Experts positive about real estate investment trust outlook, especially for Asia

Written by Ray Clancy

Friday, 03 September 2010 10:27

Real Estate Investment Trusts are benefiting from the austerity drive, increasing confidence in particular for Asian property securities, according to experts.

Investors are seeking yield over growth by favouring defensive sectors, according to Andrew Nicholas and Stuart Martin, managers of the First State Global Property Securities Fund.

They say that in such an environment REITs have typically tended to outperform and are particularly confident about the outlook for Asia.

‘At the peak of the global credit crisis, banks’ lending restrictions for property projects resulted in significant value deflation and balance sheet stress. Despite this, a majority of REITs continued to maintain healthy levels of cashflow through the crisis, which proved crucial in keeping banks at bay and foreclosures at a minimum,’ said Nicholas.

Over the short term, the fund managers are particularly positive about the prospects for Asia, especially China. Stuart Martin, who focuses on the European market of property securities, said that lower levels of economic activity are having a bigger impact on European REITs, given that ‘investment banks, which are often important tenants in this part of the world, are widely expected to put their hiring on hold until Christmas due to the weakness and low liquidity in capital markets’.

Nicholas adds that his outlook for the Asian market is driven mainly by the fact that ‘China is in the process of tightening conditions in the residential property market and whilst this is impacting negatively on demand, it is unlikely to lead to a sustained underperformance of the sector relative to the wider economy’.

One of the most favoured stocks in the First State Global Property Securities Fund is HK Land, a property company with assets largely consisting of high quality office buildings located in Hong Kong’s Central Business District.

The office market in Hong Kong has recovered strongly over the past year and whilst it is highly dependent on the health of the financial services sector, hiring expectations for the country's investment banks are at a record high in contrast with Europe and the US. Year to date, rent growth for the Central Business District has reached 17% and the fund managers believe that it will continue to increase due to strong physical market fundamentals.

Asian property securities rose by 2.9% in July in sterling terms as market concerns receded in the face of robust global trade data.

The First State Global Property Securities Fund, ‘A’ rated by both Standard & Poor’s and OBSR, invests globally in a broad selection of securities issued by Real Estate Investment Trusts (REITs) or companies that own, develop or manage real property. The fund is the top performing retail fund in its peer group over the past 12 months.