REITs with US assets attractive: OrbisCourtesy Business...

REITs with US assets attractive: Orbis

Courtesy Business Spectator March 10

By Eriko Amaha of Reuters

Australian property trusts that hold US assets have good upside potential as the US real estate markets look set to recover, helping those REITs' valuations, a Sydney-based fund manager said.

"Now, everybody wants Australian property because they are somewhat better. I think that's the wrong way round," Simon Marais, managing director for Orbis Investment Management told Reuters on Tuesday. "I think America is where the greater value is because it has been so bad."

Capital values for US retail assets dropped 21 per cent last year, compared with a fall of 6.4 per cent for Australian malls, according to research firm IPD. US office assets were harder hit with their values plunging 27 per cent, compared with a drop of 12 per cent in Australia.

The exposure to the US market and volatile currency moves took a toll on Australian REITs, resulting in hefty asset writedowns and triggering a retreat home by some Australian-based REITs. The global property market has begun to stabilise, but those which kept their offshore assets remain heavily discounted.

Mr Marais, who helps oversee about $1.5 billion of assets under management, said the US property market is near the bottom and now would be the best time to buy these stocks. On his radar screen are Macquarie DDR Trust , which holds US community shopping centres; Centro Retail Group , which also holds and manages US retail properties; Tishman Speyer Office Fund with exposure in the US office markets, and RNY Property Trust , which targets offices in the New York area.

Shares of Tishman Speyer trade at 60 per cent discount to its net tangible asset (NTA) value while those of GPT trade at a discount of about 15 per cent.

Tishman Speyer and Macquarie DDR have gearing of over 70 per cent, way above some of their larger peers, which are geared about 30 per cent, but Marais said the leverage should work in favour when property prices are about to improve.

"If you think the cycle is going to turn, you want to buy very highly geared things, because there will be massive upside," he said.

Westfield Group , which has 32 per cent of its retail assets in the United States, also looked sound although its share price is expensive, Mr Marais said. The stock is trading at a price-to-earnings ratio of 14 times, compared with a sector average of 10, according to Reuters data.