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Australian REITs likely to be strongest in Asia Pacific in 2012

Australian REITs have proved resilient last year, slipping 7% against a decline of 14.5% in the broader S&P/ASX 200 index.

In comparison, Singapore's FT ST Real Estate Investment Trusts Index dropped 16%, while Hong Kong's property sub-index has declined 24%.

Simon Garing, analyst at Bank of America Merrill Lynch, said Singapore property stocks faced a slowdown after the government rolled out measures to cool the residential market.

‘We expect they (Asian REITs) will continue to underperform for the first half of the calendar year. Australian REITs have been sort of a safe haven,’ he added, noting that the economy remained resilient and the Australian central bank was expected to cut rates to stimulate the economy.

Property stocks with attractive valuations include Mirvac Group, Westfield, Dexus Property Group, Charter Hall and Centro Retail Australia, according to Bank of America Merrill Lynch.

Morgan Stanley is also expecting Australian REITs to perform better than the broad market as investors look for defensive plays and focus more on income rather than capital gains.

The A-REIT sector currently offers a dividend yield of 6.6% compared with 3.8% for the Australian 10 year government bond, Morgan Stanley said.

‘We expect equity markets to remain relatively weak and volatile, which should benefit the A-REIT sector in the next 6 to 12 months,’ the brokerage firm said in a note.

Some of Morgan Stanley's top picks include Goodman Group, Dexus and Lend Lease.