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REITs Step Up Overseas Investments

By    |   Monday, 30 April 2012 07:14 AM

U.S.-based real estate investment trusts (REITs) are ramping up their investments overseas, providing an added level of diversification and potential return for domestic investors.

“Investing abroad hadn’t been on the agenda of a lot REITs for a while, due to the economic situation. But now it seems to be back on the agenda,” Bartjan Zoetmulder, tax partner with Loyens & Loeff, a Rotterdam-based tax and law firm, tells REIT.com.

Financial advisers constantly preach the benefits of diversification, and real estate itself provides diversification from your stock and bond holdings. Foreign real estate offers diversification from your U.S. stock and bond holdings, your U.S. real estate holdings, and your foreign stock and bond holdings.

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Foreign real estate also can provide powerful returns. “Overseas expansion [by U.S. REITs] opens new avenues for potential long-term profitable growth and could increase operational and geographic diversity,” according to a Fitch Ratings report.

Simon Property Group (ticker: SPG), the country’s largest mall owner, is jumping into foreign properties in a major way. In April it announced a joint venture with BR Malls Participacoes, the largest retail real estate company in Latin America, to develop malls in Brazil.

Simon also has recently entered joint ventures to build malls in Japan and Canada. And it bought a 29 percent stake in Klepierre of France, Europe’s second-largest publicly traded mall operator.
Simon has various other holdings in Europe, Asia and Latin America.

Other retail REITs are active overseas too, Forbes reports. Taubman Centers (TCO) has been in Asia since 2005, with a mall scheduled to open in Seoul this fall. Kimco Realty (KIM) has made investments in Canada and Latin America over the past few years.

Latin America, in particular, provides opportunity for retail REITs. The middle class is exploding there and now accounts for 50 percent of the region’s population. These people are ready to hit the malls and spend.

“More U.S. and international retailers from mainstream and luxury sectors continue to make Latin America their new destination,” Franco Calderón, president of Latin American Retail Connection, tells Forbes. “They’d be silly if they didn’t.”

Industrial REITs also are getting busy overseas. Prologis (PLD), the world’s largest warehouse owner, has interests in Europe and Asia. Self-storage REIT Public Storage (PSA) has some facilities in Europe.

Investment in Europe has become easier for U.S. REITs, says Zoetmulder of Loyens & Loeff. “European laws have become much more integrated. So you can move cash around Europe tax free.”

The joint ventures that many U.S. REITs are using to invest overseas provide a level of balance sheet protection. But keep in mind that overseas real estate investments carry risks – including currency and political risks.

The investments are subject to the vagaries of foreign environmental, labor, and tax regulations. And the REITs may encounter difficulties repatriating income.

Editor's Note: Did Obama Betray America? Video Reveals Truth

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Monday, 30 April 2012 07:14 AM
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