from legg masons august report

Market Review

August proved to be a difficult month for investors as global macro
concerns, a general slowdown in global growth and a sense of hesitation
drove markets lower. The Australian federal election and the uncertainty
over the result also contributed to a generally defensive mindset.

A-REITs that outperformed this month included Charter Hall Retail
(+12.3%) and Westfield (+5.1%). Charter Hall Retail gained ground after its
strong result and its revised strategy to sell its U.S. and New Zealand
investments. Westfield outperformed as it reported some recovery in nearterm
U.S. retail sales. The laggard this month was Valad Property
(-14.0%), which fell despite delivering a result in-line with expectations.

Performance

The Legg Mason Property Securities Trust underperformed its benchmark
over the month. However, portfolio performance over the past year was
0.4% ahead of benchmark.
Despite the reporting season throwing up a range of stock specific stories,
the Trust�s underperformance over the month was largely attributable to
the portfolio�s exposure to some of the smaller capitalised A-REITs and
those with exposure to offshore assets. The underperformance from these
factors was largely on a thematic basis rather than any significant negative
stock specific news.

In particular, the portfolio�s overweight exposure to Valad Property Group
(-14.0%) detracted from performance. Valad lost ground despite delivering
a result in-line with expectations. We note that Valad has enjoyed positive
developments from its European business recently and believe that
investors have underestimated its value. Catalysts remain for recovery of
capital from Valad�s positions in its development book, in particular its
exposure to Gold Fields House.

Outlook

There appears to be a general lack of confidence in the strength of the
economic recovery, especially in the U.S. This lack of confidence follows
worldwide massive government stimulus as well as corporate and personal
debt de-leveraging.
However, A-REIT gains over the past month are an encouraging indicator
of the significant value that we continue to believe is on offer in selected
underlying Australian securities. This view was supported by the
reasonably favourable company reporting season, which showed that AREITs
have reduced their risk profiles and increased their focus on
traditional property rental streams.
As the valuation spread between the most attractive and least attractive
names in the investment universe remains at four times historical
averages, we continue to believe that the A-REIT sector will move higher
on a medium term time horizon.

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