GLOBAL STAMPEDE
Florence Chong
25 August 2005                                       Australians were the largest foreign investors in
The Australian                                       the US in 2004-05, having spent $US6.8 ($9.03
                                                     billion) on American real estate, according to
Australian investors are taking over the global      research firm Real Capital Analytics.
property trust market, Florence Chong reports
                                                     From a low base, unlisted global property
AUSTRALIA is driving the globalisation of            securities trusts have rapidly raised tens of
property investment as it pumps billions of          millions to buy into overseas listed real estate
dollars into overseas markets.                       investment trusts, the offshore version of
In the past two weeks a raft of listed property      Australia's LPTs. Already, the top four global
trusts announced offshore expansions and             securities managers in Australia have raised $4.4
acquisitions, along with their profit results. The   billion, mostly locally in the last year.
push offshore has become a stampede.
                                                     The push to go offshore comes from a shrinking
And it's not all sleek New York office towers.       supply of investment properties in Australia and
Macquarie Bank's industrial property trust,          concentration of the LPT sector.
Macquarie Goodman, said listing a trust in Japan
was on the agenda, while Dutch banking giant         "The reason we go offshore is because of the
ING Industrial Fund said yesterday that it had       consolidation in Australia where a single stock
spent $155 million buying German industrial          (Westfield) makes up 35% of the index," Russell
property.                                            Investment Group chief investment officer Peter
                                                     Gunning said.
With some $50 billion flowing into                   Mr Gunning has halved his exposure to
superannuation funds each year an ever               Australian LPTs and shifted the money into listed
increasing allocation will be channelled overseas    global securities.
via listed property trusts and unlisted global
property securities funds.                           It's the conundrum facing investors: buy into an
Australian LPTs have aggressively invested in the    Australian LPT which already has a chunk of
US and have now turned to Europe. Offshore           offshore property; or go global direct through
property makes up about 40% of Australian            securities funds and REITs.
LPT's total assets.                                  International property securities have rewarded
Of the $3 billion raised so far this year,           investors with big returns in the past two years.
Melbourne-based asset consultant Ken
Atchison said, $2 billion went to offshore           The Colonial First State Colliers International
acquisitions.                                        Property Securities Fund achieved a total return
                                                     of 56% in the year to July 2005, Colonial First
Mr Atchison said the capital was raised by trusts    State head of property securities
such as Babcock & Brown Japan Property Trust         Stephen Hayes said.
($280million); Galileo Shopping America Trust
($380 million): Macquarie family of trusts (over     While Mr Hayes did not expect the fund to
$500million); APN European Fund ($100million),       maintain this level of returns, he said that over
Rubicon America Trust ($150million) and James        the medium term, actively managed global
Fielding US Industrial Trust ($120 million).         REITs funds would "dramatically outperform"
                                                     Australian LPTs. Mr Hayes said that by investing
Analysts believe that by 2008 Australian             directly in global funds, investors cut out a layer
institutions could invest up to $80 billion          of fees, and reduced currency risk.
overseas through LPTs and direct property
holdings.                                            He also said investors faced lower third-party
                                                     construction and development risks.
Equally important is the development of a global      estate securities managers in Australia, with
REITs market, offering greater geographical           more in the wings.
spread and product diversification.                   Mr Kelly said several Mercer clients, who
                                                      historically have invested 50% in LPTs and 50%
The market capitalisation for global REITs is         in Australian direct property funds, have
estimated at $650 billion.                            introduced a 25% allocation to global listed real
The combined market capitalisation of REITs in        estate securities.
Japan and Singapore is already close to $40
billion, nearly half the size of the Australian LPT   "If you look back 12 months ago, the sentiment
market.                                               was: we should have global securities," Steve
                                                      Hiscock, principal of SG Hiscock, a Melbourne-
Other Asian markets, particularly Hong Kong, are      based boutique fund manager, said. "Now it is:
poised to grow their REITs listings.                  `how much we should have in global
In Europe, Germany and Britain are expected to        Mr Hiscock receives daily inflows averaging
launch their first REITs in the next year.            around $200,000 a day from four
                                                      superannuation funds.
According to government estimates, the German
REIT market will eventually grow to "E40 billion      "Six months ago, we would get this amount in a
($65 billion) to E90 billion).                        week."
Such is Australia's appetite for international
exposure that the world's largest investment          John Ferraro, principal consultant with asset
banks have chosen Australia to launch their           consultant Watson Wyatt, said small to medium
global property securities funds.                     superannuation funds (managing $500 million or
Large US funds managers like Invesco and              less) had started to allocate funds to global
Russell Investment Group, and asset                   listed securities.
management arms of Deutsche Bank and ABN              Larger super funds had their own portfolios of
Amro, used Australia to roll out global products.     direct or unlisted property investment offshore,
                                                      he said. Deutsche Asset Management head of
Deutsche Bank plans to launch a similar fund in       listed property securities Danny Ekins said at
Europe next month, followed by the US early           least three super funds each had $100 million to
next year.                                            invest in global securities and were shopping for
A month ago, Dutch banking group ING began
marketing its ING Global Property Securities          Since launching its global property funds last
Fund, due to be launched in Australia next            November, Deutsche has secured its first
month.                                                investment mandate from a big superannuation
ING chief investment officer David McClatchy          Until recently, AMP Capital Investors' head of
said the trust was created specifically for the       property securities Brett Ward said, global
Australian market and returns would be fully          securities were regarded as an "alternative asset
hedged back to the Aussie dollar.                     class".

Mercer Global Investment chief investment             With greater awareness of these products -- the
officer Russell Clarke said Mercer's target was to    result of a slow process to educate super funds
raise $120 million for investment in listed global    in the past three year -- global property
securities. Currently, $60 million of the $600        securities had moved into the mainstream, he
million Mercer's management is in listed global       said.
                                                      As a funds manager, Macquarie Bank has
Mercer Investment head of property research           exported its REIT or listed property trust model,
Nick Kelly said there were 15 global-listed real      helping to globalise property investment,
                                                      especially in Asia.
Macquarie is involved in creating REITs in            particularly if the REIT was backed by a
Singapore, Korea and soon in Hong Kong and            manager with strong branding and reputation.
possibly Japan.
                                                      He added that the Hong Kong Securities and
Macquarie's head of property                          Futures Commission had recently amended its
Stephen Girdis said Macquarie-controlled assets       Code on Real Investment Trusts, making it less
worth $4 billion in Asia, including shopping          restrictive and more in line with regulations in
centres in China, industrial buildings in Hong        other regional jurisdictions.
Kong and housing in Japan. It continued to            Consequently, up to half a dozen trusts,
acquire properties in several countries to build      including potentially one or two with mainland
up a critical mass before launching REITs.            Chinese property assets, are likely to launch in
                                                      Hong Kong over the next year.
Macquarie runs nine REITs and has flagged two         From experience in other jurisdictions, Mr Cheng
or three more property trusts to be listed in Asia.   expected that a Hong Kong REIT (other than the
                                                      Link REIT) would probably have an asset base in
Macquarie Goodman chief operating officer             the region of $US350 million to $US500 million.
David van Aanholt said it planned to launch a
REIT in Hong Kong to house its industrial             UBS head of Asian real estate Michael Smith said
properties there. It has so far acquired              another five or six Singapore REITs were likely
$400million worth of industrial and business          to follow the listing of Prime REIT on the
parks and is negotiating on more properties.          Singapore Stock Exchange.
Macquarie Goodman is the joint manager of the         S-REITs have a market capitalisation of around
Singapore-listed Ascendas REIT, capitalised at        $S10 billion.
$S2.3 billion ($1.5 billion).
                                                      Excluding Japan, which already has 22 listed
It is also a cornerstone investor in the proposed     REITs with up to a dozen in various stages of
$1 billion Prime REIT, which will hold Singapore      planning, Asia will have about 20 REITs by the
retail assets.                                        end of next year.

Hong Kong lawyer Milton Cheng, partner with           Mr Smith said the first REITs had been listed in
Baker & McKenzie -- which has advised on              Korea, Thailand, Malaysia and Taiwan, and more
several Asian REITs including the Fortune REIT        would follow.
in Singapore and Futon No.1 REIT in Taiwan --
said indications were that the Hong Kong REIT         He said the first China REIT would most likely be
market was about to take off.                         listed in Hong Kong. How well it would be
Mr Cheng said the recent Hong Kong Court of           received would depend on the sponsor, the
Final Appeal decision on the Link REIT had            investment case and pricing.
cleared the way for its listing.                      Chris Reilly, director of property Asia with
                                                      Henderson Global Property Investors, based in
Investment bankers are preparing fresh                Singapore, said Australian institutional investors
documentations on Link REIT, touted to be the         regularly participated in Asian REIT IPOs.
largest REIT in the world, for listing on the Hong
Kong Stock Exchange, probably by the end of           AMP Capital participated in the recent Mapletree
the year.                                             float in Singapore.
                                                      "We were lucky to have participated in a
When first offered last November, the $US3            meaningful way," Mr Ward said.
billion IPO attracted subscriptions totalling
$US36 billion, excluding $US569 million from          But Mr Reilly said that in future investors would
cornerstone investors, including AMP Capital          have to compete for allocations. The Mapletree
Investors and Colonial First State.                   REIT IPO limited the number of units major
Mr Cheng said there was clear evidence of             investors could receive.
strong demand for REITs in Hong Kong,

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