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Outlook worsens for property and Reit stocks in 2009, says S&P

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Developed world property stocks continued their downward spiral over the first quarter of 2009, despite a surprising uptick in the performance of emerging markets, according to the late

Developed world property stocks continued their downward spiral over the first quarter of 2009, despite a surprising uptick in the performance of emerging markets, according to the latest Quarterly Global Property Reit report from Standard & Poor’s Index Services.

In Q1 2009, the S&P Global Property Index fell by 19.81 per cent, with many investors fearing that talk of a bottom for property and Reit stocks is premature.

Markets in the developed world suffered the greatest losses with the S&P Developed Property Index dropping 22.22 per cent. North America experienced the largest declines, with the S&P North America Property Index dropping 31.69 per cent, eclipsing Europe and Asia Pacific’s losses of 18.23 per cent and 15.60 per cent, respectively.

The only bright spot came in the form of an extraordinary comeback for Austrian property stocks, posting a quarterly return of +20.31 per cent. This is largely thanks to the strong performance of the country’s largest listed property company Immoeast, whose price soared 122.18 per cent from year-end 2008.

The picture was somewhat healthier in emerging markets, with the S&P Emerging Property Index posting a +7.81 per cent return. Israel was one of the strongest performers in the sector with a +33.0 per cent return, largely due to the 140.19 per cent increase in Jerusalem Economic Corps over the quarter.

The picture for global Reit stocks was equally dismal with Reits hit hardest compared to other equities. Again, the US was the worst performer with losses tied to overleveraging and weak balance sheets.

Similarly, European Reits high gearing, combined with declining property prices and tight liquidity, casts a bleak outlook for the market. While emerging market Reits outperformed their counterparts in the developed world, the S&P Emerging Markets Reit Index still posted a 1.9 per cent loss for the quarter.

Asian Reits remain the most attractive as lower financing risk and their relatively simple nature offer positive long-term growth prospects for investors. The strongest performer was Hong Kong, with returns of almost +14.0 per cent.

‘Global property Reit companies have been hit hard by the global financial crisis and fear and uncertainty in the markets continue to prevent a revival for these stocks. It has been a tough first quarter, with the comeback in emerging market indices providing little relief overall,’ says Alka Banerjee, vice president of S&P Index Services. ‘As the recession deepens, we expect the outlook for US and European Reits to worsen, as the sale of distressed assets, tenant bankruptcies and dividend cuts all increase. Amidst this relatively bleak picture there are bright spots such as Asian Reits and in particular Hong Kong, that can still offer attractive options for investors in this market."

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