Real estate investment trusts (Reits) are seeing strong demand this year off the back of robust, stable returns, with Asian investors the main driver of these flows, according to fund managers. That said, some parts of the Reit market are seen as heavily overpriced.
Collin Bell, a managing director on the fundamental equity team at Goldman Sachs Asset Management (GSAM), told AsianInvestor: "There is just a huge amount of interest coming in, especially from Asia to publicly traded companies owning real estate and other forms of real assets such as infrastructure. We've seen close to $2 billion of net inflows into our liquid real asset franchise year to date." This is close to highest flows GSAM has seen across its $20 billion LRA franchise. Roughly $1.5 billion of that has come from foreign investors.
Hong Kong and Singapore Reits have seen particularly strong performance this year.
Singapore's market comprises 37 listed trusts focused on real estate with a combined market capitalisation of S$87 billion ($62.5 billion). They have returned an average of 12.7% this year and have maintained an average distribution yield of 6.8% as at September 30. This compares with a dividend yield of 3.9% for the Straits Times Index and 4.3% for the MSCI World Reit Index.
Hong Kong’s biggest Reit, the Link, with a yield of 3.66% has soared more than 25% over the past 12 months, while the city’s Champion Reit is up 13.74% and yields 4.8%.
Overall, Asia-Pacific Reits have generated average annual returns of 12% over 15 years, and provide a dividend return of between 4.5% and 6%, with a higher Sharpe ratio than most alternative assets, according to Hong Kong-based Reit fund specialist Admiral Investments.
Investors are attracted by Reits’ relatively safe returns as compared to traditional listed equity, said Bell.
All that said, investors would be advised to tread carefully. Certain parts of the Reit market are overpriced, including the mortgage and healthcare sectors, which are each up 30%-40% year-to-date globally, as against 10% for the broader Reit market.