October 2007 VOL. 2

Foreign Exchange

Global property stocks posted a -6.5 percent total return in the second quarter 2007, according to a recent report by CBRE Investors. That dismal performance follows a 5.7 percent total return in the first quarter 2007 and a 34.2 percent total return in 2006.

The listed global real estate sector is offering a cash flow yield of 4.3 percent in 2007 and average annual two-year cash flow growth of 12.3 percent.

During the quarter, property stocks underperformed global equities and global bonds which ended the quarter up 7 percent and down 1.3 percent, respectively. One-year total returns for the property sector are now below that of global equities. However, over a longer period of time, global property stocks have outperformed global equities. Over a 10-year period, global property stocks' average annual total return has been 16.6 percent, while global equities and bonds have performed substantially lower at 8.7 percent and 3.8 percent, respectively.

The weakest-performing global market was the U.K. (-14.2 percent), followed closely by Continental Europe (-12.5 percent). European-listed real estate suffered after five years of robust growth, a result of rising interest rates. Although Denmark was a standout market with a total return of 13.7 percent in second quarter, the country represents only 0.5 percent of the globe?s listed property sector. Denmark?s out-performance can be attributed to solid earnings growth driven by merchant building and construction, and a takeover bid for Keops AS, Denmark?s largest real-estate firm, by Icelandic real-estate group Fasteignaf?agid Stodir hf.

The U.S. market also performed poorly during the second quarter, posting a -9.3 percent total return. The sub-prime mortgage fallout and reverberating revaluations in the debt financial markets spooked generalist investors, causing them to take profits, forcing the sector to give back all of its first quarter gains. The year-to-date total return is -5.8 percent. The best performance was in Asia, which posted a modest .7percent total return even though it was weighted down by Japan's below-average performance of -7.4 percent total return. The best performing global markets during the second quarter were Hong Kong (9.2 percent) and Singapore (7.9 percent).

Many Hong Kong and Singapore developers have been investing in neighboring markets for many years and have accelerated their volume of activity in recent years. Their foray into neighboring emerging markets has been due to necessity (small, highly competitive home markets) and geographic proximity. Since most neighboring countries are high growth emerging markets, these developers? activities are strongly influencing the companies? growth rates.

The only other market in positive territory was Australia, with a 2.4 percent total return.