RREEF Provides Exposure to Global Property Markets

Investors who are seeking to participate in the growth of the global as well as booming Asian real estate markets may do well to take a look at Deutsche Bank's latest offer

The bank is making available for the first time to retail investors its RREEF-managed mutual funds, previously offered only to high networth individuals and institutional investors.

On offer are three real estate securities funds – the RREEF Asia-Pacific Real Estate Securities which has a purely Asian focus; RREEF Global Real Estate Securities; and RREEF Global Real Estate Income Securities.

The RREEF Global Real Estate Securities is growth focussed in that its portfolio is weighted towards investments in Asia and the stocks of property developers, while the RREEF Global Real Estate Income Securities invests in more income related instruments.

“We believe that each fund offers an attractive balance of risk and potential returns. The Asian fund would be expected to show greater volatility due to the nature of Asian equity markets and a lower REIT content. However the return prospects are commensurably higher,” said RREEF Asia Pacific Real Estate Securities Head Daniel Ekins.

Explaining the difference between RREEF and a real estate investment trust (REIT), he pointed that that each RREEF portfolio is more diversified and includes both equities and REITS.

“Whereas an individual Singaporean investor investing directly in REITs may only own a handful of S-REITs. There are 30 to 40 stocks in each RREEF fund covering a wide spectrum of real estate returns including rentals, funds management fees and development profits. REITs only provide exposure to rentals.”

The RREEF Asian portfolios are also well spread out geographically in that they invest in markets from Japan to the Middle East, including exposures to Hong Kong, China, Singapore, India, Philippines, Malaysia and Japan.

Japan constitutes the biggest portion of the RREEF Asia Pacific Securities portfolio at 34.9%, followed by Hong Kong (22%), China (16.3%), and Singapore (9.6%). In terms of sector allocation – 47% of the portfolio is in office, with another 23% in residential and about 15% in retail.

“We are currently underweight in Japan as we see even more attractive opportunities in other parts of Asia. However, we think that Japan market is very healthy, being dominated by an office market with vacancies below 3% and forecast to experience a number of years of 5-10% per annum rental growth. J-REITs are showing an average dividend yield of 4.7%, and large developers trading at 30-40% discount to net asset values (NAV).”

Ekins pointed out that on the whole, Asian real estate is at an ‘early stage of a long-term structural uplift’ He expects Asia-listed real estate developers and REITS to deliver as much as a 20 percent profit growth this year.

“All investment markets are cyclical. Real estate securities prices are now approaching a cyclical low making it a good time to invest now. Asian real estate securities markets are 40% below their highs, and show very good dividend yields and a large discount to underlying net asset values (NAV)” (See Chart 1)

While the US subprime mortgage market meltdown has led to a global credit crunch that has influenced the pricing of all assets prices everywhere from equities, bonds and real estate, Ekins is of the view that Asian economies will be able to weather the storm due to strong internal growth drivers which will create exceptional growth potential for real estate securities in the region.

“Once the dust settles, Asian real estate securities will recover to prices that acknowledge the strong underlying fundamentals.”

Given such optimism, Ekins is targeting annual returns in the range of 12-17% for the RREEF funds over the next three to five year years. He also noted that global real estate securities have generally outperformed global stocks by 12.5% and bonds by 24.6% over a five-year period. (See Chart 2)

The minimum sum for investing in the RREEF funds is US$1,000. Depending on the share class that is selected upon fund application, dividends are either reinvested into the fund or distributed quarterly. There is an initial sales charge of up to 5% and an annual management fee of 1.5%. RREEF currently manages some US$14bn of real estate securities globally and approximately US$3.5bn in Asia. The RREEF team in Asia is supported by a 90-person Asia-based direct real estate team and 36-person Asia Pacific equities team.