Global economic growth is anticipated to remain positive in the year ahead, albeit at lower levels than 2010. Developing economies, which have emerged as a major force in the global economy, will be the key driver of this economic growth. Actions to control inflationary pressures and cool certain parts of their economies will see some slowing in economic growth in the coming year but should remain at reasonable levels. Important~, while significant fixed investment has been a major driver of economic growth in developing economies, these countries do have huge populations with a rising middle and upper class. The expected expenditure by the consumer from this rising middle to upper income households should sustain robust economic growth in these countries for years to come. While the US is expected to realize positive economic growth in the year ahead, the high fiscal deficit, rising government debt levels and a depressed housing market pose key challenges for this economy. Europe is anticipated to be the laggard in future economic growth as rigid policies and painful austerity measures drag economic growth in the region over the next few years.


The lack of major new property developments and supply in developed markets over the past two years is supporting a slow recovery in operating fundamentals of commercial real estate and we have seen occupancy, rental levels and arrears stabilizing over the past six months with the outlook of gradual improvement in 2011 and the recommencement of dividend growth. A moderate increase in inflation is also positive for rental and income growth which will impact positively on property valuations. The key opportunity for listed REITS in 2011 is an increase in the pace and size of property sales by the private sector and banks as refinancing requirements increase. Listed REITs are very well positioned to make earnings enhancing acquisitions because they have been very active in raising equity and reducing their debt levels and increasing their debt maturity profiles. Equity and bond issues of GBP21 billion were completed by listed REITS during the fourth quarter of 2010 which increased the equity and new debt issued by the listed REIT sector to GBP1 06 billion since January 2009. The current loan to value ratio range of 40%-45% is based on property values that troughed over the past year and as property values recover, the listed REIT balance sheets will continue to strengthen.


Despite an increase in bond yields over this quarter, the valuation of global listed REITS remain attractive relative to government bond yields with Europe and Singapore in particular offering good value with dividend yields that are double the government bond yields. Although the current US dividend yields are not that attractive relative to government bond yields, it should be noted that 46% of earnings have been retained in order to reduce debt and to fund acquisitions and it is anticipated that the payout ratio will increase to the historic norm of 90% over the next few years. This is illustrated by the FFO yield being in excess of 6% relative to the dividend yield of less than 4%. The Oasis Crescent Global Property Fund is well positioned to take advantage of these opportunities and it remains our focus to identify the companies that are well managed and well placed to take advantage of these opportunities. The average dividend yield of the Fund of 6.1 % is very attractive relative to the average bond yield of 3.7% and based on the gap to the average FFO yield of 7.4%, there remains upside for the dividends to grow.