Turnkey - Will history repeat :Macquarie Research,

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Turnkey
Will history repeat
Event
 The Asia real estate sector has been significantly underperforming against the
broader market and within global real estate. We provide an update of our
view on the outlook for Asia-Pacific Real Estate sector and use our theoretical
portfolio to demonstrate our preferences across the region.
Outlook
 Earnings certainty of retail and industrial has provided a safe haven.
CYTD, the best indicators for performance have been low beta, high earnings
certainty, earnings stability, capital position and P/BV. On this basis, as in the
‗global financial crisis‘, it is no surprise that retail and industrial landlords such
as CFS Retail, Cache Logistics Trust, Ascendas REIT, CapitaMall Trust, Japan
Logistics Fund, Aeon Mall, Japan Retail Fund, GPT Group, The Link REIT and
Charter Hall Retail Trust have been amongst the best performers CYTD.
 Be patient and accumulate more cyclical stocks on weakness. Longer
term, while we see further earnings downgrades across the sector in 4Q11,
we believe the price to book value ratios are signalling value as many of the
stocks in the sector are approaching trough levels of the ‗global financial
crisis‘. We believe investors can afford to be patient and accumulate more
cyclical stocks on weakness. However, with limited examples of ‗loosening‘ by
governments, we continue to prefer landlords and REITs over the residential
developers, albeit a shift to an easing bias cannot be far away.
 Regional portfolio:
 Overweight: China, Hong Kong landlords, Singapore landlords, the
Philippines, Indonesia and India.
 Underweight: Hong Kong developers, Singapore developers, Japan,
Australia and New Zealand.
 Earnings revisions lagging. China, Japan and Australia recorded strong net
upgrades in September. Hong Kong, Singapore and India recorded net
downgrades. The earnings revision ratio actually improved, with net upgrades
at 1.14x. This brings the earnings revision ratio to modest net downgrades
CYTD at 0.95x. However, FY12 earnings growth forecast has continued to
moderate and is now just 3.1%.down from 4.7% in August.
 Will history repeat … we hope so. History suggests when the Asia ex. Japan
Real Estate sector P/BV ratio is more than one standard deviation below the
long-run average it is a good indicator of future outperformance. The sector has
traded more than one standard deviation below the long-run average only four
times historically, and each time it has subsequently outperformed the broader
market. The sector is currently trading at a price to book value of just 0.74x
versus a one standard deviation below the long-run average of 0.76x.
 Price to book-value is the best indicator. The Macquarie Quant Team‘s
analysis of the Asia-Pacific real estate sector suggests that the best indicator for
which stocks to own in a crisis and the subsequent rally is price to book value.