APG Asset Management, the €450 billion ($531 billion) Dutch pension fund manager, hired Roberto Versace as its new Asia-Pacific head of listed real estate investments to replace Nila Ng, who left the firm in November 2016.

Versace joined on June 19 to oversee a team of three – two senior portfolio managers and a senior analyst – which covers the region from Australia to Japan, including Asian emerging markets.

He previously worked as London-based portfolio manager for Asian equities at EII Capital Management, a US property investment firm that closed its international offices in June, as reported.

  Roberto Versace

Versace’s Asia-Pacific team manages some €5 billion ($5.9 billion) in property stocks. This is about 13% of the €40 billion that APG invests in real estate worldwide, split roughly evenly between listed securities (including real estate investment trusts (Reits)) and private assets.

APG AM manages 75-80% of its assets in-house and wants to increase that proportion in order to have more control over its investments and reduce costs over the long term, Versace told AsianInvestor.

APG AM views real estate as one asset class, combining listed and private assets and shifting between the two as necessary.

APG manages money on behalf of four pension plans: ABP (civil servants and teachers, €391 billion); bpfBOUW (construction sector, €46 billion – excluding property investments, which are done by Bouwinvest); SPW (social housing; €12 billion); and PPF APG, the personnel pension fund of APG itself (€1 billion).

Q  What do you see as the most and least attractive opportunities now?

We’ve seen quite a rally in beta-orientated markets, such as China, Hong Kong and Singapore developers. Hong Kong property developers are up 27% this year, Singapore developers 37% and Chinese developers 113%, by our internal benchmarks [as at end-July]. 

So we see less relative value in Hong Kong and Singapore property developers, given their performance this year, but there is still some deeper discount to net asset value in China and in pockets of emerging markets.

Investors are potentially looking forward to the reflation trade, as the US Federal Reserve raises rates and pares its balance sheet. Hong Kong and to a lesser extent Singapore are linked directly to US monetary policy, and there will obviously be a correlation between the performance of Reits and the pace and size of interest rate changes.

Q  So are there markets you like more now?

We see value in Australian Reits, as some have been selling off. Australian Reits are flat year-to-date [as of end-July], but some stocks down between -2% and -9%, with retail property among the worst hit.

This reflects the risks of both US interest rates and 10-year Treasuries rising and concerns about the domestic retail real estate market. [E-commerce giant] Amazon is set to launch retail operations in Australia next year, which has the market worried about how retail malls and their landlords will make money. Still, Amazon’s penetration will take time.

Japan Reits are also looking more attractive, having fallen 6% this year [as of end-July], largely due to domestic Reit mutual fund outflows.

There is also some value in Japanese developers, but the question is whether that can be realised given less-than-optimal capital management, the modest economic recovery and the cycle points for key physical markets.

Q  To what extent does APG invest in Chinese property markets?

APG is not heavily invested in Chinese property stocks, and only those listed in Hong Kong. We have reduced our exposure there in light of higher valuations following a very strong run this year, with several stocks having more than doubled in price.

We’ve seen policies introduced aimed at keeping prices down, which had an effect on stock prices last year. But there is still organically strong end-user demand. So prices have moderated to an extent, and supply is still catching up to that demand.

Q  Do you have any concerns about Chinese developers use of leverage?

Margins have stabilised, but are still relatively healthy. We’ve seen leverage come down over the years.

Chinese developers listed in Hong Kong are in a better operating position than they were a few years ago, largely due to reducing leverage and less aggressive land acquisition, while maintaining a solid pace of sales and margins.

We will generally stay away from developers with high levels of debt and sales volatility. China developers employ a business model driven by top-line revenue, and we are acutely aware of the associated risks of being too aggressive with land acquisitions and sales targets.