Property hunting: turning market sell-offs into income opportunities

As with any investment, your capital is at risk and any income is not guaranteed.

If there is one thing a real estate investor loves, it’s a capital markets day. Bringing the investment community together allows a business to cut through the market noise and focus on longer term dynamics, or dive deeper into divisions they feel are poorly understood.

Sometimes, it is an eye-opening experience that transforms your appreciation of a market or business. Sometimes it is just a thinly-veiled excuse to show off their newest, shiniest building. Only rarely is it something that causes a meaningful move in the share price.

So when Equinix’s shares plunged nearly 20 per cent in a straight line on the back of their 2025 capital markets day – a massive price move for the normally staid, slow-moving real estate sector – our interest was piqued.

First, an introduction. Equinix is a US-listed real estate investment trust (REIT) focused on the datacentre industry.

Datacentres are buildings filled with computer servers that store and exchange data, essentially serving as the physical footprint of the internet. Businesses rely on data centres to securely handle their critical digital information. Equinix operates globally and is the world’s largest provider of specialised, interconnected facilities where networks, cloud providers and other businesses come together to exchange data.

It’s a fantastic niche business that we have owned in the Monthly Income Fund since 2022, during which time the dividend has grown by 51 per cent.

So, what did management say to prompt such a dramatic reaction?

In short, they decided to put their foot on the accelerator to speed up the growth of the business. Recognising the massive opportunity presented to them by the advent of generative AI, they unveiled an ambition to double the size of the business in five years, funded by a 50 per cent increase in capital investment.

The sting is timing; because that capital has to be spent before it can generate income, this meant that earnings growth would be slightly lower in 2026 before recovering this ground, and more in subsequent years as those facilities filled up. So, slightly lower earnings today for higher earnings tomorrow.

The scale of share price reaction would make sense if you thought that Equinix was permanently impairing its growth prospects. But that is categorically not the case – underlying revenue growth guidance was pretty much unchanged.

Now, the decision to swing the bat much harder at the AI opportunity is not riskless. Demand needs to exist to fill those facilities once built. Market conditions need to allow for that to happen at viable rents. But in a datacentre market enjoying secular demand growth and with supply constrained by the finite availability of power, we feel that is a risk worth taking, especially given the compelling return on capital Equinix has consistently generated from its investments.

From the perspective of our real estate holdings in the Monthly Income Fund, this is exactly the kind of short-term mispricing that we look to take advantage of. As Equinix is not a particularly high yielding stock, it created a window of opportunity to add to our holding at a more attractive price than we’d ordinarily expect.

While it might now take a year or two for management to prove their strategy and the market to give them credit, we are patient and being paid to wait, collecting our steady dividend.

Value opportunities exposed by market short-termism

A similar example in our portfolio that is now approaching its endgame is Assura, a UK specialist healthcare REIT. In 2024, Assura acquired a portfolio of private hospitals and financed this by issuing a large block of shares to the seller. So far, so unremarkable.

However, the market, expecting the seller to dump those shares at a discount once the six-month lock-up expired, aggressively sold Assura’s shares in anticipation, driving the dividend yield as high as 8 per cent. At this level, we viewed the business as effectively priced to go bust, something that to us made no sense given the substantial government backing to Assura’s rents and long-term, low-cost financing structure.

So, expecting the share price drop to reverse once the selling pressure ended, we increased our position substantially, to the point where Assura is currently the largest property holding in the Monthly Income Fund.

The payback came earlier this year when the company, still languishing at distressed pricing, became subject to a takeover battle between private equity and Assura’s listed peer, Primary Health Properties (PHP). The shares have subsequently delivered a 35 per cent total return in 2025 year-to-date.

But the best part is, assuming PHP wins the battle, we not only enjoy those short-term gains, but also remain invested for the long-term in a business that will be larger, more cost efficient, and able to deliver the same compelling, growing, government-backed income that attracted us to Assura in the first place.

Baillie Gifford Monthly Income Fund

Annual past performance to 30 June each year (%)

Source: FE, Revolution. Net of fees, total return in sterling. *Investment Association Mixed Investment 40-85% Shares Sector

Past performance is not a guide to future returns.

The Fund has no target. However you may wish to assess the performance of both income and capital against inflation (UK CPI) over a five-year period. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector.

Important information and risk factors

This communication was produced and approved in August 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, and Baillie Gifford and its staff may have dealt in the investments concerned.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested.

Market values for illiquid securities which are difficult to trade, or value less frequently than the Fund, such as holdings in weekly or monthly dealt funds, may not be readily available. There can be no assurance that any value assigned to them will reflect the price the Fund might receive upon their sale. In certain circumstances it can be difficult to buy or sell the Fund’s holdings and even small purchases or sales can cause their prices to move significantly, affecting the value of the Fund and the price of shares in the Fund.

Derivatives may be used to obtain, increase or reduce exposure to assets and may result in the Fund being leveraged. This may result in greater movements (down or up) in the price of shares in the Fund. It is not our intention that the use of derivatives will significantly alter the overall risk profile of the Fund.

The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced.

Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.

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