Treading a path to Asian property

Related Content Related Video White Papers Related Articles

SEB Asset Management’s Thomas Körfgen sees strong income and good prospects from listed Asian property funds.

SEB Asset Management has launched a vehicle investing in Asia-Pacific real estate investment trusts (Reits), to give investors liquid access to an inherently illiquid asset, and income, in some of the world’s fastest-growing economies.

Exposure to growth will be a welcome change to growth-starved European investors. The vehicle’s 6.8% gross dividend yield aids an income-poor market; and daily redemptions are a contrast to problems among some unlisted property products.SEB invests more than €2bn in Asia-Pacific property, including direct investments.

The four-member team on SEB Asia Pacific Reit sits in Singapore and Frankfurt, and is led by Thomas Körfgen, head of real estate equities. The fund’s manager is Julian Mittag. Their €91.5bn Asian Reit universe is growing. Reits made 27% of all Asia-Pacific property purchases, by value, early last year.

Attractive returns

Körfgen (pictured) believes gross distribution returns of about 7% are currently possible at the portfolio level. Reit investors benefit from income as Reits must distribute most of their net income as dividends.

“This provides a new attractive alternative to supplement traditionally bond-heavy portfolios, in particular for investors such as institutions, foundations, or family offices with a strong preference for high ordinary income,” Körfgen says.

Yield from SEB’s product is above the Bloomberg Asian REIT excluding Australia index, and above major ­countries’ ten-year debt. Asian Reits traded at an average discount to NAV of 12.6% in March, compared to the 5% discount globally. Both compared well with the global 2% premium since 2006.

Andreas Bickel, head of asset allocation and advisory with Rothschild Wealth Management in Switzerland, says: “Our framework is showing a moderately positive ­valuation picture for real estate globally. Wwe recently raised our allocations to real estate in the cyclical asset allocations that form the framework for our clients’ ­portfolios.

“For a euro mid-risk mandate, we have moved up from a 3% to a 5% position. We believe this is a more sensible and meaningful allocation to the asset class, and one we will continue to adjust as the outlook evolves.”

SEB AM’s Ucits-compliant product has quantitative and qualitative screens to select Reits for investment, based on risk/return profile, as well as experienced management and acceptable corporate governance. Its Reits screening includes interest rate coverage (of at least 2.5 times), loan to value (of under 50%), dividend yields (exceeding 5%), price to book (under 1.2 times at portfolio level), and an overall proprietary ‘risk measure’.

Other factors considered include five-year dividend and rent growth, occupancy rates, weighted average lease expiry and short-term refinancing needs.

“Interest coverage on average [in SEB Asia Pacific Reit] it is five to six times, which means interest rates could increase by factor of more than five before companies [in them] could have problems, or they could increase their debt by a factor of five,” Bickel says.

Close Window
View the Magazine

You need to fill all required fields!