Perspective

Review of Q1 Market and Fund Performance

Global real estate stocks posted losses in the first quarter of 2024, as multiple exogenous factors weighed on the capital markets (e.g., central banks slowing the pace of monetary policy tightening, the war in Ukraine, China’s muted recovery, the looming risk of a U.S. government shut-down and the growing tension in the Middle East). Notwithstanding this host of geopolitical and macroeconomic concerns, investors instead focused on the prospect of a transition from central bank tightening to easing along with an expectation that a “soft landing” appeared increasingly likely. The FTSE EPRA Nareit Developed Index (the “Index”) had a total return of -1.05% for the quarter, while the Easterly Global Real Estate Fund (the “Fund”) generated a total return of -2.68%, underperforming the Index by 163 basis points.¹

The Funding Environment for Commercial Real Estate

Listed REITs enjoy access to all four quadrants of the capital markets (public and private, debt and equity), providing them with greater access to capital than is typically available to their private real estate counterparts. Moreover, public REITs typically operate with lower leverage than do most private real estate companies – thus further insulating them from any disruptions in the capital markets. Accordingly, any stress that emerges in the regional banking system will no doubt have greater impact on private real estate companies than on public real estate companies.

As to the ramifications for the Fund’s portfolio, we have evaluated all companies owned with an eye toward identifying any that have near-term refinancing risk. We have determined that none of the companies owned in the portfolio have any potentially challenging debt maturities until 2025. As a further test we evaluated each company’s exposure to variable-rate debt and determined that none of the companies owned in the portfolio have an amount that exceeds our comfort level as well as prudent amounts that are consistent with their capital formation cycles and overall financial flexibility.

Finally, as it relates to the highly challenging outlook for office buildings, particularly those located in Central Business Districts, the impact of fundamental changes in how companies manage their office space needs in the new world order of hybrid work models, owners of office buildings will experience significant headwinds over the next five plus years as existing leases expire and tenants downsize their space needs. The ensuing erosion of value will in some ways be similar to the secular decline in regional malls resulting from the “Amazon effect,” i.e., the disruptive impact of e-commerce. Just as the commercial real estate industry writ large managed to thrive in the face of substantial value destruction in the regional mall sector (which at one time had a larger market capitalization than the office sector), it is certainly plausible that the coming difficulties in the office sector can be contained without spreading to other sectors or the funding markets for commercial real estate. In both of these situations, the portfolio management team foresaw the impending challenges and was proactive in reducing the Portfolio’s exposure in order to preserve the Fund’s capital.

Attribution of the Fund’s Q1 2024 Performance ²

Key contributors and detractors to the Fund’s relative performance over the fourth quarter are outlined below:

• The Fund’s overweight position in the Residential sector was the largest contributor to relative returns vs. the benchmark, resulting from stock selection. The Fund also benefited from being underweight the Net Lease, Self-Storage, Leisure, Office, Life Science/Lab Space, and Cold Storage sectors and its overweight in the Single-Family Rental, Lodging, and Outdoor Advertising sectors.
• The Fund’s stock selection and weightings in the Retail, Data Centers, Cell Towers, Health Care, Industrial, and Medical Office Buildings detracted from relative returns.

Notable individual contributors to the portfolio’s performance in the quarter include:

Instone Real Estate Group SE (INS GY – contributed 51 basis points)

• Instone is one of the largest residential developers in Germany.
• The share price benefited from slowly improving fundamentals (stabilization in construction costs and new home prices, pace of pre-sales recovering from a low base), in addition to expectations of the German Parliament passing a new law providing tax incentives for buy-to-let landlords (the law was eventually passed at the end of the first quarter).

Boardwalk Real Estate Investment Trust (BEI CN – contributed 49 basis points)

• Boardwalk REIT is an owner of Canadian Multifamily properties with geographic focus in Western Canada.
• Favorable supply/demand imbalance in Canadian Multifamily exists with 3.5M too few homes in Canada versus demand, and, as such, double digit rent growth and record occupancy for Boardwalk.
• The company produced excellent 2023 results and also provided a very strong 2024 guidance.

American Homes 4 Rent (AMH – contributed 39 basis points)

• American Homes 4 Rent engages in the acquisition, renovation, leasing, and operating of single-family home rental properties. It targets neighborhoods and communities with access to lifestyle amenities.
• A lack of new and existing homes inventory aided by high mortgage rates continue to lead to strong rental growth and low turnover in the single-family rental housing as the renting remains a cheaper option than buying in most markets. AMH is capitalizing on these trends both in its existing portfolio and development pipeline resulting in superior earnings growth.

Notable individual detractors from the portfolio’s performance in the quarter include:

Link Real Estate Investment Trust (823 HK – detracted 136 basis points)

• Link REIT is the largest Asian REIT with a portfolio predominantly comprised of grocery anchored shopping centers across Hong-Kong, China, Australia, and Singapore.
• The drivers of the Q1 2024 negative performance were rising concerns about the economic health of Hong Kong and China, increased cross border shopping in Shenzhen by Hong Kong consumers, a continued cash drag from limited reinvestment of the rights issue cash, and modestly higher global interest rates.

CK Asset Holdings Limited (1113 HK – detracted 38 basis points)

• CK Asset Holdings Ltd. is an Asian listed REIT that specializes in property management and ownership of commercial and residential real estate, infrastructure, and utility assets.
• CK Asset cut their dividend by 10%. Management’s choice to retain capital and match the dividend with the lower than typical profit generated from their Hong Kong and China residential sales profits earned in 2023. Notably this dividend cut decision was made prior to the elimination of stamp duty in Hong Kong which resulted in a surge of new condo sales.

Cellnex Telecom S.A. (CLNX SM – detracted 34 basis points)

• Notwithstanding healthy fundamentals in its core business, Cellnex’s decline during Q1 2024 was driven by marginally higher European and UK interest rates, investor disappointment from the lack of major positive surprise from the inaugural annual meeting with the new management team, and still less that hoped for asset sales success.

Conclusion

Despite the lingering macroeconomic uncertainty and geopolitical stress capturing headlines, our outlook for the global real estate market is increasingly constructive. Real estate fundamentals and earnings growth in most property sectors remain healthy amidst an environment characterized by low supply paired with high construction costs.

Our high conviction, benchmark-agnostic investment approach allows us to be highly focused on identifying and owning only the 50 highest-quality companies in our investable universe. We have high confidence in our fundamental research as well as in the management teams of the companies we own. While global capital markets continue to experience transitory periods of market distraction by non-fundamental factors, we believe the portfolio is well positioned as investor attention inevitably returns to fundamentals.

¹Source: Bloomberg as of 3/31/2024.

²Source: FactSet as of March 31, 2024.

Fund Performance

3/31/2024	QTD	YTD	1-YEAR	3-YEAR	5-YEAR	10-YEAR	SINCE INCEPTION 8/1/2011
I Shares	-2.68%	-2.68%	4.56%	-3.82%	1.92%	4.89%	5.97%
Morningstar Global Real Estate Category	-0.83%	-0.83%	7.96%	-1.32%	0.62%	3.31%	3.94%
FTSE EPRA Nareit Developed Index	-1.05%	-1.05%	8.57%	-0.20%	0.74%	4.00%	4.90%

Past performance does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate, so that shares when redeemed may be worth more or less than their original cost. Investors cannot invest directly into an index. For performance information current to the most recent month-end, please call 888-814-8180.

SOURCE: Morningstar Direct. Performance data quoted above is historical.

The Fund’s management has contractually waived a portion of its management fees until December 31, 2024 for I, A, C and R6 Shares. The performance shown reflects the waivers without which the performance would have been lower. Total annual operating expenses before the expense reduction/reimbursement are 1.17%, 1.42%, 2.17%, and 1.17%, respectively; total annual operating expenses after the expense reduction/reimbursement are 1.04%, 1.42%, 2.17% and 0.94% respectively. 5.75% is the maximum sales charge on purchases of A Shares.

The Fund’s investment adviser has contractually agreed to reduce and/or absorb expenses until at least December 31, 2024 for I, A, C and R6 Shares, to ensure that net annual operating expenses of the Fund (excluding front-end and contingent deferred sales loads, leverage, interest and tax expenses, dividends and interest on short positions, brokerage commissions, expenses incurred in connection with any merger, reorganization or liquidation, extraordinary or non-routine expenses and the indirect costs of investing in other investment companies) will not exceed 1.04%, 1.69%, 2.37% and 0.94% respectively, subject to possible recoupment from the Fund in future years. For more information, please refer to the Fund’s summary prospectus and prospectus.

The FTSE EPRA Nareit Developed Global Real Estate Index is comprised of publicly-traded REIT securities in developed countries worldwide which have met certain financial criteria for inclusion in the Index. Each company must derive the bulk of its earnings through the ownership, management or development of income-producing commercial real estate.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other information is contained in the Fund’s prospectus, which can be obtained by calling 888-814-8180 and should be read carefully before investing. Additional Fund literature may be obtained by visiting Funds.EasterlyAM.com.

Risks & Disclosures

Past performance is not a guarantee nor a reliable indicator of future results. As with any investment, there are risks. There is no assurance that any portfolio will achieve its investment objective. Mutual funds involve risk, including possible loss of principal. Effective 10/2/2023, the Easterly mutual funds are distributed by Easterly Securities LLC. Easterly Investment Partners, LLC and EAB Risk Solutions, LLC are affiliates of Easterly Securities LLC, member FINRA/SIPC. Orange Investment Advisors, LLC and Ranger Global Advisers are not affiliated with Easterly Securities LLC. Certain associates of Easterly Securities LLC are registered with FDX Capital LLC, member FINRA/SIPC.

There is no assurance that the portfolio will achieve its investment objective. The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over short or long periods, adversely affecting the value of an investment. Risks of one’s ownership are similar to those associated with direct ownership of real estate, such as changes in real estate values, interest rates, cash flow of underlying real estate assets, supply and demand and the creditworthiness of the issuer. International investing poses special risks, including currency fluctuations and economic and political risks not found in investments that are solely domestic. Incorporating alternative investments into a portfolio presents the opportunity for significant losses including in some cases, losses which exceed the principal amount invested. Also, some alternative investments have experienced periods of extreme volatility and in general, are not suitable for all investors. Asset allocation and diversification strategies do not ensure profit or protect against loss in declining markets.

Easterly Funds, LLC serves as the Adviser to the Easterly Fund family of mutual funds and related portfolios. Easterly Funds, LLC is registered as investment advisers with the SEC. Effective 10/2/2023, the Easterly mutual funds are distributed by Easterly Securities LLC. Although Easterly Funds, LLC is a registered investment adviser, registration itself does not imply and should not be interpreted to imply any particular level of skill or training.

As with any investment, there are multiple risks associated with REITs. Risks include declines from deteriorating economic conditions, changes in the value of the underlying property and defaults by borrowers, to name a few. Please see the prospectus for a full disclosure of all risks and fees.

THE OPINIONS STATED HEREIN ARE THAT OF THE AUTHOR AND ARE NOT REPRESENTATIVE OF THE COMPANY. NOTHING WRITTEN IN THIS COMMENTARY OR WHITE PAPER SHOULD BE CONSTRUED AS FACT, PREDICTION OF FUTURE PERFORMANCE OR RESULTS, OR A SOLICITATION TO INVEST IN ANY SECURITY.

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