CP1 City Pacific

[Dean Letfus]

Hi all. Interested in your opinions on CP1 (CPK), City Pacific and Centro. Given their recent hammering on the stock market et al their shares have fallen through the floor. However the underlying asset value in property is huge. I'm a property investor not a share investor but it seems to me that these companies may be worth a punt as their underlying asset base is so large. What do you share guru's think?? Would I be nuts to put some money into them??

[Huang Chung]

CIY reminds me too much of MFS (sob :().

Better quality property plays around IMHO.

[mark100]

At the moment they have too much debt, not enough cash flow and high interest rates are hurting the developments they are funding. Martha Cove is struggling.

The mortgage trust had a 31 May deadline to repay $240m to the CBA yet they didn't make any announcement confirming they had repaid this facility.

Also when they unfreeze their mortgage trust there will probably be a flood of redemptions again

[Dr_Who]

I have a key policy not to touch any company with very high debt levels in these uncertain and volatile environment.

The problem with valuations is that it looks cheap on a DCF and P/E. Compare that to other stocks who also have low P/Es and downgrades, the numbers dont look too cheap.

[countryboy]

Ive taken a calculated risk with two property trusts:
AEZ and RNY both at close to all time lows and promising divdiends which at current prices (42c and 34c) will return 14% - 20% yields

To date neither has changed forecasts on profit for the year
Both are leveraged around 50-58%

The word of caution for this sector is that management are not the most forthcoming and transparent about how their companies are travelling.
DYOR

[Halebop]

Centro has the most leverage over the banks simply because it owes so much and it's most valuable asset is pretty much worthless the moment it goes into receivership (management contracts). The American market looks poked though and in the end there might be nothing that can save this company from it own flawed strategies. We haven't seen the last of the big headlines for this company. Lenders are just closing their eyes and hoping they don't hear a big sucking sound.

City Pacific was a train wreck waiting to happen. This company was always going to be hit by a liquidity crunch in one form or another but investors focussed on the fact that it wasn't CPs own money at risk, rather than the more poignant (and expensive) fact that it was 100% their business model at risk.

Irrespective of time frames involved, if you think commodity prices have legs, then this is code for inflation. If you think inflation has legs, then this is code for higher financing costs and lower capitalization rates. If you think this is the case, commercial property is F#@&$D. The market appears to be tipping its hat in the direction of lower priced commercial property. If this is correct, the cycle will take some time to come around. Counter cyclical plays could be years away.

CountryBoy: Follow the cash. AEZ's 2007 results included the following:
$4.0m revaluations hidden in "Other Investment Income"
$1.1m Gain on Disposal included in "Other Investment Income"
$19.2m FX Gains
$24.6m FX Heding Gains
$45.0m Revaluation Gains

If you cut the result back to cash the dividend is not supportable. If you theorise that a strong Aussie dollar could actually deliver FX Losses and selected weak European deomestic markets stagnant retail growth and falling capital values, most of the gains then become losses. The market merely appears to be pricing this kind of scenario.

[thereslifeafter87]

If you like property, try UOS. Trading at around 2/3rds of NTA, very conservatively geared, and should double NTA over the next year to 18 months as it completes buildings.

Caution: it consolidates a 43% owned REIT that it sells completed developments into, so the balance sheet figures aren't that helpful in some ways.

The REIT lets UOS largely not pay tax as there is no capital gains tax in Malaysia, and UOS holds its completed properties as "investments" before selling them into the REIT a few years down the track.

[thereslifeafter87]

UOS does book revaluation gains, but a significant portion of these are due to buildings being completed, rather than simply revalued upwards.