficult for Vonovia to grow earnings above inflation.

30-Jun-2022 - Jai Kapadia, Portfolio Manager ,

Higher-yielding names, such as Digital Realty Trust and Vici Properties and triple net REITs Realty Income and W.P. Carey, held up better than lower-yielding real estate in a rising interest rate environment. We did not have exposure to any of those companies given our focus on owning commercial real estate where more value is derived from the location of properties.

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Singapore Stock Picking Detracted

Stock selection in Singapore held back results.

Our position in Digital Core REIT, which operates data centers in the U.S. and Canada, weighed on results.

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Underweight to Hong Kong Hurt Performance

Our underweight allocation to Hong Kong hampered results. Real estate stocks in the territory produced generally negative returns but outperformed the broader global benchmark by a wide margin amid an improving economic environment on the Chinese mainland. �

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Sweden Contributed to Results

Our underweight allocation to Sweden helped returns as the country was the weakest performer in the benchmark for the period. Stock selection in the country also added value. Swedish real estate stocks struggled amid a backdrop of high inflation, slowing growth, and a hawkish central bank. Moreover, the relatively high levels of leverage in Nordic real estate companies�have led to�refinancing concerns in the region.

�Our position in office landlord Fabege delivered negative results but held up better than its peers. The company benefited from its focus on office assets in the Stockholm market, which has better supply/demand dynamics than other Swedish cities.

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Past performance is not a reliable indicator of future performance.

Source for performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures.

Daily performance data is based on the latest available NAV.

The Funds are sub-funds of the T. Rowe Price Funds SICAV, a Luxembourg investment company with variable capital which is registered with Commission de Surveillance du Secteur Financier and which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). Full details of the objectives, investment policies and risks are located in the prospectus which is available with the key investor information documents and/or key information document (KID) in English and in an official language of the jurisdictions in which the Funds are registered for public sale, together with the articles of incorporation and the annual and semi-annual reports (together “Fund Documents”). Any decision to invest should be made on the basis of the Fund Documents which are available free of charge from the local representative, local information/paying agent or from authorised distributors. They can also be found along with a summary of investor rights in English at www.troweprice.com. The Management Company reserves the right to terminate marketing arrangements.

Please note that the Fund typically has a risk of high volatility.

Hedged share classes (denoted by 'h') utilise investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

The specific securities identified and described in this website do not represent all of the securities purchased, sold, or recommended for the sub-fund and no assumptions should be made that the securities identified and discussed were or will be profitable.

Attribution Data: Analysis represents the total performance of the portfolio as calculated by the FactSet attribution model and is inclusive of other assets that that will not receive a classification assignment in the detailed structure shown. Returns will not match official T. Rowe Price performance because FactSet uses different exchange rate sources and does not capture intra-day trading. Performance for each security is obtained in the local currency and, if necessary, is converted to U.S. dollars using an exchange rate determined by an independent third party. Figures are shown with gross dividends reinvested.

Sources: Copyright © 2020 FactSet Research Systems Inc. All rights reserved. Analysis by T. Rowe Price Associates, Inc. T. Rowe Price uses a custom structure for sector and industry reporting for this product.

A full list of the currently issued Share Classes including Distributing, Hedged, and Accumulating Categories may be obtained, free of charge and upon request, from the registered office of the Company.

©2023 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Citywire Data Source: Citywire – where the fund manager is rated by Citywire, the rating is based on the manager’s 3-year risk adjusted performance. For further information on ratings methodology, please visit www.aboutcitywire.com.

United States

Japan

Risks

Typical Investor