Global REIT Markets-The China Story

Jack Foster
Managing Director and Head of Global Real Estate,
Franklin Templeton Real Estate Advisors

David Levy
Co-Portfolio Manager,
Franklin Templeton Real Estate Advisors

Recent turmoil in the global markets and reduced access to financing for real estate companies in many parts of the world have been creating unique investment opportunities in both the developed and emerging Asian property markets. In particular, we are seeing opportunity in Greater China, where we believe there are indications of a bottom.

China's story is distinct from other markets. We have been investing in Chinese property for over a decade, and we are especially excited to gain a foothold in this market now through real estate investment trusts (REITs). The government has done, what we believe to be, a fantastic job in expanding credit and maintaining reasonable debt levels.

In addition, China, along with many Asian countries, did not employ the complex financial derivatives that have proven to be worrisome for some real estate managers throughout the United States and Europe.

With our private equity investments, our team is finding commercial real estate investment opportunities not only in the major Chinese cities, but also in satellite cities such as Wuhan, Chongqing and Foshan. These cities have growing populations that we believe will drive demand for commercial real estate as their economies grow.

In Greater China, our REIT holdings in FTIF Franklin Global Real Estate Fund (both USD and euro) include Hong Kong-based Link Real Estate Investment Trust and Champion Real Estate Investment Trust, which have exposure to the Hong Kong property markets and some limited exposure to the mainland China markets.

In addition, the government of China has stated that it is strongly considering legislation to create a REIT structure for property companies owning exclusively mainland properties.

At present, a bit more than 50% of our two SICAV funds are invested in U.S. commercial real estate. We have exposure to Greater China-nearly 3% of the portfolio-through REITs in Hong Kong and its environs.

When we research the Greater China commercial real estate market, we search for high-quality names trading at favorable or attractive valuations, as we do when choosing any REITs for our funds.

Other prerequisites include healthy cash flow and seasoned management teams that have experienced both down cycles and up cycles.

We also favor REITs with well-located, better-quality assets-properties that command higher rents and tend to hold their capital values-along with firms that have their expenses under control and access to secure bank financing.

We feel it is an advantageous time to be investing in global property, especially in the Asian markets.

Please click for more information on the following funds:

FTIF - Franklin Global Real Estate (USD) Fund
FTIF - Franklin Global Real Estate (Euro) Fund