Presenter: Joining me now is Scott Crowe, Senior Vice President of Cohen and Steers. Thanks for being here Scott. So what are the benefits of investing in global real estate securities?

Scott: Well the benefits are access to one of the world's largest asset classes, which is commercial real estate on a global basis. The challenge for most investors is that it's very difficult to access commercial property, because tall buildings cost a lot of money and they're illiquid. So listed real estate allows you the opportunity to invest in the asset class through a liquid means with a relatively small amount of money, and you can do that on a global basis.

So what are the benefits of commercial real estate? Well it's an asset class which provides a very healthy level of yield. It's also an investment in hard assets, which I think is increasingly important, and at the same time gives you access to the benefits of economic growth and inflation through rental increases over time.

Presenter: Tell me a little bit about Cohen and Steers?

Scott: Cohen and Steers is the longest serving investment manager that is focussed on investing in listed real estate securities. We've been around for more than twenty years. We are New York Stock Exchange listed with more than $150m of cash on our balance sheet and no debt. We have more than $30bn of funds under management. These financial resources allow us to have teams based all over the world; we have more than 30 investment professionals based in New York, London and Hong Kong. We're also able to work with our clients creatively to provide holistic solutions for their global real estate needs. We have global real estate investment strategies as well as a number of regional strategies, so US only, Europe only, Asia only. Long short capabilities, direct real estate fund of funds and are soon to launch an emerging market strategy focussed on listed property.

Presenter: So how do you cover the universe of global real estate securities?

Scott: Well luckily I've got a lot of help. We have a team of 25 investment professionals around the world; we have offices based in London, Hong Kong and New York. And that's how we really cover the three regions. We believe that real estate's a local business, although it provides global opportunities, and what that means is that you really do need to have a presence in each market that you invest in. You need people on the ground that are able to access both the management companies of the companies you're investing in and also to do our own due diligence on the real estate and come up with our own independent valuation with the portfolios these companies own. So importantly we speak the language of every company we invest in and place a high emphasis on doing our own proprietary research on the ground field work.

Presenter: How do you analyse and then value real estate securities?

Scott: Well primarily what we seek to do is figure out what the true underlying value of a company's portfolio of real estate assets is worth. So obviously we need a large team that has a global footprint to do that, and then we spend a lot of time literally touring assets, looking at portfolios and deriving our own independent valuation for what we think those assets would trade for and should trade for in the underlying real estate markets. And we do that very much on an asset by asset basis, and then figure out what the aggregate value of that portfolio should be. We then compare that to the value that's being ascribed to that portfolio by the stock market, and essentially what we're doing is we're looking for opportunities where there's a difference between what Wall Street's willing to pay for a real estate company and what it's really worth. And when we find those very large discrepancies, that's when we really zero in and concentrate our clients' investments, because that's over time when you'll find the best return opportunities.

Presenter: And how do you construct a portfolio?

Scott: Again, we focus primarily on where we see the biggest discounts to underlying real estate value. We tend to run a fairly concentrated portfolio; our universe consists of about 300 securities, real estate securities, globally, and currently our portfolio represents about the top 75 best opportunities we see around the world. The way we select these securities is bottom-up, fundamental valuation, and again trying to maintain its concentration to really drive alpha from a stock selection basis. We also take country risk, where we see opportunities that are very extreme from a valuation point of view.

So say Australia was screening very very cheap, that's an area where we would allocate more of the portfolio's assets to and also take a country overweight. But we try to drive 75% of our alpha from stock selection versus country selection, because our view is that's a very high quality source of alpha, that its very directly related to the idea behind our investment process which is to find on the stock level, based on fundamental valuation where the biggest deviations between real estate price and stock price are.

Presenter: Describe your investment process for me?

Scott: At Cohen and Steers, one of the tools that we've used very successfully over the years to help screen companies for the best valuations is our statistical valuation model. Essentially what we find is that when we discover an outlier on a valuation basis that typically contains a lot of information about probability of outperformance. When you have securities that are closer to the average, closer to the mean, that might just be noise or a forecasting error, but as you move more into the extreme ends of the distribution of how stock valuations are laid out, you know, what you find is an increasing probability of outperforming. In fact as you move into what we call the green tail, what you find is that the probability of outperforming increases exponentially.

So this is a tool that helps us first craft the stocks that we put into the portfolio based on the bottoms up valuation. But it also helps us identify where we want to spend our time in terms of researching opportunities. Because essentially what we're doing when we look at this green tail, this outlier of very cheap stocks, is saying that we disagree strongly with how the market is pricing those assets, and so we spend a lot of time backing that up with on the ground fundamental research to make sure we're right.

Presenter: Do you invest in emerging market real estate opportunities and do you believe these opportunities offer attractive options?

Scott: Yes we do invest in emerging market real estate. Our approach is really centred around getting access to the emerging consumer. So our preferred exposure is going to be retail malls in countries that have a great macro backdrop, where you've got this emerging consumer that's being supported through increased access to credit, and that allows them to basically continue to spend and expand. At the same time the yields that we can achieve on these assets are far in excess of the yields we can achieve in most developed markets. But the growth profiles are much higher, so you have the sort of twin benefit of a higher income yield and a higher growth profile.

Stepping back and sort of looking at it from a five year view, I think emerging market real estate securities is going to be one of the most exciting places to invest globally. And that's because it really does provide you direct access to the big change that's going on, the big structural shift that's going on with about 500 million people over the next five years joining the middle class in places like India, Brazil and China. And as these people become more affluent, more developed, we see increased levels of urbanisation. What you're going to find is a massive increase in the demand for all kinds of real estate, whether it be office buildings for white collar employment, whether it be that the changing nature of how people shop, no longer do they just need groceries, you know, they'll be looking for clothes and televisions, other appliances. You know, they want to stay at hotels. They need industrial facilities to transport goods around and help the economy grow. And this is a big challenge the world faces, and I think through investing in listed real estate, securities focussed on emerging markets, you're able to sort of turn that global challenge that these economies have into a very profitable investment opportunity.

Presenter: What's your outlook for the global real estate securities markets?

Scott: First off from a big picture we're in the start of an economic cycle, and that implies we should see a multiyear increase in real estate values and cashflows from real estate companies. If I break it down by region, in North America, so Canada and the US, the conditions are pretty good right now; we have low interest rates and increasingly broadening economic recovery, and these are both conducive for increased real estate values. At the same time, the REIT market in particular is in a very good spot. And that's because it has very good access to finance.

REITs were very successful in recapitalising their balance sheets in 2009, and what that means is that they are able to borrow money from banks and the corporate bond market at very competitive rates. At rates that are much more competitive than other players in the real estate markets, and that's allowing them to enhance their earnings through acquisition growth.

If I move to Europe, the situations probably a little less positive, we have a situation where we have slower levels of economic growth, primarily due to austerity measures, and that just means cashflows for real estate assets are growing at a slower pace. At the same time, financing is tougher. The European REITs don't have the same access to capital as the US. That said we do find bright spots within these markets. Scandinavia is one area where we've had a lot of success in investing. Those economies have come through the crisis very well. Primarily because they went through a downturn twenty years ago, they had a big real estate crash twenty years ago and learned the lessons well. And so we're finding good levels of economic growth, healthy banking systems and attractive real estate markets.

Other places that we like in Europe include the London Office market and the Paris office markets, where we expect rents to rise over the next couple of years. And then to finish it off in Asia Pacific, you know, the outlook's more mixed. On the one hand you have very strong markets like Hong Kong and Singapore, where there's a lot of growth in employment, growth in income, that's leading for increased amount of real estate for office buildings, for retail malls and good real estate value growth. Australia, it has solid growth as well, but when we move to Japan, the outlook's a little less cheery. Japan is more challenged from a fundamental standpoint. It's still crawling its way out of the last recession, and there's a little bit of a supply overhang.

But, you know, overall the situation I think is very good for investors. If they're investing in commercial real estate today they are definitely getting in the early parts of the cycle, which tend to be the best time to invest.

Presenter: So what differentiates Cohen and Steers?

Scott: Cohen and Steers is the longest serving investment manager that specifically focussed on investment listed real estate, and we've been doing that now for twenty years. We're also the largest in our space. What also differentiates us is that we're very specialised, it's our primary investment activity, and that means we have a high degree of focus and experience on this area. What that also means is we have the resources to provide for a large investment team and the resources to spend the money and the time to go out into the markets and actually do our own underwriting of the real estate ourselves, and that provides us a big investment edge when investing for our clients.

So one comment we often get is how can you deliver outperformance to your clients if you don't have a direct real estate business, if you're not physically buying and selling property assets? I think one of the easy ways to sort of answer that is to look at our track record. We've been doing this twenty years and very successfully, so the question is why? And I believe it's because we are focussed and specialised and we can put a large amount of resources into our investment team and our process, and what that means is that every part of the investment process is proprietary to Cohen and Steers. Every piece of information that we acquire and we use, all our inputs that we craft into understanding the value of the real estate assets the companies we invest in and own, are all proprietary to us, and they're formulated through on the ground primary research by our investment team. And I think this gives us a distinct edge over other players in the market that may outsource parts of their process to other entities, other parts of their company.

At the same time, we're independent, we're not part of a large direct real estate organisation and we're not part of a large financial firm, and that means that we're able to talk to more people. We have a very deep and a wider array of market contacts that we can speak to, because they know that there are no inherent conflicts in our business. They know what we do, we're specialists in investing in listed real estate companies, that makes the companies themselves feel much more comfortable, much more able to share information with us. It makes the banks that lend to these companies more able to talk to us because they know that they're not involved in any real estate deal that we would be doing, because we don't do that. And at the same time, because we have a presence in the market, you know, we are able to access a lot of market participants, because they're often interested in knowing what we think as well.

So I think that our focus and our scale in specialisation allows us a much better menu of information to help craft our inputs.

Presenter: What are some examples of investments you've made in the last year?

Scott: A good example is Hong Kong Land. Hong Kong Land owns prime office buildings in central Hong Kong. We've been invested in Hong Kong Land for more than three years, and essentially what we saw was that the market was mispricing these real estate assets because it was worried about some peripheral supply outside of central Hong Kong. And through our detailed analysis what we could see was that that supply was not going to be nearly great enough to meet demand, because demand, there was a structural increase in demand, as you know the world looks to Hong Kong to enter China, and increasingly, and this is the big change, China looks at Hong Kong to enter the world. So what we could see was that over time that secular demand would overwhelm any of the sort of peripheral supply issues that were in that market and that rents would grow very significantly, and that allowed us to really see the true underlying value of Hong Kong Land's portfolio and see the big discount it was trading at.

Other examples that I think highlight well our ability to look further afield than most to find alpha for our clients include some of our investments in Scandinavia. You know, these are markets where there are language barriers, they're out of the way places, they're not often visited by sort of run of the mill investment managers, and yet we've been able to very successfully invest in these markets by first getting access to the information through language skills, through having people that are from Scandinavia in our investment team, and then obviously understanding the underlying dynamics of that market that meant that it wasn't like the rest of Europe, that it did have a very healthy economy and seeing the potential in those markets.

Another example that we've been very successful in last year was our investment in more companies in Brazil, and we've been investing now in emerging markets for more than three years and very successfully, this is not something that's new to us, and when we went to Brazil, a few years ago, what we could see is that these assets were yielding 10, 11, 12%, which is far in excess of any yields for high quality retail you could get in the US for argument's sake, but the growth rates were huge. We're talking about double digit growth rates, and that led us to take a position on those companies very early that did very very well for us. Unfortunately that example is probably more understood these days and hence our investment in Brazil today is lower than it had been. Primarily because the stocks aren't as cheap, and the yield that you achieve by investing today at today's higher price is maturely lower, it's more like 7, 8% as opposed to 10-12%. But nonetheless it's a good example of our ability to sort of scour the world for less known opportunities.

Presenter: Scott Crowe, thank you.
Scott: Thank you.

Important Information
Past performance is no guarantee of future results. There is no guarantee that any market forecast discussed will be realized. There is no guarantee that any historical trend discussed will be repeated in the future, and there is no way to predict precisely when such a trend will begin.

This presentation is for informational purposes, and reflects prevailing conditions and our judgment as of this date, which are subject to change. It does not constitute investment advice or a recommendation or offer. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment.

Risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies, declining rents resulting from economic, legal, tax, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies.

Cohen & Steers mutual fund investors should consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A prospectus containing this and other information may be obtained, free of charge, by visiting cohenandsteers.com or by calling 800.330.7348. Please read the prospectus carefully before investing. Cohen & Steers open-end mutual funds are distributed by Cohen & Steers Securities, LLC.

Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds.

By clicking on the link below you will be leaving the Cohen & Steers Web site. Please note that we are providing the link to this third party website only as a convenience and the inclusion of a link to the linked site does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked site. We do not control the accuracy, completeness, timeliness or appropriateness of the content or information on the linked site and you will be subject to its terms of use and privacy policies, over which we have no control. In no event will we be responsible for any information or content within the linked site or your use of the linked site. By continuing to the linked site you agree to the foregoing.

Important Information

This material is for information purpouses only and is not intented as an offer or solicitation with respect to the purchase or sale of any security. Asset.tv and its associates accept no liability for any loss arising from the use hereof nor make any representation as thier accuracy or completeness.

For professional investors only.
Not to be circulated to private investors.