Cash to flow back to trusts as investors look for yield

AN INCREASE in public floats and mergers and acquisitions activity will be a feature of the real estate investment trust sector in the medium term, according to Principal Real Estate Investors.

AN INCREASE in public floats and mergers and acquisitions activity will be a feature of the real estate investment trust sector in the medium term, according to Principal Real Estate Investors.

Kelly Rush, head of global property securities for Principal Real Estate Investors, based in Des Moines, Iowa and Alastair Gillespie, the firm's Singapore-based managing director for portfolio management, have forecast a flow of cash back to the indirect REIT sector by investors seeking out higher yields.

Mr Rush said US REITs' share prices were back at parity with net tangible asset values, making the sector more attractive for all investors.

Mr Gillespie said the same would occur in Australia, but only when that gap narrowed, which was happening at a slower pace than the US. "Asian investors are looking to more defensive markets to provide a lower beta investment," Mr Gillespie said.

"They are all looking at the US, London and Australia, both directly and indirectly through REITs. Japanese investors have been active buyers in London in the past year."

Mr Gillespie said another emerging trend was for fund managers to bundle these assets into their own REITs, such as the Singapore-based Ascendas which is preparing to float a new hospitality fund, seeded by the hotel assets it acquired from Mirvac.

He said developing markets such as Brazil will become more popular as cash flows to higher yielding greenfield developments. Westfield and the US retail landlord Simon Property Group have led the charge with large-scale projects.

Mr Rush said he had seen a general trend among his clients to switch to more global funds to diversify volatility and risk.

"US stocks have been strong performers in a relative sense but funds are now searching for yield, particularly in a low interest rate environment," Mr Rush said.

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