Overweight exposure to Hong Kong REITs hits Dexus Asian fund

The Dexus Asian REIT Fund has indicated to underweight allocation to the Japan real estate investment trust (REIT) market and slight overweight allocation to the Hong Kong REIT market as a key detractor from its performance versus the index.

The fund, which has released its results for 12 months to June 2023, has reported a total comprehensive loss of $1.56 million, compared to $4.60 million in prior year, which was driven by $2.90 million decrease in valuation losses.

At the same time, it said the stock selection in all its key markets were strongly positive and contributed to fund’s outperformance against the index for the period by 2.41%.

Dexus Asian REIT Fund, formerly known as APN Asian REIT Fund, invests in REITs listed across Asia Region, including but not limited to Hong Kong, Singapore, Japan, Malaysia and New Zealand, but excluding Australia.

The Asian REIT market delivered a return of -5.79% in FY23, with the second half of the year deteriorating from the first half and global and Asian REITs being affected by the prospects of higher interest rates and China’s shallow post-pandemic economic recovery.

Over FY23, the Dexus Asian REIT fund returned -3.38% which was 2.41% ahead of the Asian REIT Index.

“Notable positions that added most to the Fund’s performance for this period include overweight positions in Hong Kong’s non-discretionary retail owner Fortune REIT, as well as an overweight to Japan multifamily REIT, Kendix Residential REIT,” the fund said in the announcement made to the ASX.

“Looking at the performance by property sector over the year, the hotel sector in both the Japan and Singapore REIT markets were clear leaders across the regions given the reopening of borders for tourism. Another notable outperformer was niche data center landlord in Singapore, Keppel DC REIT, that strongly outperformed on robust fundamentals.

“The laggard performers for the year in the index were small cap REITs with exposure to the beleaguered US office market, but listed in Singapore, that were impacted by weak fundamentals, asset valuation write-downs and elevated gearing levels. The fund did not have any exposure to these REITs.”

The Singaporean REITs, which returned -0.48%, remained the strongest market within the Asian Region, followed by the Japanese REIT market that outperformed the market with a return of -4.03%.

The Hong Kong REIT market was the weakest during the period (-21.94%) and was clouded by the prospect of China’s continuing concerns over the stability of their real estate credit markets.