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A look at Asian REITs

by Benjamin Cole

The words “real estate investment trust” may yet summon images of dividend-clipping, risk-averse investors in the United States, but for institutional investors seeking exposure to the world’s largest property market — Asia — the otherwise-prosaic listed REIT offers easy access and liquidity.

Over longer horizons, listed REITs generally match even direct institutional real estate ownership for total returns, but without the intensive management obligations, the risks and the need for scale — that is, a large, discrete chunk of capital that can be allocated to one or a few projects.

Although investors of all sizes can deploy capital to Asian REITs to balance portfolios or test waters in new markets, smaller institutional investors may find REITs offer the best, most prudent way to play the Asian property game. “A well-diversified portfolio of Asian REITs can gain exposure to sectors, formats and locations not always accessible by direct investment,” suggests Jana Sehnalova, Singapore-based managing director and CEO/CIO at La Francaise Forum Securities.

Also, Asian REITs often own the highest-quality assets. “For investors looking specifically for top assets, investing in a listed portfolio can be the only option,” says Victor Yeung, CIO at Hong Kong–based property investor Admiral Investment.

Perhaps most important, many Asian REITs are trading below net asset value, while untold hundreds of billions sit on capital sidelines. It does not take much imagination to foresee a wave of pension fund money and global capital heading toward Asian REITs in the next several years, if the global economic picture stays on a growth path.

Private real estate equity funds alone have US$230 billion of dry powder, notes Kwok Wing Cheong, global real estate securities portfolio manager, PGIM Real Estate, citing industry data. “Asian listed real estate, including REITs, currently trades at a discount and, thus, offers investors a leveraged and superior risk-adjusted exposure into the Asian real estate growth dynamic,” he says.

If there is a drawback to listed REITs for some investors, it is that values change every business day. For institutions that need to report stable values, the daily marking-to-market of listed REITs can be a caution, say advisers. “While private real estate values are typically reassessed every six or 12 months, listed real estate values fluctuate every business day. For investors sensitive to volatility, less-liquid private real estate might still appear as a smoother approach,” says Marc-André Flageole, portfolio manager, Presima.

Benjamin Cole is a freelance writer based near Korat, Thailand.

 

A full article appears in the May issue of Institutional Real Estate Asia Pacific. For more information on this magazine or to sign up for a trial subscription, click here.

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