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By Bridget B. Hughes, CFA | 02-07-2012 12:00 PM

Third Avenue: Seeing on-the-Ground Strength in Hong Kong

Fresh from a trip to Asia, Third Avenue Value manager Ian Lapey discusses the fund's Hong Kong commecial real estate holdings, plus potential opportunities in oil and gas exploration and insurance.

Bridget Hughes: Hi. I'm Bridget Hughes. I'm one of the analysts here at Morningstar, and I'm here with Ian Lapey, who is one of the co-managers of the Third Avenue Value Fund.

Ian thanks for coming in.

Ian Lapey: Thanks for having me, Bridget.

Hughes: It's nice that you are here now, because I know you just got back from Hong Kong, and Hong Kong is really represented in the Third Avenue Value portfolio. So, what were your key takeaways from your visit and how does that translate into the portfolio?

Lapey: Well, I was really impressed with the properties of our companies and particularly on the commercial real estate side. I visited shopping malls, including Harbour City, which is owned by Wharf, and also Wheelock, and it was very impressive. At a Chanel store at 3 o'clock in the afternoon on Wednesday, there is actually a long line just to even get into the store.

So, this somewhat supports what we've thought, because retail sales in Hong Kong in 2011 were actually up 25%, which of course is robust, and we actually had a chance in this case to see it on the ground.

The other sectors seemed to be very healthy, too; the office sector is impacted to some degree by some weakness in financial firms, but still the properties of our companies are very, very well located, and occupancy levels are very, very low, and new supply coming on in the market is very minimal. So, we expect fundamentals to remain very healthy there also.

I also visited Shenyang, which is a major city in Northeast China, where some of our companies have properties, and I was very impressed with the locations there. That market, there is certainly is a lot of supply. That's why I picked it to visit, but still with our good locations and a very healthy long-term outlook for that economy, I think generally our companies are making very good investments there as well.

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