Fundamentals critical for property investing

Global property fund managers still have to look at physical property fundamentals before investing in a real estate investment trusts (REIT).

Principal Global Investors executive director, real estate, Pat Halter said investment managers still need property skill sets to be able to run a successful fund.

“The manager needs to look at the property first and then the management of the REIT,” he said.

“We also look at how the management company of the REIT is capitalised [and] the properties managed, but the property skill sets are still needed by the analysts.”

To maintain a hands-on approach to global property, Principal has recently added London to its list of offices that have real estate experience.

“Principal now has two people in London looking at European property, and this is in addition to our offices in Asia, US and Australia,” Halter said.

“We are very excited about the opportunities that are opening up in Europe as more countries adopt REIT legislation.”

The UK and Germany have both made REITs legal, and the fund manager will be increasing its global REIT weighting for this area.

Halter said the US still made up 45 per cent of the global allocation of the REIT market, with the UK and Europe taking 22 per cent. Asia has a similar weighting and Australia is 11 per cent of the global market.

The global REIT market is now worth almost $US1 trillion.

Halter said while Principal kept broadly to the geographical weightings, it was more interested in the individual REITs.

“We focus on superior stock selection based on sustainable fundamentals and future growth of the REIT,” he said.

“It is a very disciplined process to build a high quality portfolio.”

In Australia, Principal has recently launched a global property securities fund that will invest in REITs sourced from around the world.

The research for the investment will be conducted by the global property team, including those based in Sydney.

“We feel real estate is a local business, so we have to have people on the ground in the region we are investing in,” Halter said.

“They can hear about what is going on in the local real estate market and we have trusted analysts in our regional offices who have good local market knowledge.”

With many countries now adopting the REIT model, which started in the US in 1960 and Australia in 1971, he said many institutions are looking to invest in global property.

“The global property market is still developing, but there is a lot of institutional money being invested in the sector,” Halter said.

“The institutions understand the need to diversify their property portfolios on a long-term basis.”