By The Sizemore Letter<\/u><\/p>\n
Every portfolio needs an allocation to real estate.\u00a0 It is an income-producing asset class with a strong built-in inflation hedge and favorable tax treatment.\u00a0 And at a time when paper profits can be fleeting, real property can offer a stable store of value. What more can you ask for in an investment?<\/p>\n
But investors who focus exclusively on U.S. REITs are missing out on a world of potential opportunities.<\/p>\n
In my last article<\/a> on international real estate investing, I gave the rundown on British REITs.\u00a0\u00a0 Today, we\u2019re going to move further east.<\/p>\n Outside of the United States and Britain, the largest and most liquid REIT stocks are in Japan, Hong Kong, Singapore, and Australia.<\/p>\n We\u2019ll start with Japan\u2019s largest property developer, Mitsubishi Estate<\/b> (Japan: 8802, OTC:MITEY<\/a>).\u00a0 Mitsubishi Estate is not a REIT, per se, though it does act as an asset manager for Japanese REITs (\u201cJ-REITS\u201d), and its size and importance to the Japanese real estate market make a mention of it unavoidable.\u00a0 (On a side note, Mitsubishi gained notoriety by buying the Rockefeller Center in New York in 1989.)<\/p>\n If you are a believer in Abenomics\u2014or believe that Japanese inflation is right around the corner\u2014then Mitsubishi is an attractive option.\u00a0 But I would tread carefully here.\u00a0 The stock pays virtually nothing in dividends, and given the debt and demographic issues<\/a> the country faces, I can think of a lot of other assets I would prefer to own than Japanese real estate.\u00a0 At the risk of being overly simplistic, a shrinking Japanese population means less demand for residential, retail, and office properties in the years ahead\u2026which should mean lower rents and higher vacancies for landlords.<\/p>\n Still, if you\u2019re bound and determined to invest in Japanese real estate, the Nippon Building Fund<\/b> (<\/span>Japan:8951<\/a>)<\/span> offers a respectable dividend yield at 3.01%, has a reasonably large market cap at nearly $8 billion, and has better liquidity that most J-REITs.<\/p>\n Moving on to more promising countries, let\u2019s take a look at Hong Kong and Singapore.<\/p>\n I\u2019ll start with The Link REIT<\/b> (Hong Kong: 823, OTC:LKREF<\/a>), the first Hong-Kong-listed REIT and one of the largest in the world by market cap.\u00a0 The Link\u2019s property empire boasts 11 million square feet of retail space and approximately 80,000 garage parking spaces.\u00a0 This is a veritable Hong Kong property juggernaut.<\/p>\n Following most income-oriented investments, the Link has had a rough couple of months.\u00a0 After peaking in July, the REIT shed nearly a quarter of its value in the \u201ctaper scare\u201d that followed. \u00a0\u00a0But if you\u2019re broadly bullish about Asia\u2019s prospects and about Hong Kong as one of its premier financial and business centers, then there is a lot to like in the Link.\u00a0 \u00a0Shares trade at book value and yield 4.05% in dividends.\u00a0 And unlike real estate investments in much of the rest of the world, the Link actually grew its dividends throughout the crisis.\u00a0 The REIT has raised its dividend every year since 2006<\/a>.<\/p>\n Moving to nearby Singapore, we see much the same story.\u00a0 Rising bond yields caused an across-the-board sell-off in income stocks such as REITs, many of which now offer very attractive yields.\u00a0 Take CapitaCommercial Trust<\/b> (Singapore:C61U, OTC:CMIAF<\/a>).\u00a0 Singapore\u2019s first\u2014and largest\u2014publically-traded office REIT sports a dividend yield of 5.96% and trades at a 20% discount to book value.<\/p>\n CapitaCommercial invests primarily in office buildings, which took a beating during the global financial crisis.\u00a0 But with Singapore\u2019s supply of quality office space starting to get tight, rents are expected to rise significantly<\/a> over the next few years.\u00a0 And importantly, the REIT was able to maintain and raise its dividend throughout the hard times.\u00a0 Of all the REITs discussed in this article so far, I consider CapitaCommerical Trust to be the most attractive, both as a short-term trade and as a long-term income investment.\u00a0<\/strong><\/p>\n And finally, we get to Australia. \u00a0I\u2019m a little wary of investing in Aussie property at this time, as the global commodities boom that has underpinned the country\u2019s prosperity is, in all likelihood, dead for the foreseeable future.\u00a0 After more than a decade of solid gains, I expect the Aussie dollar to drift lower in the years ahead, which will eat into any would-be capital gains and dividends for foreign investors.<\/p>\n I\u2019m not a doom-and-gloomer, and I\u2019m not expecting a major crash in Australia.\u00a0 In fact, I\u2019m actually very impressed with the country\u2019s fiscal management.\u00a0 Virtually alone in the developed world, Australia has no sovereign debt problem.\u00a0 At just 29% of GDP, Australia\u2019s debts are about one third of the American and European average and one eighth of Japan\u2019s gargantuan debt load.\u00a0 This is a country with its fiscal house in order.<\/p>\n Unfortunately, it\u2019s also a country with some of the world\u2019s most unaffordable housing<\/a>, raising the possibility of a broad-based housing crash that would weaken Australia\u2019s banking sector.<\/p>\n If you\u2019re dead set on buying Aussie real estate, I would go for a diversified option like Stockland<\/b> (Australia:SGP, OTC:STKAF<\/a>), Australia\u2019s largest and most diversified REIT.\u00a0 The company develops and manages retail centers, residential communities and office and industrial properties.<\/p>\n Stockland trades at a slight premium to book value and pays a 6.45% dividend.<\/p>\n NOTE: Most of the securities covered here trade in the U.S. as ADRs, and I included the ticker symbols to help you identify them. \u00a0But if you decide to try your luck on any of these, I recommend you trade the shares in the local market where the liquidity is better. \u00a0Most of the ADRs listed in this article are thinly traded and will not be appropriate for most investors.<\/p>\n Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no position in any stock mentioned.\u00a0Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d<\/em><\/p>\n This article first appeared on Sizemore Insights as International REITs: Looking to Asia<\/a><\/p>\n