ING Clarion Real Estate Securities
[November/December 2006]
By Jada A. Graves
ING Clarion Real Estate Securities has been managing equity real estate assets for institutions since 1984. At press time, the firm managed approximately $14.2 billion in both institutional and individual assets, and it is the manager of one of the largest U.S. REIT funds. Capitalizing on its research that REIT-like investment opportunities would likely grow around the world, ING Clarion Real Estate Securities has made an effort to expand itself globally, and now has a three-pronged fund family geared toward investors interested in assets in the United States and abroad. Since launching the domestically allocated ING Real Estate Fund in 1996, the firm has established the ING Global Real Estate Fund in 2001 as well as the ING International Real Estate Fund in 2006. T. Ritson Ferguson is the chief investment officer with ING Clarion Real Estate Securities and oversees management of all three funds.
Eyes on the Global Picture
Pensions & Investments named ING Clarion Real Estate Securities number one in global real estate assets under management for both 2004 and 2005. This acknowledgement could carry over to 2006, as Ferguson says expanding to include international assets has allowed him to double ING's investable universe. "Investors are realizing that they don't need to invest only in their home market," he says. "Whether it's via a fund or individual stocks, going global can increase liquidity and dividend yield."
While the ING Global Real Estate Fund offers global allocation including the U.S., Ferguson says the ING International Real Estate Fund is meant for investors looking to enhance their existing U.S. real estate stock investments with an international fund.
| Top Five Holdings |
| Company |
% of Portfolio |
| Simon Property Group (NYSE: SPG) |
6.3% |
| Archstone-Smith (NYSE: ASN) |
5.0% |
| ProLogis (NYSE: PLD) |
4.9% |
| Boston Properties, Inc. (NYSE: BXP) |
4.5% |
| Equity Residential (NYSE: EQR) |
4.5% |
|
| Sector |
% of Portfolio |
| Office |
22% |
| Apartments |
22% |
| Enclosed Malls |
13% |
| Shopping Centers |
9% |
| Hotels |
8% |
Both global funds are overweight in the U.K. market and underweight in Hong Kong and Japan. "The U.K. market has outperformed in part because of its fundamentals, but in part because of the evolution of REIT structures," Ferguson explains. "With Hong Kong and Japan, we've taken some money off the table. We still like their fundamentals, but we just thought we should have less exposure."
In the future, Ferguson says his team intends to watch further REIT developments in the United Kingdom, as well as monitoring the growth of Singapore's REIT market. "Singapore is emerging as one of the best markets in Asia for listing pan-Asian companies, and its REITs are emblematic of the possibilities available to international REITs."
The Basic Formula
"When you're looking to invest in companies outside the U.S., it's important to have experts that understand the different supply/demand characteristics of the local markets as well as the restrictions and nuances of various REIT structures," Ferguson says.
To that effect, Ferguson says at ING he is surrounded with 16 field experts who are well versed in direct property investment. Also working alongside him are two managing directors, Joseph P. Smith, CFA and Steven D. Burton, CFA, who lead the U.S. and international teams, respectively. Both Smith and Burton have more than 10 years experience in real estate securities.
Despite the specialization in global markets at ING, Ferguson stresses that investors shouldn't count U.S. securities out of the game. "A lot of people consider the United States over, yet to me, it's like the Energizer® Bunny that keeps marching along," he says. "U.S. public companies have not traded at any sustainable premium to NAV and that makes them potential takeover targets to those putting money to work in the real estate sector. The U.S. has been an above average performer in the last six to 12 months."
A Domestic Approach
Ferguson says the ING Real Estate Funds objective is "total return, through a combination of income and capital appreciation, by investing in U.S. public real estate companies."
With approximately 95 percent of the ING Real Estate Fund's assets allocated to REITs, it has outperformed its benchmark, the MSCI REIT Index, as well as having been in the top quartile of U.S.-focused real estate funds for 2006. According to Ferguson, performance comes down to stock picking.
"We begin with a top-down look. We look at company evaluations and property type trends, and from there we try to conclude which sectors to overweight and which to underweight based on valuation and fundamentals," Ferguson says.
| Top Five Holdings |
| Company |
% of Portfolio |
| Mitsubishi Estate Co Ltd |
4.0% |
| Westfield Group |
3.6% |
| Mitsui Fudosan Co. Ltd |
3.5% |
| Land Securities Group |
2.9% |
| Simon Property Group, Inc. |
2.8% |
| Top Five Regions: |
| Sector |
% of Portfolio |
| United States |
43% |
| Japan |
12% |
| United Kingdom |
11% |
| Australia |
10% |
| Hong Kong |
7% |
Throughout 2006, ING Real Estate Fund has been overweight in office and apartments. "We like those sectors for different reasons, but both of them are experiencing noticeable improvement for fundamentals and earnings growth going forward," he says, adding that the fund will remain overweighted in these sectors in the future.
"Part of the reason we'll continue to be overweight in office is because that sector should have improving earnings growth as the rent rolls from leases signed several years ago come to an end. Rents are going up and concessions are going down."
Ferguson's 16-member analyst team also had picked recently acquired company stocks like Arden Realty, CarrAmerica, which completed its privatization deal July 13, 2006 and Trizec Properties, Inc. He says these companies' recent takeovers drove their value up.
"Even some of the stocks that have not been subject to takeover, such as SL Green Realty Corp. (NYSE: SLG) and Corporate Office Properties Trust (NYSE: OFC), have been good performers due to exposure in good markets, as well as what the management teams have done for those portfolios."
T. Ritson Ferguson
A graduate of the University of Pennsylvania's Wharton School of Business and Duke University, T. Ritson Ferguson began working in real estate with Trammell Crow Company and then moved over to Radnor Advisors before joining ING.
"Trammell Crow and Radnor Advisors were great experiences for me and helped me get an understanding of the real estate industry," he says. "Initially, I worked on all aspects of scouting markets for development feasibility. With Radnor, I worked in acquisitions, dispositions and asset management, and I really got a cross section of the real estate business. I went from development to direct property investment and eventually to investment through stock."
"Real estate is fascinating because it's such a broad playing field, especially at ING with global investment," Ferguson says of his 15 years in real estate securities management. "With ING's real estate funds, we are looking at all property types, and have the chance to invest in companies around the globe that are run by some of the best and the brightest in the industry." |
ING Real Estate Fund is underweight in health care, industrial and shopping center stocks. Ferguson says his team based this decision on market trends as well as its predictions of sector performance in the coming year. "All three of these sectors' stocks have underperformed, and so we've benefited from our prediction," Ferguson says.
"One of the popular misconceptions investors have about investing in REITs is that they are income vehicles only," Ferguson continues. "I admit income is important in the equation for investors, but investors think that because of rising interest rates, real estate won't do well. They are income-oriented equities, but frequently in rising interest-rate environments, real estate stocks have the possibility to deliver better earnings growth, which makes them very different than bonds."
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