Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Question for the Week: I am trying to get my head around the comment that Property does well in an inflationary environment e.g. Goodman. I was thinking that income is fixed (or increases with fixed annual increases) due to long term leases being in place and in an inflationary period yields would increase which would reduce capital value. I would appreciate your thoughts. - Thanks. H
Morning H,
GMG has an ongoing growth path being an industrial real estate provider with focus on logistics / e-commerce, it currently has a whopping $5bn of work I progress plus it also has a funds management business. Currently the company has close to $58bn of assets under management boasting stable customers such as Amazon, Coles, DHL and Walmart. While your question was not directed at the companies quality, more towards why it should perform well during an inflationary environment, it is important as high quality operators generally have pricing power in a market which is critical as inflation rises. History also tells us that during inflationary periods property prices and rental income usually follows suit, the issue generally for property companies is that the cost of debt also rises, however in the case of GMG they are very ‘under geared’ and hold minimal debt.
Short-term sentiment might weigh on GMG as the press flock to the dramas of rising interest rate but MM will ourselves be considering the stock if it again dips down towards $20.
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