credit Brad Thomas (Forbes)
U.S.-based REITs have traditionally focused their investments close to home; however, strategic diversification into international real estate is growing in popularity as such expansion has proven profitable for many foreign operators.
Some REITs have broadened their investment sphere by leveraging the combination of expertise and tenant relationships of both the REIT and its foreign partners.
Some well-known REITs have formed strategic tenant and developer partnerships abroad, and in doing so these advantages of diversification and accretive earnings so far have outweighed the risks associated with government regulation, permitting, foreign currencies and taxes, among others.
Recently Simon Property Group (SPG) announced the formation of a partnership with Mitsubishi Estate Co., Ltd. The two partners began construction of Shisui Premium Outlets (Shisui Town, Inba District, Chiba Prefecture), the ninth Premium Outlet Center in Japan. Simon’s Premium Outlets portfolio features 70 Premium Outlet Centers, including 57 in the United States, one in Puerto Rico, eight in Japan, two in Korea, one in Malaysia and one in Mexico.
Simon, in addition to its Premium Outlet Centers also owns retail properties in Warsaw, Naples, in Europe and in and Hangzhou, China.
Other retail REITs have also been active in acquiring properties overseas. Though a subsidiary, shopping center-specialist Taubman Centers (TCO) entered the Asian market in 2005. Taubman currently has 25 U.S. mall properties, with IFC Mall (Seoul, South Korea) scheduled to open in this Fall.
Kimco Realty (KIM) has been actively investing in Canada, Mexico and Latin America in recent years, and has followed many of its tenants across borders. Home Depot (HD), Kimco’s largest tenant, has a substantial and growing presence in both Canada and Mexico.
Additionally, several industrial REITs have been active beyond U.S. borders. Prologis (PLD), the world’s largest and most diverse landlord of industrial distribution facilities with a $16 billion market cap has a presence in both Europe and Asia. With around 600 million square feet (55.7 million square meters) across 22 countries the global industrial REIT leases modern distribution facilities to leading manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises.
Public Storage (PSA), another dominating REIT, operates more than 2,200 unique and diverse company-owned self-storage locations in the United States and Europe, totaling more than 141 million net rentable square feet of real estate.
Recently W.P. Carey (WPC) announced plans to convert to a REIT, pending shareholder approval. It’s U.S.-based sale-leaseback platform currently has an international presence in both Europe and Asia with assets under management and owned in excess of $12 billion platform, comprised of more than 989 properties in 18 countries.
Perhaps the biggest advantage of international expansion is portfolio diversification. Many of the larger REITs have entered foreign markets to balance geographical risks and to enhance overall portfolio returns by exploiting markets with wealth expansion, growing purchasing power and relatively weak competition.