Australian investors are paying well over the odds for US property trusts, according to a global property investment guru.
Yesterday, United States based global property investor, chief investment officer, Cohen & Steers, Joe Harvey said Australian investors should be wary about listed property trusts that have floated exclusively to buy US property assets.
Harvey believes Australian companies that have paid above market value for US property assets could well be at the mercy of adverse world currency movements.
Harvey said Australian LPTs have been paying over the odds for US property assets and definitely more than their US counterparts.
He warned not only have Australian trusts paid too much interest rates could eventually bit Ozzie trusts.
"If you use currency swaps to hedge against currency it gives you additional income," Harvey said in Sydney.
Harvey believes there could be a "day of reckoning" when the income stream that is sold to investors "goes away when currency swaps turn the other way".
"The companies that have been floating here exclusively to buy US assets – they’re the ones to be most wary of," Harvey warned.
He said Cohen & Steers had reduced its exposure to Australian and US property securities because they are too expensive and that emerging European and Asian markets like Germany and Hong Kong provided better value.
However, on the other side of the pendulum, Harvey said Australian LPTs could still be a good investment as long as dividend payments remained around the 4% mark.
He admitted Australian LPT Centro Property Trust has done a “very good job” of creating different distribution networks to raise capital.
"I think for companies that bought early in the US they’ve done a very good job because they’ve ridden the higher real estate values in the US,” Harvey added.
Harvey said right now is a little more risky.
“But I think investing in the US is going to continue because the cost of capital is still there, in fact it’s even higher.
"So, I’d expect to see companies like Centro buy another REIT."
By Nelson Yap
