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.
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 contrast to problems among some unlisted property products.
SEB already invests over €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.
Körfgen (pictured) believes gross distribution returns of around 7% are currently possible at the portfolio level. Reit investors benefit from income as Reits must distribute most of their net income frequently 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.”
Yield from SEB’s product is above the Bloomberg Asian REIT ex Australia index’s, and above major countries’ 10-year debt.
The 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 for 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.”
Companies now in the portfolio trade on price to book ratios of below 1.
“This is much more conservative than you may find in European markets,” he added.
On a look-through basis Körfgen’s team likes high quality shopping mall investments. “In Asian markets, when you have a good mall, it is not a problem to find tenants and there is a waiting list for good malls. Companies like Zara or LVMH would close their outlets in Europe before they closed outlets in Asia. They want to be present in Asia, and their capital expenditure is there.”
SEB’s sector split is 52% retail, 18% office, 16% industrial, and 14% between residential, hotels and healthcare.
It does not yet invest in Reits in Japan, on valuation grounds, and has only 5% exposure to China, via entities listed in Hong Kong. Legal property rights mean it avoids Vietnam for now. It also avoids Thailand, because many of the Reits there are below its €150m minimum assets threshold.