Listed Property Trusts

[NZSilver]

Thanks Dibble.

A good point.

I'd say the NTA/property values of arg and kpg is probably greater than there current valuations.

Looks like arg will move beyond 1.60

[NZSilver]

KPG closed at 1.25 Friday

[Rawz]

52 week high is $1.59. Will enjoy the dividends until we get back there.

[Waltzing]

These shares have been unsung heros for investors who caught them early.

[King1212]

That is me....

[Waltzing]

well done, we were a bit later at 1.15 . but happy with that.

[Rawz]

Precinct properties had a decent drop today. Down 6.5c to $1.675. Good to accumulate around these levels.

[NZSilver]

kpg went through 1.25 day, there seemed to be a pretty decent parcel of shares there over the last few months, looking good for heading towards its current NTA

[NZSilver]

Property shares have been a bit sickly lately but also good opportunity to buy depending on your perspective. When will arg announce a quarterly div? Did I miss something?

[Pixelator]

When will arg announce a quarterly div? Did I miss something?

9/03/21 payable 30/03 ;)

[peat]

argosy now below NTA

or hovering right on... perhaps

[NZSilver]

They are getting knocked around at the moment 🤔

[Waltzing]

ARG DIV out ..

GMT revaluations up..

[Waltzing]

some nice order volume flowing into the comp props today at the close. Very pleasing to see .

[Beagle]

Just back from a long road trip from New Plymouth. First order of business, buy some more ARG before they announce their annual property revaluation soon.

Commercial property is going to be the next big thing as residential cools quickly. https://www.oneroof.co.nz/news/39206

Residential already cooling and that's before last weeks dirty tax bomb ! https://www.oneroof.co.nz/news/39162

[Waltzing]

Oh Gosh i will have to report to our little group that MR B is Buying some more ARG!

GMT also had some bigger orders into the close..

This is impressive considering the weight of the 10 year pressing down on the market.

Interesting article in Interest.co.nz on asset prices and how they were effected by the yield on the longer dated bonds.

"DTB" !! a new acronym.

yes the young turks in the ACA office today were stone faced! Their first experience of that infamous time... 66 top tax rate...

AT least the PM delivers everything with a smile!

Then again so did John and Rob.

Those were the days...

I said come on boys and girls now you know why we dont have rentals and why estonia is our favourite little patch of ice and grass.

Just hoping no one invades anytime soon.

[Jay]

Asking the learned members on here which, if any, LPT's are more likely to be affected by possible exits/reduction in office space due to working from home etc - more especially in the CBD areas but also possible in outer suburbs

[Rawz]

Asking the learned members on here which, if any, LPT's are more likely to be affected by possible exits/reduction in office space due to working from home etc - more especially in the CBD areas but also possible in outer suburbs

Precinct Properties would have to be most exposed to office space. But from what you are worried about I don't think it is going to be much of an issue for two reasons:

1) Many large corporates have been running out of desk space for awhile now and started 'hot desking' to avoid leasing new floors. Spark, ANZ and BNZ are a few examples where I have friends working and they would go to work and not be able to find a desk. So the working from home already start before covid came along.

2) Even with working from home from what I have seen you are still required to go to the office for 2 or 3 days a week for meetings, team bonding, printing/scanning etc

[Waltzing]

Recent studies on work from home and ZOOM are saying you need turn your imagine off so you cant see yourself.

Also really important meetings they recommend in the same room.

More days working from home but offices still required.

As to which one is effect more , perhaps GMT and KPG are effect the least.

[Jay]

Interesting Rawz, where I work (not one of the co's mentioned by you BTW) they were running out of desks, but not now, actually took some away to make way for more meeting/collaborative spaces

Waltz - Thought KPG would be one the least affected as mainly malls held and they are expanding those, but are not too familiar with the rest currently

[fungus pudding]

Asking the learned members on here which, if any, LPT's are more likely to be affected by possible exits/reduction in office space due to working from home etc - more especially in the CBD areas but also possible in outer suburbs

None apart from in the short term. Most workers will soon find the benefits of escaping their normal living enviroment. There is more reason to go to work than just the pay packet. Most of us will know a few oldies who could well afford to retire, but wouldn't give up the daily ritual of putting on a suit and tie and heading out the door, as often as not just to inspect the newly recruited talent. (aka staying alive)

[Waltzing]

"Thought KPG would be one the least affected "

KPG one assumes so. They must have some office space but actually ARG has some government. Forgot the exact amount.

[Beagle]

https://www.argosy.co.nz/assets/documents/ARG282-Investor-Update_web.pdf Latest Argosy Investor Update looks solid to me.

[Waltzing]

Was in a virtual chat with a foil designer and missed that GMT trade of over 120,000 at 1.22 or there about

gone...

The volume of share traded in the comp props yesterday and today showed some moderate size order of up well over 100,000 single orders.

Thats after a 3 months of selling pressure no doubt from the 10 year.

Very pleasing to see the value of these stocks being appreciated by the market.

Article today on local IWI investments in property and commercial development with a mind set to BUY and NOT Sell.

Shows the long term view expressed by IWI to the value of land and commercial investments in NZ.

Perhaps local residential property investors will also start to consider this class of assets as having less investment risk then residential assets.

We have always considered this to be the case and that societies have always viewed wealth as taxable.

[NZSilver]

Where are you guys seeing value at the moment (except for kpg) looking like GMT had a fairly good result but revaluations in presentation are 75% based on a decrease in the cap rate....

[peat]

ARG
buy on dips. tho I missed Friday!!

(discl no holding at present)

[Waltzing]

KPG still a buy.

[Beagle]

KPG must be good buying at the current discount to NTA and yeah peat, anyone who managed to pick up some ARG last week at $1.45 should give themselves a pat on the back.

[Sideshow Bob]

KPG still a buy.

Results next Monday......

[Aaron]

KPG must be good buying at the current discount to NTA and yeah peat, anyone who managed to pick up some ARG last week at $1.45 should give themselves a pat on the back.

Is the discount to NTA that relevant? As interest rates/capitalization rates fall asset prices go up and if we have inflation and central banks do something about it, we will see valuations decline. It looks like we are at a bottom for interest rates, although I am assuming they could stay low for a long time.

The $290,000,000 write down of value in 2020 or 18cents per share (290,000,000/1,569,088,000) I assume would have been a reaction to the lockdowns.

Surely cashflow and dividends per share would be a much more important measure.

$119,845,000 profit 2020 1,569,088,000 shares or 7.6cents per share.

Half yearly to sept 2020 rent was only down 5% but net profit higher by 10% mostly due to a reduction on losses on interest rate derivatives.

Sam Zell called retail real estate a falling knife (in the States I guess) and the effects of online shopping will have sped up a bit with the lockdowns. Never been to Auckland on a weekend and not found a major mall to be chocka with cars though.
Assuming the dividend can get back to 7cents a share and it was 8.8cent in 2019 and 2020 then 5.6% yield (7cents/1.25) or 6.4% if it gets back to 8cents seems reasonable for the risk imho. If interest rates rise you will need to be happy with the yield as the shares drop. Still well below 7%-8% which is where I would be more comfortable.

That said I have bought some today on the basis that the economy/society is still all about consumption and buying s**t you don’t need and interest rates are going nowhere for a while at least even with inflation.
$1.234 per share. Very unsure about the investment and will be interesting to look back at this price in a few years. Not a huge portion of the portfolio but enough to matter.
Impulsive investment and post so get back to me with any inaccuracies.

[winner69]

The strong correlation between this sector (NPF as a proxy) and 10 Govt Bond rate is still place ... if anything slightly 'overvalued'

[Beagle]

Hi Aaron. More questions than answers, sorry.
10 year Govt stock rate certainly has weighed on the market a little bit so far and its a wide open question where this rate heads too as a function of possible inflation pressures being durable or temporary.
Likewise uncertain whether KPG can get back to 6.95 cps in annual dividends paid in 2019 due to considerable stock issuance since then.
If they can that would put them on a standout, (for this sector) prospective yield of 5.6% net and I think they are a PIE, (I should know but its not off the top of my head right at the minute), so for some people on a 39% tax rate that's more than 9% gross. Discount to NTA is currently 9%

Other yields in this sector are GMT 2.5%, (premium to NTA 6.5%)
ARG 4.3% (currently trading right on my estimate of NTA for 31/03/2021, result forthcoming on 19/05/21 and maybe a dividend increase ?) - I hold quite a lot.
PFI 2.7% (28% premium to NTA...you have to be keen paying that !!),
VHP 2.9% 14% premium to NTA
PCT 3.9% premium to NTA 6.5%

Most figures off Direct Broking website and not intended to reflect possible valuation and dividend increases to come through for FY21 unless noted above.

I added a modest stake recently to my existing very small holding...not a high conviction position but lets see how we go. Might get a few more if the annual result, dividend or more importantly forecast outlook exceeds my fairly modest expectations.

[Aaron]

Thanks, to clarify my dividends figures included imputation credits.

Look at the yields on the property companies, sad, particularly considering the risk being taken that interest rates actually rise in the future. Considering financial freedom and your post on another thread about "enough" a move from 3% to 4% means $416,667 less capital required to retire comfortably. from 2% to 3% $833,333 less capital required. A couple of % in yield makes a huge difference in capital required at these low levels but then you also have to factor in inflation due to monetary policy insanity. Makes it hard to know what to do.
Income Required for Financial Freedom

Before Tax After Tax @33%
$50,000 $37,594


Capital Required at different rates of return
Yield% Capital Difference 1%
Makes

1% $5,000,000
2% $2,500,000 $2,500,000
3% $1,666,667 $833,333
4% $1,250,000 $416,667
5% $1,000,000 $250,000
6% $833,333 $166,667
7% $714,286 $119,048
8% $625,000 $89,286
9% $555,556 $69,444
10% $500,000 $55,556

[epower]

Other yields in this sector are GMT 2.5%, (premium to NTA 6.5%)
ARG 4.3% (currently trading right on my estimate of NTA for 31/03/2021, result forthcoming on 19/05/21 and maybe a dividend increase ?) - I hold quite a lot.
PFI 2.7% (28% premium to NTA...you have to be keen paying that !!),
VHP 2.9% 14% premium to NTA
PCT 3.9% premium to NTA 6.5.

Going through listed property lately I just can’t work out the attraction of them.

They are currently paying a 2.7-4.3% yield as stated above. The capital growth in commercial property over the past decade or so has been rather lacklustre a few percentage increase here and there each year.

I could go buy any old NZX index tracker, get far better capital appreciation and after a couple of years the dividend yield will grow to surpass the listed property companies with more diversification.

My idea of buying an individual company is I want a greater reward than an index fund returning 7-8% a year. Looking at listed property I’m currently buying one company for perceived less long term return with more concentrated risk here.

What’s the upside and attraction with listed property? I just can’t see it..,?

[Waltzing]

The attraction was most individual and entities probably have much lower Ave's than current SP.

The problem with waiting for the 10 year to bash the price down is that maybe the 10 doesnt go higher than 2.5 and Div yield continues to build.

Several of the lists from Mr B have debt levels that allows for a quite a bit of build out and that might be being held up by getting access to the right locations.

The expanding logistic routes in the central north island and the hunt for land can be seen by the new Perry development right alongside the outer ring expressway that will open in the next 12 months heading south.

The companies above will be busy planning where they can expand and GMT for example has ample room on it's balance for expansion.

ARG has restructures at speed over the last few years and typifies the scramble that was going for new developments before the Great Global Pandemic.

Most will have bought ARG at under 1.15 and many at under 1.0

They are heavy defensive stocks.

NZ commercial property is one of the safest investments in the world, its like gold with a dividend.

There will be a large amount of selling at inflation fears increase. Expect a lot of movement in the SP's.

[Aaron]

My first post in a long time re property companies and next day, front page of business herald is article about inflation and rising interest rates.
The attraction for me with KPG is if KPG can get back to its old dividend level it is a yield I can live with despite falling capital values if we are at the end of a long term debt cycle.

I appreciate commercial retail is seen as an area under pressure from online shopping but who knows people might give up on sports all together and a trip to the mall might become their weekend activity.

What index funds are returning 7-8%? I assume that includes capital gain what about just yield? I always planned to get into passive index funds after the big crash (missed it in March 2020, always waiting for the next leg down) but passive funds also carry some risk of interest rate rises.

[Snoopy]

Going through listed property lately I just can’t work out the attraction of them.

They are currently paying a 2.7-4.3% yield as stated above. The capital growth in commercial property over the past decade or so has been rather lacklustre a few percentage increase here and there each year.

I could go buy any old NZX index tracker, get far better capital appreciation and after a couple of years the dividend yield will grow to surpass the listed property companies with more diversification.

My idea of buying an individual company is I want a greater reward than an index fund returning 7-8% a year. Looking at listed property I’m currently buying one company for perceived less long term return with more concentrated risk here.

What’s the upside and attraction with listed property? I just can’t see it..,?


The traditional hierarchy of investment risk and reward goes:

Shares <---> Property <---> Bonds <----> Cash

This means if you invest in listed property - long term - you should expect lower returns that if you invested in a basket of more generally diverse shares. Being a single listed property company does not necessarily mean a concentrated investment risk either, because most listed property listed entities own multiple properties. The logic for investing in commercial property is that tenants generally sign long leases. This provides certainty of cashflow in a way that trading companies cannot match. There is also the safety factor whereby should a tenant move out, the property may be re-leased by a company in another industry entirely. Unlike rental housing, should the premesis require a makeover, this is done and paid for by the tenant. Listed property, in comparison to shares, therefore satisfies the less risk for less return meme.

In this crazy market of ultra low interest rates, I would argue the investment risk return hierachy has now changed to this.

Shares <---> Bonds <----> Property <----> Cash

The much heightened risk of holding long tern bonds with interest rates so low means that listed property is arguably the safer path to a long term return. With a risk return shift like I have described above, this will push property yields lower. 'Upside' as in a 20% uplift in a single year is not the aim of listed property investments. 'Upside' is likely to track general inflation and building costs. The return on listed property is almost guaranteed to be less than a basket of shares. A property unitholders main 'reward' is therefore the lower risk.

SNOOPY

[dibble]

Is the discount to NTA that relevant? .

As noted before NTA is performed on a spreadsheet using a bunch of actual and estimated variables (yield, lease term, transaction costs etc) whose altering can make a material difference, you need to understand a valuers' methodology to use the outcome as gospel. There is no real market test of NTA until the asset is bought/sold. In times of stability its not a bad proxy. These are hardly times of stability.

[fungus pudding]

The traditional hierarchy of investment risk and reward goes:

Shares <---> Property <---> Bonds <----> Cash

This means if you invest in listed property - long term - you should expect lower returns that if you invested in a basket of more generally diverse shares. Being a single listed property company does not necessarily mean a concentrated investment risk either, because most listed property listed entities own multiple properties. The logic for investing in commercial property is that tenants generally sign long leases. This provides certainty of cashflow in a way that trading companies cannot match. There is also the safety factor whereby should a tenant move out, the property may be re-leased by a company in another industry entirely. Unlike rental housing, should the premesis require a makeover, this is done and paid for by the tenant. Listed property, in comparison to shares, therefore satisfies the less risk for less return meme.

In this crazy market of ultra low interest rates, I would argue the investment risk return hierachy has now changed to this.

Shares <---> Bonds <----> Property <----> Cash

The much heightened risk of holding long tern bonds with interest rates so low means that listed property is arguably the safer path to a long term return. With a risk return shift like I have described above, this will push property yields lower. 'Upside' as in a 20% uplift in a single year is not the aim of listed property investments. 'Upside' is likely to track general inflation and building costs. The return on listed property is almost guaranteed to be less than a basket of shares. A property unitholders main 'reward' is therefore the lower risk.

SNOOPY

You can analyze these things to death. For me it's simple. When my money has an underlying security of bricks and mortar, I sleep soundly. The bricks and mortar will still be standing long after a bunch of widget manufacturers and other business types will have fallen over, and if not I'll just hope that my insurer is still solvent.

[Panda-NZ-]

ASP is on the move again finally.

With the amount of perks the aussie govt is throwing around it should be back to 1.70

[lawson]

Precinct have a share placement.

OFFER: PCT: PCT $250m Equity Raise to fund Wellington acquisitions
PCT
18/06/2021 08:41
OFFER
PRICE SENSITIVE
REL: 0841 HRS Precinct Properties New Zealand Limited (NS)

OFFER: PCT: PCT $250m Equity Raise to fund Wellington acquisitions

Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) is pleased to
announce a $250 million equity raise to fund the acquisition of two
Wellington office buildings through an underwritten $220 million Placement
(Placement) and a non-underwritten Retail Offer of up to $30 million with the
ability to accept oversubscriptions at Precinct's discretion (Retail Offer)
(together, the Equity Raise).

The proceeds from the Equity Raise will be used to fund the acquisition of
two Wellington office assets, Bowen House and the Freyberg Building, and
reduce Precinct's gearing providing additional funding capacity to assist
with future development opportunities. Following the two Wellington
acquisitions and the recently announced draft full year revaluation gain of
$284 million, FY21 year-end gearing is expected to be around 29%.

Scott Pritchard, Precinct's CEO, said "Precinct raising $250 million of
equity will fund the acquisition and redevelopment of Bowen House in
Wellington. We are also undertaking due diligence on the Freyberg Building in
Wellington and expect to complete the acquisition imminently. The Wellington
market continues to show strong demand for prime grade office, underpinned by
an increase in the public sector workforce. We are seeing solid rental growth
and very low levels of prime vacancy. We believe Precinct is well positioned
to leverage its Wellington office accommodation offering, as demonstrated by
the successful pre-leasing of 40 & 44 Bowen Street from both the corporate
and public sector."

Today, Precinct has also announced that the Board expects dividend guidance
for the 2022 financial year of 6.70 cps. This represents 3.1% year-on-year
growth in dividends to shareholders.

Details of the Wellington acquisitions:
Precinct has entered into an agreement to acquire Bowen House in Wellington.
This high profile office building is situated in the heart of the government
precinct at the northern fringe of the CBD and is in close proximity to
several of Precinct's existing assets. The 14,000 square metre tower
comprises 23 levels of office space, ground floor retail tenancies, an entry
lobby to the Beehive via a subterranean link, and carparking.

Precinct will pay $92 million and undertake a comprehensive redevelopment of
the building at an estimated cost of around $57 million. The redevelopment
will include seismic strengthening (to 100% NBS) and refurbishment works. On
completion of works in mid 2023, Bowen House will be fully occupied by The
Parliamentary Services on a new 15-year net lease. The acquisition is
expected to yield 5.25% on completion of the works and is expected to settle
in July 2021.

Commercial terms have also been agreed for the acquisition of the Freyberg
Building in Wellington. This is a strategic redevelopment opportunity located
in the Government precinct and remains conditional at this stage on Precinct
due diligence. On completion of the acquisition, Precinct anticipates
progressing with design for the redevelopment while benefiting from holding
income.

Details of the Equity Raise:
The $250 million Equity Raise comprises an underwritten Placement of
approximately $220 million and a non-underwritten Retail Offer of up to $30
million (with the ability to accept oversubscriptions at Precinct's
discretion).

The $220 million Placement is underwritten (excluding Haumi's pre-commitment
noted below) and will be conducted today through a bookbuild in which
institutional and other select investors in New Zealand, Australia and other
jurisdictions will be invited to participate. The Placement has been
underwritten at a floor price of $1.51 per new share, being a 5.0% discount
to the last close price of $1.59 on 17 June 2021. Settlement and allotment of
new shares issued under the Placement will take place on 24 June 2021. A
trading halt has been granted by NZX to facilitate the Placement.

Precinct also intends to undertake a non-underwritten Retail Offer of up to
$30 million to allow eligible shareholders with a registered address in New
Zealand to apply for up to $50,000 of new shares. New shares will be offered
under the Retail Offer at the lower of the price paid by investors in the
Placement, and the volume weighted average price of Precinct's shares traded
on NZX during the five trading days up to, and including, the Retail Offer
closing date. The closing date for Retail Offer applications by eligible
shareholders is 2 July 2021.

If the Retail Offer is oversubscribed, applications will be scaled having
regard to shareholdings at 5.00pm (NZT) on the record date of 17 June 2021
and otherwise at Precinct's discretion. The Retail Offer has been designed so
that most eligible shareholders will have the ability to preserve their
current relative shareholding if they choose to participate. Settlement and
allotment of new shares issued under the Retail Offer will take place on 8
July 2021.

Haumi Company Limited (acting in its capacity as the general partner of Haumi
(NZ) Limited Partnership, Precinct's largest shareholder) has made a bid into
the Placement with a target of maintaining a shareholding of approximately
15% (following assumed conversion of the PCTHA convertible notes).
Further details regarding the Retail Offer can be found at
www.shareoffer.co.nz/precinct.

[Nor]

I'll be in. Might try and double what I have. It's no good putting cash on TDs nor good just having it sitting there.

[fungus pudding]

I'll be in. Might try and double what I have. It's no good putting cash on TDs nor good just having it sitting there.

How do you apply for them ??

[lawson]

How do you apply for them ??

The retail offer for existing holders goes live on June 22nd at this link www.shareoffer.co.nz/precinct (http://www.shareoffer.co.nz/precinct).

The general equity raise for non-holders was today and closed at 5pm I think just via brokers. I got an email about it.

[777]

Direct had a notice at the top of pages this morning asking for those interested to give them a call.

[fungus pudding]

The retail offer for existing holders goes live on June 22nd at this link www.shareoffer.co.nz/precinct (http://www.shareoffer.co.nz/precinct).

The general equity raise for non-holders was today and closed at 5pm I think just via brokers. I got an email about it.

Thanks. I am an existing holder, but haven't received email notification.

[Nor]

How do you apply for them ??

I rang Jardens and put my name down for a certain number at the upper price point 1.54
More chance of getting largish amount that way than spp. I don't know if it's closed.

[Bjauck]

Direct had a notice at the top of pages this morning asking for those interested to give them a call. I tried to get them on the blower early this afternoon and was waiting for 7 minutes before I gave up!

[Joshuatree]

Is it worth it with the re 1.5c commision for many ,the dilution and the 60dma dropping below the 180 dma?

[777]

Applied for $50,000 worth. Got 24640 shares which is about 75%.

[Onion]

Applied for $50,000 worth. Got 24640 shares which is about 75%.

You did well. I got $4319 worth from a bid for $15k. About 29%.

[Entrep]

Not much mention of Stride in this thread. The price action looks bullish and they have done well the last few years too.

[epower]

Due to being down to one income with a stay at home parent for the next several years our lending capacity has hit a cap, hence looking for alternatives than just paying down debts on buy and holds.

Enter property funds…

I understand enough about them. However just a few things I’m looking to clarify on the difference between listed and unlisted funds

Listed property funds
- listed on share market so very liquid can sell within minutes. 0.5% fee generally via brokers to enter/exit
- volatile in price due to liquidity
​​​​​​- you can nab a bargain in market crashes with yields go up due to price vs NTA going down
- funds issue more shares when buying more property, often to big institutions
- PIE for tax

Unlisted
- secondary market can be hit and miss when want to sell might take a month or two
- 1.5% to 2% fee to get in and out on secondary market
- not so volatile due to less liquidity
- harder to get a true bargain as people owning not likely to panic sell like listed shares would
- funds do public raising when want to issue more to mum & pop investors
- PIE for tax

So for unlisted, other than the reduced volatility I really don’t see any benefits to swing that way (PMG, Oyster, Augusta, etc) instead of buying into the listed ones (Argosy, Property for Industry, Goodman, etc)

What are the benefits of unlisted that I’m missing here?

[fungus pudding]

Due to being down to one income with a stay at home parent for the next several years our lending capacity has hit a cap, hence looking for alternatives than just paying down debts on buy and holds.

Enter property funds…

I understand enough about them. However just a few things I’m looking to clarify on the difference between listed and unlisted funds

Listed property funds
- listed on share market so very liquid can sell within minutes. 0.5% fee generally via brokers to enter/exit
- volatile in price due to liquidity
​​​​​​- you can nab a bargain in market crashes with yields go up due to price vs NTA going down
- funds issue more shares when buying more property, often to big institutions
- PIE for tax

Unlisted
- secondary market can be hit and miss when want to sell might take a month or two
- 1.5% to 2% fee to get in and out on secondary market
- not so volatile due to less liquidity
- harder to get a true bargain as people owning not likely to panic sell like listed shares would
- funds do public raising when want to issue more to mum & pop investors
- PIE for tax

So for unlisted, other than the reduced volatility I really don’t see any benefits to swing that way (PMG, Oyster, Augusta, etc) instead of buying into the listed ones (Argosy, Property for Industry, Goodman, etc)

What are the benefits of unlisted that I’m missing here?

Monthly distribution will be a benefit to some.

[NZSilver]

Listed investment property is diversified with many properties vs the unlisted/syndications that usually have less so therefore tenant risk is higher. Fees on unlisted can be huge and it's usually the managers who win out and take little risk. Listed would usually have higher quality asset too. I have looked at a fair few but often the headline yield numbers are not as good so I just buy more listed when I have funds. I'm pretty inexperienced in it all but intemperance reading a good article by Bryan gaynor or how listed property is often a much better option. You do have the daily share price movement but can Ignore them on the whole. I like arg for it's diversity and kpg for it's value

[Waltzing]

"I like arg for it's diversity and kpg for it's value"

absolutely....KPG will lag a bit though. Dont get MR B going on that one.

[fungus pudding]

Listed investment property is diversified with many properties vs the unlisted/syndications that usually have less so therefore tenant risk is higher. Fees on unlisted can be huge and it's usually the managers who win out and take little risk. Listed would usually have higher quality asset too. I have looked at a fair few but often the headline yield numbers are not as good so I just buy more listed when I have funds. I'm pretty inexperienced in it all but intemperance reading a good article by Bryan gaynor or how listed property is often a much better option. You do have the daily share price movement but can Ignore them on the whole. I like arg for it's diversity and kpg for it's value

I have a fair pile of LPTs, but I am also in a few syndicates. All of this stuff will eventually be bequeathed to younger family members and I like the limited liquidity of syndicates for that reason. Leaving lpts to many of them would be like handing them a truck-load of cash. An assett that would be difficult to instantly cash-up has a certain appeal for gifting - for obvious reasons.

[NZSilver]

Yes a good point fungus, I'm in my early 30s so hopefully I don't have to worry about that for a little while. Waltz yeah definitely don't mention the "K" word to Mr B

[epower]

Listed investment property is diversified with many properties vs the unlisted/syndications that usually have less so therefore tenant risk is higher. Fees on unlisted can be huge and it's usually the managers who win out and take little risk. Listed would usually have higher quality asset too. I have looked at a fair few but often the headline yield numbers are not as good so I just buy more listed when I have funds. I'm pretty inexperienced in it all but intemperance reading a good article by Bryan gaynor or how listed property is often a much better option. You do have the daily share price movement but can Ignore them on the whole. I like arg for it's diversity and kpg for it's value

So if the yields are comparative but the fees for unlisted are higher and the diversity worse and liquidity worse who in their right mind would buy unlisted instead?

[fungus pudding]

So if the yields are comparative but the fees for unlisted are higher and the diversity worse and liquidity worse who in their right mind would buy unlisted instead?

No need to buy them instead, but no harm in buying a few as well.

[fungus pudding]

So if the yields are comparative but the fees for unlisted are higher and the diversity worse and liquidity worse who in their right mind would buy unlisted instead?

No need to buy them instead, but no harm in buying a few as well.

[Beagle]

Listed investment property is diversified with many properties vs the unlisted/syndications that usually have less so therefore tenant risk is higher. Fees on unlisted can be huge and it's usually the managers who win out and take little risk. Listed would usually have higher quality asset too. I have looked at a fair few but often the headline yield numbers are not as good so I just buy more listed when I have funds. I'm pretty inexperienced in it all but intemperance reading a good article by Bryan gaynor or how listed property is often a much better option. You do have the daily share price movement but can Ignore them on the whole. I like arg for it's diversity and kpg for it's value

Excellent post which sums it up very well (with the caveat being my opinion on KPG which I have made crystal clear in that thread).

I look at some of the syndicators current product offerings with a forecast yield of 5% gross and compare them to ARG at ~ 6% gross and wonder why anyone would bother with unlisted ?

I guess one concludes that there are a number of investors out there that respond to the 5% headline number as being substantially better than term deposits and are completely unaware of the 6% gross yield Argosy provides. I think the syndicators do very well out of those unlisted schemes.

[fungus pudding]

Excellent post which sums it up very well (with the caveat being my opinion on KPG which I have made crystal clear in that thread).

I look at some of the syndicators current product offerings with a forecast yield of 5% gross and compare them to ARG at ~ 6% gross and wonder why anyone would bother with unlisted ?

I guess one concludes that there are a number of investors out there that respond to the 5% headline number as being substantially better than term deposits and are completely unaware of the 6% gross yield Argosy provides. I think the syndicators do very well out of those unlisted schemes.

You've got to look at them. e.g the Willis st. Spark bldg in Wellington was syndicated by Mackersy properties for 200,000 a share - 10.25% gross return with AMP, BNZ and Spark as main tenants. Good enough for this kid.

[Waltzing]

https://www.stuff.co.nz/business/property/108076614/spark-buildings-200m-price-tag-makes-it-the-most-expensive-wellington-office-building-ever-sold


if you purchased ARG under a dollar your total 12 month return is looking very healthy.

[Beagle]

When I bought HLG in 2016 they were paying a 15% gross yield and have nearly tripled in value since then (so we can all skite about what past yields we were getting in days gone by and how well we have done by investing), but what is relevant today is what yields are the syndicators paying currently for new capital invested and its generally about 5% now v 6% gross currently for ARG.

[Waltzing]

Oh that Beagle just makes your mouth water doesnt he... a bowl fill of HLG from 2016...

lets hope the RBNZ doesnt panic... pundits think its to early to raise rates as the situation in aussi shows nothing is functioning as normal and anything can happen at any time.

RNBZ cant assume the ball park is a stable playing field to raise.

[clips]

PFI have treated me well... over the years

[fungus pudding]

PFI have treated me well... over the years

I seldom look at these things once I have bought, but just checked on PFI to see if they've treated me well. Bought 100,000 in 2013 for 134.5c. Now 168.5
I don't know if that's good or bad compared to other LPTs.
One day I'll look them all up.

[777]

I seldom look at these things once I have bought, but just checked on PFI to see if they've treated me well. Bought 100,000 in 2013 for 134.5c. Now 168.5
I don't know if that's good or bad compared to other LPTs.
One day I'll look them all up.

PFI are actually 2.905.

[777]

Duplicate..

[fungus pudding]

PFI are actually 2.905.

Oops. Sorry, my mistake,you are right. Was looking at Precinct.
Excitement made me crosseyed.

[dibble]

So if the yields are comparative but the fees for unlisted are higher and the diversity worse and liquidity worse who in their right mind would buy unlisted instead?

Syndicates can be profitable but in this crazy FOMO, low interest rate climate Im steering clear of new ones. LPTs tend to have high quality properties in better locations and better tenents. That matters if things go slightly awry with the economy.

The worst syndication managers (and now there are many jumping on the easy-money bandwagon) simply buy second rate assets from e.g. LPTs clearing out their chaff or from other syndicates, gear them up to 45-50%, renew the lease probably with inducements to encourage annual increases etc (such terms dont come free), revalue them based on that new lease and flick them on to unwary yield chasers, ensuring they clip the ticket mightily in the process (I've seen one building syndicated 3 times, thats a lot of fees).

Transparency is also a real threat. One a while back involved related parties as seller/syndicator yet still involved a staggering collection of hefty sales and underwriting fees. Which may or may not worry you.

Failures do happen but they are not greatly publicised. For now LPTs are, for me, a much much better risk/reward profile.

Good luck and watch out for shopping centres getting syndicated, KPG is trying to get rid of a couple of duffers.

[troyvdh]

Im probably repeating my self but am i correct in saying that PFI ...until recently perhaps has returned the greatest return over an excess of 20 years....of listed property entities..nigh on 10 percent compounding.

[troyvdh]

Wow....what a post....please contact me....Fungus

[Waltzing]

2007 to 2015 was negative Capital Gain?

[fungus pudding]

Wow....what a post....please contact me....Fungus

Which post are you talking about?

[fungus pudding]

Wow....what a post....please contact me....Fungus

Pvt. message function seems to be down and out, so cannot do.

[fungus pudding]

Wow....what a post....please contact me....Fungus

Pvt. message function seems to be down and out, so cannot do.

[Nor]

Not that long ago, well, well within living memory, yields on LPTs were 8%. Imagine the decrease in SPs if that were to reoccur. Roughly 40% drop? Makes me wary of going in boots and all. 'They' say interest rates are going to go up but never by how much. Probably 1/2 a percentage point and then have to take them down again.
Interests me that SPK, a dividend stock seems to have strengthened rather than retreated on interest rate rise talk. Well recently anyway, not sure about yesterday, but the panic is all over today and Wall Street is up? So predictable.

[fungus pudding]

2007 to 2015 was negative Capital Gain?

That's a loss; or you might prefer a positve capital loss. Depends how many words you want to waste.

[fungus pudding]

2007 to 2015 was negative Capital Gain?

That's called a loss; or you might prefer a positve capital loss. Depends how many words you want to waste.

[Jaa]

Not that long ago, well, well within living memory, yields on LPTs were 8%. Imagine the decrease in SPs if that were to reoccur. Roughly 40% drop? Makes me wary of going in boots and all. 'They' say interest rates are going to go up but never by how much. Probably 1/2 a percentage point and then have to take them down again.
Interests me that SPK, a dividend stock seems to have strengthened rather than retreated on interest rate rise talk. Well recently anyway, not sure about yesterday, but the panic is all over today and Wall Street is up? So predictable.

I have come to the same conclusion, the only way for interest rates to go from here is up.

Much of the last 5-10 year rise in the likes of Vital Healthcare has come from interest rate falls not from them increasing distributable income per unit. For all the buying, selling and development they do, $$ returns have hardly budged. The one caveat is all their rental agreements have CPI increases built in so this might soften the affect. Still I would expect underperformance versus dividend stalwarts like Spark or Meridian that have more pricing power over the medium/long term and higher dividend yields to start with.

Spark is partly a property stock, they just own cables, data centres and telco towers.

[Jaa]

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[Jaa]

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[Jaa]

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[Jaa]

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[Jaa]

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[Jaa]

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[Jaa]

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[Nor]

I have come to the same conclusion, the only way for interest rates to go from here is up.

Much of the last 5-10 year rise in the likes of Vital Healthcare has come from interest rate falls not from them increasing distributable income per unit. For all the buying, selling and development they do, $$ returns have hardly budged. The one caveat is all their rental agreements have CPI increases built in so this might soften the affect. Still I would expect underperformance versus dividend stalwarts like Spark or Meridian that have more pricing power over the medium/long term and higher dividend yields to start with.

Spark is partly a property stock, they just own cables, data centres and telco towers.

I do regret not having PFI. They seem to have out performed PCT without me even noticing. I tend to only watch what I have. But they are so expensive now. I think I'll get a few and then at least I'll be watching, buy more on weakness.

[Waltzing]

3rd time rolling high for GMT, commercial property investment stocks are seeing a lot of support and the new land housing tax rules might well be supporting this sector with these new highs.

ARG being well supported even after the recent sell down from VG.

[Beagle]

I was down Highbrook way on Friday, (for the first time in many years) and was really surprised at how much that whole area has developed in the last 5 years or so. Really humming now.

Don't own any GMT, yield is too low for my liking. Happy ARG holder though and would be very happy to add more anywhere in the mid late 150's.

[Benny1]

Have held ARG for a few years now and have slowly added more over time.
Have mixed things up a little and added a few PCT and an even fewer SPG over the last week or so.
Kind of like the quarterly PIE divis for some strange reason!

[Waltzing]

if NZ OCR is going to to take a hike north these might be the highs for a while.

Interesting how the last night COMP Prop hit there highs was 2008 and the interest rates were very high.

There dividends returns were also at a high.

KPG being hit hard but these must be a very attractive stock at some point in the future.

A big opportunity at 1.00-1.10 and possible ARG like turn around if someone can get the management team to perform.

Perhaps the good apples went to work at ARG.

[LaserEyeKiwi]

if NZ OCR is going to to take a hike north these might be the highs for a while.

Interesting how the last night COMP Prop hit there highs was 2008 and the interest rates were very high.

There dividends returns were also at a high.

KPG being hit hard but these must be a very attractive stock at some point in the future.

A big opportunity at 1.00-1.10 and possible ARG like turn around if someone can get the management team to perform.

Perhaps the good apples went to work at ARG.

most of KPGs future value increase IMO is based on Sylvia park expansion (they keep planning to add towers of commercial, residential on already owned land) and basically owning the Future Drury CBD. I don’t see it rewarding much in the near term due to the 2-3 year timeframe involved with getting the new revenue streams online, but am continually adding small amounts frequently as I believe long term the growth plan plays out with a fantastic return on minimal capital.

[Waltzing]

" 2-3 year timeframe "

maybe even longer say 5 years .. still holding some in a portfolio after a rebalance.. a 10 year defensive hold.

[Beagle]

Have held ARG for a few years now and have slowly added more over time.
Have mixed things up a little and added a few PCT and an even fewer SPG over the last week or so.
Kind of like the quarterly PIE divis for some strange reason!

Me too, weird eh ;)

[fungus pudding]

Me too, weird eh ;)

Mine save me from starvation.

[winner69]

I’ll post here as GMT doesn’t seem to have a thread of its own

Revaluations up $500m and add about 36 cents to NTA

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GMT/379645/355356.pdf

[Waltzing]

its been an outstanding performer and continues to be central to diversification in commercial property.

wonderful performance from the days of 1.20. Not one to miss out on over the last 3 years balanced by ARG.

With Ever Green looking like the bank of china has blinked its plain sailing then in the gulf.

[Beagle]

I’ll post here as GMT doesn’t seem to have a thread of its own

Revaluations up $500m and add about 36 cents to NTA

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GMT/379645/355356.pdf

Cap rates really coming down to 4.2% for industrial property. Hmmm...Which way are those cap rates going from here ?

[winner69]

Cap rates really coming down to 4.2% for industrial property. Hmmm...Which way are those cap rates going from here ?

That’s what I thought

Last March it was 4.7% so quite a change

[fungus pudding]

Cap rates really coming down to 4.2% for industrial property. Hmmm...Which way are those cap rates going from here ?

Which way are interest rates going? Cap rates sit at the other end of the see-saw.

[winner69]

Stormy day here today ..... huge waves throwing big logs and other driftwood across the road opposite .... spring tides and 6 metre swell so exciting.'''' good day to update a few things

Strong (80%) correlation between listed property trusts (used NPF as proxy) and 10 year govt stock.

Red dot is where we are today

Says sector is about 15% overvalued

A few stocks in this sector - I'd assume that holders of each would say they are fairly valued at moment ...except KPG which is significantly undervalued.

Whatever don't be surprised if prices over the sector start falling

[Waltzing]

GMT sold off..which was great news... ,must have been the SHAZ.. then it moved up today... terrible doesnt the market know this sectors will be creamed by the TTTT Ten yr?

waiting for 1.30...after all MR B said NTA is NUTS to the 10 year.

[Aaron]

Reading the headlines regarding Investore's half yearly result you would think they had a bad first half as the value of the property only went up $44m compared to $84m in the comparable period a year earlier.

net profit before bull**it adjustments was up 26% at $15,365mill and cashflow from operating activities was up 86% at $12,932mill.

I probably don't understand enough to comment.

[Waltzing]

"bull**it adjustments"

remember several ACA's referring to the higher ups as the "pointy heads"

The main thing is they are expanding the space they can rent out and making a profit to keep the DIV going and not over high debt..Auckland fast running our of land or HAS already RUN out of LAND for commercial property and housing.

Every commercial warehouse company must be looking at where they can snaffle more properties.

Land bankers.

[Ohdoyle]

There is a holding in my mothers portfolio in Augusta industrial fund (centuria). I realise many of you will question the logic of holding these type of funds relative to the listed trusts but the monthly income combined with the fact they are more difficult to sell is attractive for the circumstances.

They released an Investor update a few days ago that absolutely astounded me.

NTA per share is up 19.5% since March 2021. If you extrapolate that out over some of our listed trusts there might be some value hiding in some ballance sheets.

[BlackPeter]

There is a holding in my mothers portfolio in Augusta industrial fund (centuria). I realise many of you will question the logic of holding these type of funds relative to the listed trusts but the monthly income combined with the fact they are more difficult to sell is attractive for the circumstances.

They released an Investor update a few days ago that absolutely astounded me.

NTA per share is up 19.5% since March 2021. If you extrapolate that out over some of our listed trusts there might be some value hiding in some ballance sheets.

I guess this is what property prices did over the last couple of years - shooting up to the moon. Just look at what the GV of your home did since the previous valuation (if you had a recent revaluation).

So yes, you are right with your observation and assumptions. Question is obviously whether it will be easy to realize this increased book value (particularly for a property fund with not always easily sellable property), and whether the values will hold in the years to come ...

[Ohdoyle]

My bigger question at the moment is whether rental income can catch up to these new valuations.

If you could realise the new valuation then the current return on that fund is just 4.2 percent gross. So either rents have to rise or values fall to make that work.

I'm rather hopefully leaning towards rising rents given the inflationary environment.

[Beagle]

Almost every commercial lease agreement has an annual or biannual rent adjustment (usually 2-3% per annum or CPI whichever is the greater).
Bottom line is when inflation runs hard rents go up hard.

[Ohdoyle]

Almost every commercial lease agreement has an annual or biannual rent adjustment (usually 2-3% per annum or CPI whichever is the greater).
Bottom line is when inflation runs hard rents go up hard.

My thoughts as well. Which I guess means as a long run income investor property trusts shouldnt work out to badly, even if there is some short term head winds from interest rates.

[fungus pudding]

Almost every commercial lease agreement has an annual or biannual rent adjustment (usually 2-3% per annum or CPI whichever is the greater).
Bottom line is when inflation runs hard rents go up hard.

Some do, but most that I have seen simply call for a review to the prevailing market rent at a specified period (e.g. 3 yearly) along with a ratchet clause to ensure they cannot fall.

[Beagle]

Some do, but most that I have seen simply call for a review to the prevailing market rent at a specified period (e.g. 3 yearly) along with a ratchet clause to ensure they cannot fall.

That must be the type that KPG use because their rent rises if any, on average, never seem to match inflation. Just have a look at their gross rental revenue over time, you'll see what I mean.

[fungus pudding]

That must be the type that KPG use because their rent rises if any, on average, never seem to match inflation. Just have a look at their gross rental revenue over time, you'll see what I mean.

Market rents rise with land prices and building replacement costs. (i.e. a new building will increase the rental value, and therefore the market value of its older neighbour) Even CPI rents usually review to market periodically, - say 3 yearly with CPI adjustmentn during interim years. I do not know what leases KPG use but I'd be surprised if they didn't have a market rent clause in there somewhere.

[LaserEyeKiwi]

That must be the type that KPG use because their rent rises if any, on average, never seem to match inflation. Just have a look at their gross rental revenue over time, you'll see what I mean.

KPG rental growth on its core assets was 3.2% in 2021FY, and 4.0% in previous 2020FY - above the rate of inflation for those periods.

[Beagle]

You may have found some creative way to come up with those figures but I was referencing the five year summary of their 2021 annual report and on page 20 we see total revenue in 2021 materially lower than it was in 2017, that's quite some accomplishment ! http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/KPG/372630/346576.pdf
Furthermore a basic 2% per annum CPI adjustment should have seen annual revenue climb from 2017's $239.6m to $259.4m in 2021 not the miserable $234m that was "achieved".
Their gross revenue does not keep pace with inflation over the medium to long term, not even remotely close...I have done research going back over 2 decades and they are a miserable failure with revenue, NTA and distributed income all going backwards very badly over the long term in real inflation adjusted terms. My contention is that if you want to seriously underperform any other form of property investment, listed, unlisted, direct or indirect, housing, apartments, units, farms, lifestyle blocks, you name it, KPG is the perfect investment vehicle, fill ya boots :p

[Aaron]

12% of countdown sales are now online. Probably shouldn't have been surprised due to the lockdowns and fear of covid and the time saved.

People definitely more comfortable buying online for all sorts of things.

https://www.stuff.co.nz/business/127218494/countdowns-online-sales-jump-28-in-year-marked-by-covid

A continuation of a trend but wonder how it might effect the commercial property market over the long term.

[Waltzing]

Yep the Com Prop's are going off ...even KPG is kicking it...Oh what a lovely day...

https://www.youtube.com/watch?v=wtQ6ca4mL7I

ready funk it up..

[Waltzing]

These stocks could take a bit of a hit next week as the US 10 year starts to reclimb past 1.5

[NZSilver]

Yep there will be plenty of volatility, but these are perfect top up opportunities. I'm expecting over a 5 year time frame these will provide a good return

[Waltzing]

Yes sensational!!!

Even if recession hit the NZ economy 2023 winter AGRI economy should limit the damage as long as Dairy and the other sectors such as Beef and Lamb hold up, Hort, Fruit and some Tech.

[Waltzing]

some big defaults starting in property in china as it appear EV has defaulted and others are also defaulting...probably wont effect this sector in NZ.

But there might not be a flow on of money being recycled into property in AUS and NZ..

Another head wind for this sectors SP.

[Waltzing]

Voices on CNBC this morning are discounting a high top out of the ten year for 2022.

Inflation highest since 1982 and the market just said SO WHAT!!!!

if thats the case the 1.40's for ARG might be seen in 12 to 24 months as a bargain for those that took the Risk and never seen again unless china comp property blows sky high.

Those that sold out or down might regret it.

Never sell more than 25% of your defensives.

Amen to that.

[NZSilver]

Article In the herald this morning is stating there is expected large inflow of $$ into property once borders allow. Mainly Singaporean and Australian according to the article.

[mistaTea]

Article In the herald this morning is stating there is expected large inflow of $$ into property once borders allow. Mainly Singaporean and Australian according to the article.

Sky shareholders waiting to see who is buying their Mt Wellington campus.

Announcement imminent. Maybe even next week.

[Beagle]

https://www.nzherald.co.nz/business/beijing-seeks-to-orchestrate-slow-motion-collapse-for-evergrande/2RA3SYBWB2MIBFC2BLL7MMBEDE/ Paywalled
Basically what amounts to statutory management and a managed wind down for Evergrande.
Not sure what the implications are for our REIT's but if the last few days are any indication it would seem its positive.

[NZSilver]

Any pretence that Hui Ka Yan, once China's richest man, remains in control of events at China Evergrande Group ended this week as state representatives took the majority of seats on a new risk management committee established by the heavily indebted developer.
In a statement issued on Monday night after shares in Evergrande fell to a record low in Hong Kong trading, Hui said the new committee would not report to the board "but will play an important role in mitigating and eliminating the future risks of the group".
While Hui is nominally chair of the seven-seat committee, four slots are held by representatives of state-owned enterprises controlled by either the central government or regional governments in southern Guangdong province. Evergrande is headquartered in Shenzhen, the high-tech manufacturing and services centre bordering Hong Kong.
Liu Zhihong, a senior executive from Guangdong Holdings, a conglomerate controlled by the Guangdong provincial government, was named co-chair of the committee. According to two people involved in Evergrande's restructuring, the Guangdong government has assumed responsibility for Evergrande in part because the officials in Shenzhen have been preoccupied with similar problems at Baoneng, a local property and financial services group.
The Chinese Government has taken control of other heavily indebted companies through similar mechanisms — most notably HNA, the aviation, logistics and tourism conglomerate based in southern Hainan province that was effectively taken over by local officials early last year.
But none have been as big as Evergrande, whose total liabilities exceed US$300 billion ($442.3b), or as interconnected with the Chinese economy. Untangling its debts while minimising collateral damage to the rest of the property sector will be a daunting challenge.
"The working group will take over Evergrande and find third parties, especially state-owned developers, to take over its development projects," said Chen Long at Plenum, a Beijing-based consultancy. "After that Evergrande is done. Original shareholders including Hui Ka Yan will be wiped out.
"This is how Beijing has managed highly indebted companies over the past three to four years," Chen added. "There were multiple times they could have saved Evergrande. They could still save Evergrande today. But there is no political motivation for anyone to do that."
HNA was one of four "grey rhinos" — a term used to describe highly leveraged groups that officials believed posed unique risks to the country's financial stability — that were brought to heel by the Chinese Government in 2017 after regulators grew concerned about the scale of their overseas buying sprees. HNA and another rhino, Anbang Insurance, were both the subject of government-administered restructurings that were so lengthy and opaque that they eventually faded from view without sparking market panics.
Evergrande's statement on Monday night suggested that the state representatives on its new risk management committee would oversee a similar process. "[Evergrande] believes that the experience of the committee members, as well as the resources they would be able to utilise, will be beneficial for the group to overcome the challenges it currently faces," the developer said.

Neither HNA nor Anbang had as high a profile or as central a role in the Chinese economy as Evergrande does. It is the second-largest developer by sales in the world's second-largest economy, where the property sector is estimated to account for about one-third of total economic output.
This explains the careful choreography that has surrounded Evergrande's slow-motion demise over the past week.
After markets closed on Friday, Evergrande revealed that it would struggle to repay a previously undisclosed guarantee obligation of US$260 million. Such guarantees are just one channel through which the group's collapse could send shockwaves through China's economy. Evergrande said in its interim annual report in August that it had issued guarantees totalling Rmb557b (US$87.4b) on behalf of property buyers and business partners.
China's central bank, securities regulator and banks regulator all issued statements on Friday asserting that the developer's woes stemmed from management errors and its crisis would not destabilise the financial system. On Monday night, the Chinese Communist party's Politburo said it would take steps to "boost public housing and support the housing market".That helped assuage market nerves even as Evergrande bondholders said that they had not received overdue repayments totalling US$82.5m, potentially signalling a formal default that the group has narrowly avoided on three other occasions over recent months.
The total value of the debts was US$343m — the same amount of money Hui raised by selling 9 per cent of his controlling stake in Evergrande late last month. But neither he nor Evergrande have said if the proceeds would be used to pay international bondholders or domestic creditors, including tens of thousands of retail investors and suppliers in a situation that government officials worry could erupt in widespread protests.
Eswar Prasad, a China finance expert at Cornell University, said the Politburo statement and simultaneous measures by the central bank to boost liquidity in the banking sector signalled Beijing's intention "to support growth but without a broad expansion of credit that could fuel a resurgence of financial market imbalances".

Zhiwei Zhang, chief economist at Pinpoint Asset Management, added that "the message from the Politburo was important; it indicates the Government may loosen policies in the property sector". But even if it does, it will probably be too late to prevent Evergrande from sinking under the weight of its debts.

[ronaldson]

ARG is the market darling today/this week among REIT's that's for sure!

[Waltzing]

well where is that 1.42-144 handle... very disappointed... would almost have had to do a rebalancing... still there are still some inflation shocks out there to come but the long term chart trend does seem to indicate upwards direction.

not sure what winner(n) thinks..Mr B has his doubts but did publish a brokers comments.

This Stock has had the full attention of investors lately..

Not bad for a Stock MR B classified as Boring.

Could it be that ARG has benefited from Government Investment in Government.

If Simon gets his way another era of Roger Douglas is on the cards (not such a bad thing if Government is cut and market is expanded).

Simon Bridges on the making of man, his faith and economic views - Taxpayers' Union (https://www.taxpayers.org.nz/simon_bridges_podcast)

[Panda-NZ-]

Food is a staple item.

Do the chinese really want to "take chances" with local brands. In a downturn their food companies will be under pressure to cut corners on safety.

[Waltzing]

Dow and S&P , Russell are volatile right now.

Fed balance sheet is 9 Trillion? no play book for this according to the EXPERTS. NZ Govt has hired thousands to boast GDP over 15000? estimated by Tax Payer Union research...

This is probably what's keeping this sector performing up against inflationary pressures.

The market forces pushing these prices up against inflation are greater in number than what is traditional this time.

This time it's different with such a HUGE chunk of GDP brought forward as treasury has estimated GDP growth going forward n years at over 2.5 percent when you would expect a slow down.

This time its Going to be Different for this sector and its a HOLD and a Range trade.

When and if Simons take's a wrecking ball to the government sector ARG will by then be a Hold where GMT with more exposure to industrial will continue to have a High PE.

[NZSilver]

Dow and S&P , Russell are volatile right now.

Fed balance sheet is 9 Trillion? no play book for this according to the EXPERTS. NZ Govt has hired thousands to boast GDP over 15000? estimated by Tax Payer Union research...

This is probably what's keeping this sector performing up against inflationary pressures.

The market forces pushing these prices up against inflation are greater in number than what is traditional this time.

This time it's different with such a HUGE chunk of GDP brought forward as treasury has estimated GDP growth going forward n years at over 2.5 percent when you would expect a slow down.

This time its Going to be Different for this sector and its a HOLD and a Range trade.

When and if Simons take's a wrecking ball to the government sector ARG will by then be a Hold where GMT with more exposure to industrial will continue to have a High PE.

Can you please elaborate on a few of these points to help a novice out.

[Waltzing]

Ok... if you had been listening in on many of the dozens of interviews on CNBC AISA. USA, Europe over the last 3 days many of these issues were discussed in detail by the worlds investment house reps and commentators.

I think MR B will tell us all those interviews provide some useful insights into how the pros are thinking.

One of the best interviews a week ago was the Jim O Neill on china. Who doesnt the man who coined the Bric's.

Reserve bank run offs was last nights theme and the fact that this next 12 months was a New Ball Game for Reserve Banks as the decide if they try to sell down their over loaded balance sheets.

ARG and GMT maybe benefitting from the HUGE NZ GOVT bond buying of the NZRB...

There is a release from Treasury about this impact on the economy as a forecast for the next 24 months already out.

Thats the document we need to read in detail.... pretty boring Xmas reading...

[NZSilver]

Two reports today saying breakout/movement into REITs as defensive play in US/AUS. I would say this is why we have seen rise recently in NZ REITS



Real Estate – Defensive Shift















https://ci6.googleusercontent.com/proxy/E9GUBCnF-BJBJvLe8_jPMwkD5b35e-6Bu4lfF7rk5Z6vb4rMrTAwvx5Qy58WLER26AO66JAYZGqJaP7N ZnvtGfI_I1m1rSC0KNDgYYjFqwGiVcuk6Hu_f5v56zCfVuG1xB c-Bx-ar1g=s0-d-e1-ft#https://s3.amazonaws.com/revue/items/images/013/097/799/mail/edthesdrg.png?1640098624


















Investors continue to pivot over to more defensive and durable sectors. REITs are benefiting from higher housing values and higher rental rates on both commercial and residential buildings. This move has less the look of a strategic move as it does a pure move over to safety and defense. 3-4% forward-looking yields will also attract interest.

[Waltzing]

US 10 Year moves up and the NZ prop trusts just ignore gravity at day end....

[Waltzing]

GMT bounced up to 2.71!

local market just ignoring the gravity of interest rate rises... is NZ approaching bubbles in commercial property ..

[NZSilver]

Relatively lower debt levels and the potential inflation hedge may be counteracting increase outlook in interest rates?

[Waltzing]

KIP is starting to return to its normal pattern... long periods of nothing following by ... the occasional upward trend... SL Park must have killed it for trade before xmas and now with people trickling back into auckland SLP will be busy again? ANYONE taken a look inside?

The camp grounds in the central WAKATOO have emptied from being packed to over flowing with the biggest numbers ever at some lakes.

One camper who returns to the same park for over 20 years at XMAS says they have never seen so many in the camp ground.

[winner69]

Collectively the listed property trusts share prices are still about 20% overvalued if the long term strong correlation with 10 year govt stock means anything

Then again some of them are priced quite a way below NTA ……it might be that the valuers are being too bullish with their valuations

[Waltzing]

simply change mode to trading them.

but long term property for commercial in central auckland down to south of karapiro is running out.

The expansion of the transport system will keep pressure on even if short term valuations of Yield are hit by the 10 year.

[Grimy]

IPL price has been tracking down steadily - closed at $1.76 yesterday giving about a 5% gross yield, which may not be that flash with rising inflation, interest rates, etc, but with a NTA of $2.20 and great anchor tenants (Countdown/Bunnings/Briscoes/Mitre10 etc) with long leases in place I'm not sure what's up. I guess some of these tenants may try to squeeze some rent relief, but as there are no lockdowns (yet) and their biggest tenant is Countdown I doubt they'll get much/any.
It's always seemed a bit unloved/boring. But I'm still looking for reasons not to buy a few.

[Waltzing]

Probably just money moving out to higher yield destinations rebalancing.

Every COMP PROP hit by the same thing to some greater or lesser extent.

[winner69]

If that Smartshares Comm Property thing SPF is a good proxy for the value of listed property and if historic correlation with 10 year govt stock is still relevant than listed property stocks on the NZX are still about 25%/30% over priced

Then again some of them are priced quite a way below NTA ……it might be that the valuers are being too bullish with their valuations and we could be seeing negative revaluations coming through this year

Updated image

[Waltzing]

No NEW LAND BEING CREATED.

Choice more land for property development means less land for food.

More people will be need to be brought into new zealand unless the locals can be educated to a higher level.

As risk globally ramps up the Golden T is going to come under pressure for land use.

In central WAKA TOO top town near record traffic volume's yesterday.

Did Commercial prop vales match residential.

[Waltzing]

winner with this latest graph of yours, your comparing 10 YR yield to price.

is Comp Prop price your proxy for valuations.

is not valuation calculated by land use and supply and demand not Bond Yields.

[winner69]

winner with this latest graph of yours, your comparing 10 YR yield to price.

is Comp Prop price your proxy for valuations.

is not valuation calculated by land use and supply and demand not Bond Yields.

Yes, comparing price to 10 year yields

But noted in a lot of cases price is < NTA (property valuations)

Just joined some dots and suggested if punters are on the ball and know a lot why aren't they buying closer to NTA (would make my chart worse)

And then suggested NTAs (values) maybe are too high - like valuers assumptions too bullish or something.

Goodness knows what's 'right'

[Waltzing]

Profit taking also.

Yields will have to rise from the stocks as 10 yr rises.

Expect SP to dump up and down .

back in 2007 OCR rates were very high and SP's were also high.

Today there is no sub prime to blow up the market.

Just heavy handed stuff from the GOVT that is throwing spanners into the works.

Right now the danger to property prices is the sloppy implementation of loan restrictions.

Banks basically slamming the OTC window closed.

Agents must be sitting around wondering where the next sales is coming from.

But COMP PROPS dont have this problem and some have very low debt ratios allowing them to expand their book.

Shortage of comp prop warehouse space is at a premium.

See this sector as a trade as well as a long term investment.

[winner69]

Don't know much listed property stocks so question

Do they normally trade below NTA

Currently most do as below - discount to NTA

PCT -4%
GMT 0%
KPG -22%
PF1 -2%
ARG -12%
VHP 10%
SPG -11%
IPL -20%

[Waltzing]

winner a large statistical database is needed and of course we are working on it dont know if it will work yet.

[Snoopy]

If that Smartshares Comm Property thing NPF is a good proxy for the value of listed property and if historic correlation with 10 year govt stock is still relevant than listed property stocks on the NZX are still about 25%/30% over priced

Then again some of them are priced quite a way below NTA ……it might be that the valuers are being too bullish with their valuations and we could be seeing negative revaluations coming through this year


I have decided to have a detailed look at NPF, with the idea of using it as a foray into the commercial property market. NPF is a 'Smartshares' vehicle which holds a 'market representative holding' in other listed property trusts. This gives NZ's ignorant commercial property investors (like me) a chance to 'spread their investment dollars around' without a concentrated sector exposure, for a modest aggregation, fee chargeable per year of 0.54% of the fund's net asset value.

I have gone back to 31st December 2021 which was the last official reporting date for the NPF entity.

https://smartshares.co.nz/types-of-funds/new-zealand-shares/nzpropertytrust
https://stocknessmonster.com/announcements/npf.nzx-385603/

I will start off by listing the end of CY2021 holding position for the fund.

NPF Fund Composition



TickerIssuerSP 31/12/2021
Weighting
Gross Dollar Value of NPF InvestmentNo. of Constituent Shares Held


PCTPrecinct Properties NZ Ltd.$1.67
18.18%[/TD]
$30.809m
18.449m


GMTGoodman Property Trust.$2.5817.92%
$30.368m11.771m


KPGKiwi Property Group.$1.19515.72%[/TD]$26.640m22.293m


PFIProperty for Industry$2.9812.59%[/TD]$21.335m7.159m


ARGArgosy Property Ltd.$1.6011.32%[/TD]$19.183m11,989m


VHPVital Healthcare Property Trust$3.1511.04%[/TD]$18.708m5.939m

][/
SPGStride Property Group$2.118.36%[/TD]$14.167m6.714m


IPLInvestore Property Ltd.$1.954.87%[/TD]$8.253m4.232m








NPF (Collective Entity)Smartshares NZ Property ETF.$1.53100%$169.463m



-------------------

Notes

1/ Total number of NPF units on issue as at 31-12-2021 was 110,886,748 with an NTA of $1.52825
2/ Sample calculation

Market Value of Investore Shares at 31-12-2021:

Total value of NPF fund at 31-12-2021 = 110,886,748 x $1.52825 = $169.463m
(for comparison NPF fund at 31-12-2020 = 98,636,748 x $1.54023 = $151.923m

Dollar value of Fund invested in IPL = 0.0487 x $149.463m = $8.253m
No. IPL shares held by NPF @31-12-2021 = $8.253m/$1.95 = 4.232m (result carried over to Part 2 of this series.)

-------------------


SNOOPY

[Snoopy]

I will start off by listing the end of CY2021 holding position for the fund.


We now move on to the implied income stream, from the perspective of looking back over CY2021.


NPF Fund Income Stream



TickerIssuer
No. of Constituent Shares Held
Declared Dividends (CY2021) cps
Declared Imputation Credits (CY2021) cps
New Capital Factor (Note b/)
Dividend + Imputation Credits received by NPF (CY2021)


PCTPrecinct Properties NZ Ltd.
18.449m
1.625+1.625+1.625+1.625
0+0+0+0
0.8887 (d1,d2)
$1.132m + $0m


GMTGoodman Property Trust.
11.771m
1.325+1.325+1.375+1.375
0.285+0.233+0.311+0.303

$0.636m+$0.133m


KPGKiwi Property Group.
22.293m
2.95+2.75
0.545+0.752

$1.271m+$0.289m


PFIProperty for Industry
7.159m
2.250+1.800+1.800+1.850
0.514+0.592+0.609+0.635

$0.551m+$0.168m


ARGArgosy Property Ltd.
11.989m
1.613+1.613+1.638+1.638
0.141+0.000+0.138+0.072

$0.780m+$0.043m


VHPVital Healthcare Property Trust
5.939m
2.188+2.250+2.250+2.375
0.813+0.568+0.164+0.038
0.9141 (d1,d2,d3)
$0.504m+$0.086m


SPGStride Property Group (SPL)
6.714m
1.727+1.608+1.935+1.748
0.159+0.282+0.132+0.044
0.8760 (d1,d2,d3,d4)
$0.413m+$0.036m


(SMIL)
6.714m
0.750+0.870+0.543+0.730
0.132+0.154+0.096+0.129
0.8760 (d1,d2,d3,d4)
$0.170m+$0.030m


IPLInvestore Property Ltd.
4.232m
1.900+1.900+1.975+1.975
0.140+0.091+0.166+0.139

$0.328m+$0.023m









NPF (Collective Entity) ETF ETF earnings
$5.785m+$0.808m


NPF (Collective Entity) ETFSmartshares NZ Property ETF110.887m1.64 + 1.840.393+0.415
$3.859m+$0.896m



Notes

a/ Information on dividends here is from the respective company page on the NZX website. For companies that issued shares during the year, dividend dates matter:

a1/ Precinct Properties

PCT ex a 1.625cps dividend on 12th March 2021,
PCT ex a 1.625cps dividend on 26th May 2021,
Settlement of PCT institutional Placement 24th June 2021,
Settlement of PCT Retail offer on 8th July 2021
PCT ex a 1.625cps dividend on 10th September 2021
PCT ex a 1.625cps dividend on 26th November 2021,

a2/ Vital Healthcare Property Trust

VHP ex a 2.1875cps dividend on 11th March 2021,
VHP ex a 2.250cps dividend on 9th June 2021,
VHP ex a 2.250cps dividend on 8th September 2021,
Settlement of VHP institutional placement 14th October 2021cmpanies
Settlement of VHP retail placement 10th November 2021
VHP ex a 2.375cps dividend on 1st December 2021,

a3/ Stride Property Group

SPG ex a 1.7275cps+0.75cps stapled dividend on 10th March 2021
SPG ex a 1.6075cps+0.87cps stapled dividend on 4th June 2021.
SPG ex a 1.9345cps+0.5430cps stapled dividend on 2nd September 2021
Settlement of SPG institutional placement on 26th November 2021 (*)
SPG ex a 2.4775cps combined stapled dividend on 30th November 2021.
Settlement of SPG retail placement on 15th December 2021

(*) not eligible for dividend immediately following

b/ The New Capital Factor (NCF) adjusts for the fact that new capital issued during the year was not necessarily eligible for all dividends paid during the year. To see the calculation of NCFs see part 4 of this series of posts.
If new capital is issued during the year, that capital only enters the dividend stream after shareholders have got those new shares. That means that taking a retrospective view, I need to adjust the dividends paid by removing dividends attributed to shares that did not exist at the time the dividends were actually paid. I have labelled each dividend d1, d2 etc. in chronological order. For companies that have issued capital during the year, I have calculated the NPF factor and listed the dividends that this factor is to be applied to.

-------

I have compared the indicative earnings paid in, compare to the NPF dividends paid out. That should give a good feel for the 'efficiency' of this investment structure for our celebrated 'ignorant property investor'. At first glance, while the imputation credits of money in vs money out are close to matching, the actual dividend payout from NPF is substantially lower (only 65% of incoming earnings). What can explain this difference?

SNOOPY

[Waltzing]

Geographic patterns in future commerce are surely a factor in selecting possible investments in this sector.

[Beagle]

Don't know much listed property stocks so question

Do they normally trade below NTA

Currently most do as below - discount to NTA

PCT -4%
GMT 0%
KPG -22%
PF1 -2%
ARG -12%
VHP 10%
SPG -11%
IPL -20%

Valuations of commercial properties are based on capitalization rates, as I am sure you know. When interest rates are really low capitalization rates (what investors demand as a return) are very low and high quality industrial property can sell for as much as 25 times their annual rental income, (cap rate 4%). As interest rates have fallen over the last decade cap rates have fallen and NTA's for many REIT's have increased significantly, (KPG aside and you know my thoughts on that company)

Important to note that 10 year Govt stock has moved from just over 0.5% in late 2020 to over 2.8% on Friday this week and could easily track up towards more normal historical level's of about 4% over the next couple of years or so. Investors think that in the future the market will demand better cash returns from commercial properties so the cap rates will be higher and that will likely drive the NTA gradually lower over time.

It wasn't that many years ago investors expected an average 8% return from commercial property...maybe we're going back there over time ?

I believe the market is quite correctly pricing many of these REIT's below historical NTA on that expectation. The market has got itself used too annual NTA revaluations, but is only just starting to come to terms with the probability that in the future we may see annual NTA devaluations for quite some time to come.

I sold most of my ARG quite recently at just on $1.50 believing that their historical $1.64 NTA has probably peaked for the foreseeable future.

[winner69]

Valuations of commercial properties are based on capitalization rates, as I am sure you know. When interest rates are really low capitalization rates (what investors demand as a return) are very low and high quality industrial property can sell for as much as 25 times their annual rental income, (cap rate 4%). As interest rates have fallen over the last decade cap rates have fallen and NTA's for many REIT's have increased significantly, (KPG aside and you know my thoughts on that company) y

Important to note that 10 year Govt stock has moved from just over 0.5% in late 2020 to over 2.8% on Friday this week and could easily track up towards more normal historical level's of about 4% over the next couple of years or so. Investors think that in the future the market will demand better cash returns from commercial properties so the cap rates will be higher and that will likely drive the NTA gradually lower over time.

It wasn't that many years ago investors expected an average 8% return from commercial property...maybe we're going back there over time ?

I believe the market is quite correctly pricing many of these REIT's below historical NTA on that expectation. The market has got itself used too annual NTA revaluations, but is only just starting to come to terms with the probability that in the future we may see annual NTA devaluations for quite some time to come.

I sold most of my ARG quite recently at just on $1.50 believing that their historical $1.64 NTA has probably peaked for the foreseeable future.

Methinks some might be a bit shocked if there were downward revaluations over the next year

[Waltzing]

devaluations possible but what if land fit for commercial property development in the geographic locations is running out?

[Snoopy]

I have compared the indicative earnings paid in, compare to the NPF dividends paid out. That should give a good feel for the 'efficiency' of this investment structure for our celebrated 'ignorant property investor'. At first glance, while the imputation credits of money in vs money out are close to matching, the actual dividend payout from NPF is substantially lower (only 65% of incoming earnings). What can explain this difference?


NPF Fund Income Stream



TickerIssuer
No. of Constituent Shares Held
Declared Dividends (CY2021) cps
Declared Imputation Credits (CY2021) cps


NPF (Collective Entity) ETF ETF earnings$5.785m+$0.808m


NPF (Collective Entity) ETFSmartshares NZ Property ETF110.887m1.64 + 1.840.393+0.415$3.859m+$0.896m



One thing I have not taken account of -so far- is the running cost of the NPF fund. Over the financial year ending 31st March 2021 these amounted to 0.54% of the funds value. But was this a one off charge at the end of the financial year? Or was 1/12th of the charge paid monthly? Or 1/365th of the charge paid daily? Maybe I am looking in the wrong place. But I find the detail on just how some of these Smartshares funds operate opaque and disclosure very poor. The only time I have phoned them with a query I got told to:

"Put it in writing" (via e-mail) and "we will get back to you".

Of course, they never did get back to me. So, this time, I will take the 'easy way out' and take off 0.54% of the 31st December NTA figure.

0.0054 x 110.887m x $1.52825 = $0.915m

0.54% on the value of assets does not sound a lot. But it has reduced the NPF's fund earnings by nearly 20% - ouch! As a self declared 'ignorant property investor', that is quite a hit to take before I carve off my share of the rent return. But another sum of just over $1m is still missing. What happened to that? To solve this mystery we must drag a fine tooth comb through any capital movements of NPF constituent companies during the year (see part 4).

Meanwhile NPF have increased the number of units on issue over the year from 98,636,748 to 110,886,748, a rise of 12.25 million units. This has likely(*) resulted in the increased capital in the fund of:

(1/12)x($1.53314 + $1.45893 + $1.47294 + $1.49054 + $1.44755 + $1.48494 + $1.52888 + $1.58904 + $1.52896 + $1.50887 + $1.41319 + $1.52825) x 12.5m = $18.734m

(*) For my estimated 'new unit subscription price' I have averaged to fund closing price on the last day of each month of the year. That average I calculate as $1.49874

I assume that the $18.734m is money that new or existing investors have fed into this fund during the calendar year. But part of it could be from dividends reinvested, i.e. a kind of 'dividend reinvestment scheme'. The disclosure from Smartshares is so poor that it is not possible to know any of this with certainty.

Certain constituents of the NPF fund have raised capital during the year. NPF would have put proportionate money into those capital raisings to maintain representative shareholdings. These constituents were: Precinct Properties (PCT), Vital Healthcare Property Trust (VHP), Stride Property and Stride Investment Management Stapled Securities (SPG).

How much capital did NPF have to put in to support their constituent's capital raisings? That is the subject of Part 4 of this series.

SNOOPY

[Beagle]

devaluations possible but what if land fit for commercial property development in the geographic locations is running out?

What if work from home becomes semi permanent ? Spoke with the CFO of a major advertising agency this week. Asked him how staff were performing working from home. A lot of them are slacking off he said and yet despite this they are thinking of pulling a few million out of the cost base by not renewing a lease on one of their properties and consolidating down the physical footprint of the business. I bet that's a theme being played out right across the country as leases come up for renewal.

[Waltzing]

Looking back at DIV payouts since 2010 and they seem to be stuck in a range.

SP handles may also bounce in a channel making them stable trades.

Most of the listed bigger ones, GMT, ARG have the upper end of the market.

These 2 in particular look to be tradeable now that ARG has come off its highs.

Any returns to high looks very unlikely with the 10's moving higher and they will now its broken above 2.

[Aaron]

Don't know much listed property stocks so question

Do they normally trade below NTA

Currently most do as below - discount to NTA

PCT -4%
GMT 0%
KPG -22%
PF1 -2%
ARG -12%
VHP 10%
SPG -11%
IPL -20%

Always wondered why there was so much chatter about price trading below NTA. I would have thought that yield and sustainable dividends would have been more important decision criteria when investing in commercial property.

The NTA changes with a stroke of a pen at the end of each year, rental income is not as easy to adjust higher.

[Waltzing]

The likes of ARG and GMT may not be able to increase DIV if the surrounding market takes a hit.

DIC Snoop maybe compiling a comprehensive list of DIVs but you really need to go back to 2000 and compile a comprehensive stats database for this sector .

plot the relationship between DIV, EPS, BOND Yields, OCR, and NTA.

[Beagle]

Looking back at DIV payouts since 2010 and they seem to be stuck in a range.

SP handles may also bounce in a channel making them stable trades.

Most of the listed bigger ones, GMT, ARG have the upper end of the market.

These 2 in particular look to be tradeable now that ARG has come off its highs.

Any returns to high looks very unlikely with the 10's moving higher and they will now its broken above 2.

Broken above 2. You're talking US ten year rates and you're right we tend to move higher pretty much in lockstep albeit with our small country premium attached. Our 10 year breeched 2.8% last week. A break above 3% here looks likely in the coming weeks. March 31 2022 quarterly inflation number to be released about 20 April could be a real shocker and the catalyst for the next leg up !

[Waltzing]

The Hound is ahead of the pack... as always...as always...

selling usually runs out .....

[Waltzing]

GMT getting the support.. ARG not so much ..

[LaserEyeKiwi]

If that Smartshares Comm Property thing SPF is a good proxy for the value of listed property and if historic correlation with 10 year govt stock is still relevant than listed property stocks on the NZX are still about 25%/30% over priced

Then again some of them are priced quite a way below NTA ……it might be that the valuers are being too bullish with their valuations and we could be seeing negative revaluations coming through this year

Updated image

context for NPF unit price13514

[Snoopy]

NPF Fund Income Stream over CY2021

0.0054 x 110.887m x $1.52825 = $0.915m

0.54% on the value of assets does not sound a lot. But it has reduced the NPF's fund earnings by nearly 20% - ouch! As a self declared 'ignorant property investor', that is quite a hit to take before I carve off my share of the rent return. But another sum of just over $1m is still missing. What happened to that? To solve this mystery we must drag a fine tooth comb through any capital movements of NPF constituent companies during the year.

Meanwhile NPF have increased the number of units on issue over the year from 98,636,748 to 110,886,748, a rise of 12.25 million units. This has likely(*) resulted in the increased capital in the fund of:

(1/12)x($1.53314 + $1.45893 + $1.47294 + $1.49054 + $1.44755 + $1.48494 + $1.52888 + $1.58904 + $1.52896 + $1.50887 + $1.41319 + $1.52825) x 12.5m = $18.734m

(*) For my estimated 'new unit subscription price' I have averaged to fund closing price on the last day of each month of the year. That average I calculate as $1.49874



NPF Fund 'Capital Raising Requirements' over CY2021

Certain constituents of the NPF fund have raised capital during the year. NPF would have put proportionate money into those capital raisings to maintain representative shareholdings.





Precinct Properties (PCT)

Looking back at the PCT announcements for June 2021, I see there was an institutional placement of $220m made, followed up by a retail placement of $30m, for a total of $250m.

a/ The post capital change announcement from the institutional placement showed 144,736,841 @ $1.52 new shares were placed with institutions. The number of shares on issue immediately prior to this rights issue was:

1,458,500,891-144,736,841= 1,313,746,050

b/ The post capital change announcement from the subsequent retail offer was a further 19,736,842 shares @ $1.52 being added.

So total incremental new capital raised during CY2021 was:

(144,736,842 + 19,736,842) / 1,313,746,050 = +12.52% new shares were issued
This equates to a New Capital Factor (NCF) of 1/1.1252 = 0.8887

To keep their 'proportional shares of the total holding', and recognising that the share price of the shares issued in the capital raising has subsequently risen from $1.52 to $1.67 by the end of the calendar year,

this would have required an outlay for NPF of:

152/167 x ($30.809m - $30.809m /1.1252) = $3.120m



Vital Healthcare Property Trust (VHP)

On 13th October 2021, VHP announced a $140m capital raising, made up of a $115m underwritten placement (@ $2.90 per share) and a $25m unit purchase plan (subsequently revised to a $27.8m purchase plan).

The underwritten placement resulted in 39,655,172 shares being issued, with 565,322,315 shares being on issue after this event. The number of shares on issue before the offer was therefore:

565,322,315 - 39,655,172 = 525,667,143

The unit purchase plan closed oversubscribed by $2.8m, and the unit manager decided to accept all over-subscriptions. The acceptance share price was $2.852 for the unit purchase plan. So the total number of shares issued under the UPP was:

$27.8m/$2.852 = 9,747,546

The combined total of new capital raised under these recapitalisation plans was therefore:

(39,655,172+9,747,546) / 525,667,143 = +9.4%
This equates to a New Capital Factor (NCF) of 1/1.094 = 0.9141

To keep their 'proportional shares of the total holding', and recognising that the share price of the shares issued in the capital raising has subsequently risen from $2.90 to $3.14 by the end of the calendar year, this would have required an outlay for NPF of:

290/314 x ($18.708m - $18.708m /1.094) = $1.484m




Stride Property and Stride Investment Management Stapled Securities (SPG)

On 26th November 2021, SPG announced that $110m had been raised through an institutional offer of new stapled securities priced at $2 each. Thus $110m/$2m, means 55m new shares were issued..

A follow up offer for retail investors raised $23.9m @ $2 per share. Thus a further $23.9m/$2 = 11.95m (actually 11,953,660) of new shares were issued.

At the end of this dual capital raising exercise 540,188,663 shares were on issue. This means the number of new shares on issue before the capital raising was:

540,188,663 - 55,000,000 - 11,950,000 = 473,238,663

So the incremental number of new shares created during the capital raising was:

(55,000,000 + 11,950,000) / 473,238,663 = 14.15%
This equates to a New Capital Factor (NCF) of 1/1.1415 = 0.8760

To keep their 'proportional shares of the total holding', and recognising that the share price of the shares issued in the capital raising has subsequently risen from $2.00 to $2.11 by the end of the calendar year, this would have required an outlay for NPF of:

200/211 x ($14.167m - $14.167m /1.1415) = $1.665m


Adding everything up

Total capital funding requirements over CY2021, for the three portfolio constituents that raised capital was:

$3.120 + $1.494m + $1.665m = $6.279m

This is money that needs to be 'found' by NPF, to maintain their relative market interest in the listed property entities they hold.

SNOOPY

[Snoopy]

DIC Snoop maybe compiling a comprehensive list of DIVs but you really need to go back to 2000 and compile a comprehensive stats database for this sector .

plot the relationship between DIV, EPS, BOND Yields, OCR, and NTA.


Quite right Waltzingman. But you are giving me too much credit on the 'ambition' side of the ledger. This humble mutt has a much lesser aim: Namely to see if this combined broth of investing in all the property companies together, via NPF, makes some kind of economic sense (using CY2021 as an example). Or whether the self confessed 'property ignorant', such as myself, should just open a Sharsies account and make a DIY version of the same portfolio.

SNOOPY

[Snoopy]

Total value of NPF fund at 31-12-2021 = 110,886,748 x $1.52825 = $169.463m
(for comparison NPF fund at 31-12-2020 = 98,636,748 x $1.54023 = $151.923m

NPF (Collective Entity) ETF earnings = $5.785m+$0.808m(I/C)

NPF (Collective Entity) ETF dividends paid $3.859m+$0.896m(I/C)




One thing I have not taken account of -so far- is the running cost of the NPF fund. Over the financial year ending 31st March 2021 these amounted to 0.54% of the funds value of the 31st December NTA figure.

0.0054 x 110.887m x $1.52825 = $0.915m

Meanwhile NPF have increased the number of units on issue over the year from 98,636,748 to 110,886,748, a rise of 12.25 million units. This has likely(*) resulted in the increased capital in the fund of:

(1/12)x($1.53314 + $1.45893 + $1.47294 + $1.49054 + $1.44755 + $1.48494 + $1.52888 + $1.58904 + $1.52896 + $1.50887 + $1.41319 + $1.52825) x 12.5m = $18.734m

(*) For my estimated 'new unit subscription price' I have averaged to fund closing price on the last day of each month of the year. That average I calculate as $1.49874

I assume that the $18.734m is money that new or existing investors have fed into this fund during the calendar year. But part of it could be from dividends reinvested, i.e. a kind of 'dividend reinvestment scheme'. The disclosure from Smartshares is so poor that it is not possible to know any of this with certainty.





Capital Funding Requirements CY2021

Total capital funding requirements over CY2021, for the three portfolio constituents that raised capital was:

$3.120, + $1.494m + $1.665m = $6.279m



Bringing those previous posts together.....

Evolving Cashflow Position of NPF over CY2021



CashImputation Credit


Opening Balance (31-12-2020)$151.923m$?m


add Dividends Received (ref Part 2)$5.785m$0.888m


less Dividends Paid (ref Part 2)($3.859m)($0.896m)


add Investor Contributions During Year (est., ref Part 3)$18.734m


less Capital Funding Requirements (est., ref Part 4)($6.279m)


equals Closing Balance (31-12-2021) (est.)$166.304m$?m less ($0.008m)








Actual Closing Balance (31-12-2021)$169.463m$?m



The above is my attempt to figure out the cash position of the NPF fund, as it has changed over CY2021. As you can see, my estimated calculated results leaves me just over $3m shy of the actual cash position. This is disappointing for my attempt to explain the annual change in fund valuation. Yet there are possible reasons that I can think of which might explain the discrepancy.

1/ I have assumed that all contributions to the fund were made at my calculated 'averaged' price of $1.49874 per unit. If the average actual purchase price was higher than that, then the dollar amount of capital raised during the year would have been greater than I predicted.
2/ It is possible that the fund earns 'buying fees' and 'selling fees' whenever people want to add or withdraw funds from their holding balance (or are those just pocketed by the NZX)?
3/ It is possible that some of the dividends that I had assumed were paid out in cash were not paid out but reinvested into more NPF fund units.
4/ As a passive fund, maybe NPF was not offered the opportunity to 'top up' in the wholesale capital raisings, and they had to top up on those shares 'on market' at a different price?
5/ As a newbie ignorant -potential- property investor, I may have no idea what I am talking about.

Something else bothered me as I was writing up this table. In an 'open fund' such as NPF is, IF:

a/ I tossed in a whole swag of money when the fund started AND
b/ Subsequent 'Johnny come lately' investors put in money at a higher price over the years, as the NPF unit price rose THEN
c/ When I wanted to quit my holding later, the 'average unit price gain' would be less than if I had just made a DIY imitation portfolio that mimicked exactly NPF, because the average unit buy price of NPF would have been pushed up by the 'Johnny come lately' investors.

Is that correct, or have I just made another of my 'too late at night' musings?

SNOOPY

[Monarch]

Snoopy what kind of benefit from buying these companies in an etf are you looking for? I don't know of any that make paying .5% fee pa worth it unless you wish to reduce personal admin time keeping track of dividends etc.

[Waltzing]

They have had there Cap gain runs.

If they were in Vogue MR B would be all over them and he ant.

They are a range bound trade at the MO.

[JeffW]

Snoopy what kind of benefit from buying these companies in an etf are you looking for? I don't know of any that make paying .5% fee pa worth it unless you wish to reduce personal admin time keeping track of dividends etc.
Some of the other Smartshare funds allow an easy way to purchase off-shore shares, and also makes the tax easier as they are all PIEs. All of the individual Property Equities are PIEs anyway, and are easy to purchase outside of an ETF structure. I have investments in other funds, but can't see the point of the NZ Property one for my situation

[Snoopy]

They have had their Cap gain runs.

If they were in Vogue MR B would be all over them and he ant.

They are a range bound trade at the MO.


I see commercial property as an inflation hedge, plus with the added bonus of getting an income stream somewhat higher than would otherwise be available from the classic kiwi battlers fall back income proposition - the term deposit. So the lack of the prospect of inflation beating capital gains going forwards is not a big issue for me, although capital losses might be!

I saw Mr B's comment on the 'new normal' of staying at home and working remotely killing off the demand for corporate office space. I am not saying he is wrong, although I believe many Aucklanders relish getting out of their grim flats with the floor plan area closer to that of a postage stamp than a tennis court for at least part of the day. But 'property assets' always have alternative uses. Witness the next residential towers that KPG is looking to build at Sylvia Park on commercial land. There is no reason some of those office spaces could not be converted to desirable residential space, similar to what CDL investments does in Sydney.

What shopping centres look like in a post Covid-19 world is up for grabs. From what I have observed, both in NZ and overseas, if that you have a large conveniently sited aggregator of hip shops, people will still want to go there. I know on-line shopping has taken off. But apart from phone addicted stick figure teenagers, whose physique does resemble some of those impossible mannequins you see in shop windows, most people - I think - do like to 'try on before you buy'. Indeed many stores are trying to change what in the past was seen as chore, into an in store multimedia experience that is worth 'going shopping' for.

Industrial Property is an interesting one. Alternative site use there might entail calling in the bulldozers for a site flattening mission. But if you get a good industrial tenant, they might want to stay on site for decades. And all site improvements are paid for by them, not you the property owner.

I seem to be all over the place with this, which is why the idea of backing a collective property investment manager, who knows what they are doing, to have control of my property investment capital, appeals. But is NPF such a manager? Or are they just a dumb filer of dividend statements, that anyone handy with the concept of a filing cabinet could easily replicate?

SNOOPY

[Snoopy]

Snoopy what kind of benefit from buying these companies in an etf are you looking for? I don't know of any that make paying .5% fee pa worth it unless you wish to reduce personal admin time keeping track of dividends etc.


Benefits? I guess the main benefit is not trying to be cleverer than I really am, by thinking I know a lot about the commercial property market.

The other fringe issue that really gets me is those property companies that have apparently 'sold off' their management rights (or were they set up with a management right liability at the start, so that the former owners could 'outsource' the day to day property management, while still skimming off the cream?) From what I have observed, property companies that have such onerous external management contracts tend to be punished by the market. That would flow to a managed fund like NPF buying their shares at an appropriate market discount.

I think the one line answer to your question Monarch is "to get a nice easy worry free ride." Although even I acknowledge the hypocrisy of complaining about excessive management fees in some listed entities, and then paying excessive(?) management fees to have someone else sort out that little problem for me. The question that I need to ask is, are the management fees at NPF excessive for what you get?

One of the best independent measures for that, I have decided, is the dividend yield. The gross equivalent PIE shareholder dividend over CY2021, the historical perspective, is calculated across two gross dividends (refer post 1152):

1.6395c + 0.4148c (20.2% percentage points imputed) = 2.054c
1.8397c + 0.3933c (17.6% percentage points imputed) = 2.233c

Consider the NPF unit price on 31-12-2021 was:$1.53 (I note the market price today is $1.44, so perhaps Mr Market is in the process of correcting any potential overpricing), this represented an historical gross equivalent PIE shareholder dividend yield of:

[(1.6395c+1.8397c)/0.72] / 153 = 3.16%

(Notice that in the shareholder PIE income calculation, the imputation credits paid by the company do not come into the shareholder return equation)

I think as the year goes on, we might see one year bank term deposit rates track this high. I am not sure if it is just NPF fees or the general subdued yields on property investment that is driving this result. But I am struggling to see the value of buying NPF here.

Even at today's price the, historical gross dividend yield is:

[(1.6395c+1.8397c)/0.72] / 144 = 3.36%

As I 'lie in bed' (a figurative term for holding onto the opportunity of having cash in your bank account), should I 'get out of bed' for this?

SNOOPY

[Snoopy]

The gross equivalent PIE shareholder dividend over CY2021, the historical perspective, is calculated across two gross dividends (refer post 1152):

1.6395c + 0.4148c (20.2% percentage points imputed) = 2.054c
1.8397c + 0.3933c (17.6% percentage points imputed) = 2.233c

Consider the NPF unit price on 31-12-2021 was:$1.53 (I note the market price today is $1.44, so perhaps Mr Market is in the process of correcting any potential overpricing), this represented an historical gross equivalent PIE shareholder dividend yield of:

[(1.6395c+1.8397c)/0.72] / 153 = 3.16%

(Notice that in the shareholder PIE income calculation, the imputation credits paid by the company do not come into the shareholder return equation)

I think as the year goes on, we might see one year bank term deposit rates track this high. I am not sure if it is just NPF fees or the general subdued yields on property investment that is driving this result. But I am struggling to see the value of buying NPF here.

Even at today's price the, historical gross dividend yield is:

[(1.6395c+1.8397c)/0.72] / 144 = 3.36%


The 'dividend yield' I have quoted above. The 'underlying constituent earnings yield' UCEY (that means with NPF with management fees removed) paints a different story (refer post 1152).

The gross UCEY over CY2021, the historical perspective, is spread across 34 gross dividends. In dollar terms this totals:

$5.785m + $0.808m = $6.593m

Based on the 110.887m NPF shares on issue, this translates to UC per share earnings of:

5.217c + 0.729c = 5.946c

Consider the NPF unit price on 31-12-2021 was:$1.53 (I note the market price today is $1.44, so perhaps Mr Market is in the process of correcting any potential overpricing), this represented an historical gross dividend yield of:

[(5.217c)/0.72] / 153 = 4.73%

I think as the year goes on, we might see one year bank term deposit rates track this high. I am not sure if it is just NPF fees or the general subdued yields on property investment that is driving this result. But I am struggling to see the value of buying NPF here.

Even at today's price the, historical gross dividend yield is:

[(5.217c)/0.72] / 144 = 5.03%

That last figure is starting to get into the realm of interest for 'interest'. But I can't help thing that 'later in the year' will be a better 'buy time' than now.

SNOOPY

[Waltzing]

"Witness the next residential towers that KPG is looking to build at Sylvia Park on commercial land. There is no reason some of those office spaces could not be converted to desirable residential space, similar to what CDL investments does in Sydney."

bit like desperately seeking susan.....

yes looking for info and what investor's feel might in a few years time might bring the likes of ARG back to its HIGHS and what might Ignite KIPS share price.

Definitely going to read your in depth FA DIC.

[arekaywhy]

Good effort there Snoopy.

You have effectively put into numbers my general experience, in that returns on NPF do not seem to line up with the aggregate return on the individual elements. I fear that the vehicle has been set up as a convenience machine, with fees that seem out of whack with what they have to do to collect money from us.

I have a modest position in NPF that I am slowly but surely turning into a portfolio of listed commercial property shares.

[Snoopy]

Good effort there Snoopy.

You have effectively put into numbers my general experience, in that returns on NPF do not seem to line up with the aggregate return on the individual elements. I fear that the vehicle has been set up as a convenience machine, with fees that seem out of whack with what they have to do to collect money from us.


I am not sure how many of those constituent NPF investments are PIEs. Anyone know? But the PIE format removes the need to aggregate your property returns for tax purposes anyway, because you don't have to declare such returns on your tax form. Your individual Property PIE share returns are 'tax paid' already at the PIE rate!

SNOOPY

[Snoopy]

I have figured out that NPF is perhaps not the vehicle I was looking for a foray into property investment, due principally to the running cost of the fund, eating away too much yield. I know yield is but one measure of company performance. But it is a honest one, in that no-one can argue with a dividend dollar being placed in their own bank account.

Having gone to the trouble of working out the overall dividend yield of the NPF fund, it is little extra trouble to work out the historical yield of the fund's constituents. That sounds like a useful comparative exercise as well, so here goes.


NPF Fund Constituent Yield (EOCY2021 historical)



Ticker
Issuer
PIE?
No. of Constituent Shares Held by NPF {A}
Share Price 31-12-2021 {B}
Dividend + Imputation Credits received by NPF (CY2021) {C}
Shareholder Gross PIE equivalent Dividend Yield (CY2021) {C'div only'}/{A}{B}



PCTPrecinct Properties NZ. Ltd,
Yes
18.449m
$1.67
$1.132m+$0m
5.10%


GMTGoodman Property Trust.
Yes
11.771m
$2.58
$0.636m+$0.133m
2.91%



KPGKiwi Property Group.
Yes
22.293m
$1.195
$1.271m+$0.289m
6.63%


PFIProperty for Industry
Yes
7.159m
$2.98
$0.551m+$0.168m
3.59%



ARGArgosy Property Ltd.
Yes
11.989m
$1.60
$0.780m+$0.043m
5.65%



VHPVital Healthcare Property Trust
Partial (NZ Assets only)
5.939m
$3.15
$0.504m+$0.086m
3.74%

}/{
SPGStride Property Group SPL
Yes
6.714m
$2.11
$0.413m+$0.036m



SMIL
No
6.714m
$2.11
$0.170m+$0.030m
5.07%


IPLInvestore Property Ltd.
Yes
4.232m
$1.95
$0.328m+$0.023m
5.52%



Sample Calculations

(i) Calculation for KPG yield
[$1.271m/0.72] / ($1.195 x 22.293m) = 6.63%

(ii) Calculation for SPG yield (combining SPL and SIML):
[ $0.413m/0.72 + 0.72($0.170m+$0.030m) ] / [ $2.11 x 6.714m] = 5.07%

(iii) Calculation for IPL yield:
[$0.328m/0.72] / ($1.95 x4.232m) = 5.52%

-------------------

Two things strike me about this table

1/ Yields on commercial property in general at the end of CY2021 were pretty miserable.
2/ The diversity of yields is hugely higher than I expected: From 2.91% (GMT) to 6.63% (KPG).

SNOOPY

[Waltzing]

Look for some good tech buys in the months ahead as the FED lift rates...

ID go some more Microsoft, Apple and Google plus some Amazon.. forget face plant for the mean time.. its now a country with a deputy prime minister.

not happy with Tesla Tease lots of software faults , brakes the new one.

who ever creates the next platform for retail VR that doesnt require bit coin.

The NZX is so 1980's with some new rules....

[GTM 3442]

Interesting reading Snoopy

If I wanted to put (say) fifty grand into NZ property, why wouldn't I just slap ten grand into each of the top 5 holdings in the Smartshares NPF ETF?

One-off brokerage at 5x$30 = $150
Advertised fee of 0.54%pa = $270 pa

After 10 years I've paid either $150 brokerage or $2700 in fees.

You pays your money and you takes your choice

[arekaywhy]

Interesting reading Snoopy

If I wanted to put (say) fifty grand into NZ property, why wouldn't I just slap ten grand into each of the top 5 holdings in the Smartshares NPF ETF?

One-off brokerage at 5x$30 = $150
Advertised fee of 0.54%pa = $270 pa

After 10 years I've paid either $150 brokerage or $2700 in fees.

You pays your money and you takes your choice

This is what prompted me to do that very thing

[Snoopy]

NPF Fund Constituent Metrics (EOCY2021 historical)



TickerIssuer
Historical Gross Dividend Yield (EOCY2021)
Reporting Period
Debt Ratio
NTA per share
Share Price (EOCY2021)


PCTPrecinct Properties NZ. Ltd,
5.10%
FY31-08-2021
$1235.8m/$3456.4m =35.8%
$1.52
$1.67


GMTGoodman Property Trust.
2.91%
HY30-09-2021
$891.8m/$3487.1m =25.6%
$2.496
$2.58



KPGKiwi Property Group.
6.63%
HY30-09-2021
$1243.1m/$3476.3m =35.8%
$1.42
$1.195


PFIProperty for Industry
3.59%
FY31-12-2021
$654.3m/$1,562.7m =41.9%
$3.09
$2.98



ARGArgosy Property Ltd.
5.65%
HY30-09-2021
$789.9m/$3177.8m =36.3%
$1.64
$1.60



VHPVital Healthcare Property Trust
3.74%
FY30-06-2021
$1159.1m/$2,662.6m =43.5%
$2.89
$3.15


SPGStride Property Group: SPL & SMIL
5.07%
HY30-09-2021
$532.8m/$1,595m =35.8%
$1,062.2m/$473.2m =$2.24
$2.11


IPLInvestore Property Ltd.
5.52%
FY30-09-2021
$373.9m/$1182.3m =31.6%
$808.4m/$368.1m =$2.20
$1.95



Notes

1/ SPG, via 100% owned subsidiary 'Stride Property Limited' (SPL) holds via 'equity associates':

1a/ A 52.2% stake, at balance date, in 'Industre', a joint venture with JP Morgan Asset Management (collectively representing a group of international property investors), which owns industrial land and buildings to rent. Book value is $153.823m.
1b/ An 18.8% stake in 'Investore', an NZX listed entity that invests in 'big box' retail real estate. Book value is $152.936m.
1c/ A 2.1% stake in an entity they call 'Diversified', a business venture, containing four shopping centres: Queensgate (Lower Hutt), Chartwell (Hamilton), Remarkables Park Town Centre (Queenstown), and 50% of the Johnsonville Shopping Centre (Wellington) - with SPL owning the other 50% directly.

I was concerned that the SPG assets were inflated because the balance sheet also contained the portion of 'Investore' that had already been floated to third parties. However on p10 of HYR2022, it is made clear that only the proportionate shareholding of $1,301m is there.

From section 6.2, the shared profit from 'Investore' was $10.687m. Total 'Investore' profit for the half year was $56.963m (HYR2022 'Investore' p16). So the SPL share of profit represents $10.687m/$56.963m = 18.8% of the total, which ties in with the Stride shareholding in 'Investore'. The value of the three equity investments in section 6.2 (Investore, Diversified and Industre) totals $308.526m, which ties up with what appears on the balance sheet. It looks like when calculating NTA, I can take the SPG figures at face value.

2/ NTA and debt figures taken from the most recent report issued in the 2021 calendar year. This may be the interim report or the Annual report, depending on which was issued closer to the 31st December 2021 reference date.

SNOOPY

[LaserEyeKiwi]

Will track weekly:

13552

[Snoopy]

Interesting LEK looking at the steady decline in property company valuations from the start of the year, from your chart. Mr Market is not making a lot of sense to me in what he has done so far in 2022.

1/ A wider market theme has been 'rising interest rates'. Yet the company with the highest gearing -VHP- has fallen the least.
2/ Argosy (ARG) are at the bottom of the class. Their buildings are in the 'Industrial'/'Office'/'Large Format Retail Space' areas with invested sector valuations at $1.063m/$846.8m/$214.9m. Their largest portfolio by value is 'Industrial', so the company got hammered while the company that specialised in 'Industrial' - PFI- only dropped around half the amount of ARG.
3/ Investore (IPL) share the dunces cap with ARG. Yet you would think their big box retailing customers (the majority being Countdown Supermarkets) would be least affected by any coming retail slowdown. Meanwhile the IPL debt ratio is near the bottom of the pack.
4/ Stride (SPG) has improved their already moderate debt position to become near 'best of the bunch' following a capital raising late in the year, following balance date. Yet they have been punished, maybe for their failure to get their office business sub unit separately listed last year.
5/ Kiwi Property Group (KPG) is in transition, shedding some traditional shopping mall assets and looking to be part of a town centre development at the Auckland satellite site at Drury, plus move into the long term rental market by building blocks of flats at Sylvia Park. I guess where there is uncertainty in the commercial returns from such a transition an above average discount from end of year valuations is not unexpected. But KPG were already the cheapest in terms of 'yield available' before any 2022 decline.
6/ Goodman Property Trust (GMT) had an absolutely miserable yield (under 3% gross) at the start of the year. Yet interest rate rises has seen only a modest fall in share value.

I can't make much sense of any of this, which perhaps confirms I know very little about how the commercial property market in NZ operates?

SNOOPY

[LaserEyeKiwi]

Precinct reported this morning.

https://www.nzx.com/announcements/387758

Selling off some assets into a “partnership” with a Singapore firm (Precinct will keep a quarter ownership stake in the properties). Gearing will fall to 20% following the divestment.

no “material” revaluation for the assets in the 6 month period ending Dec 31st.

Market likes it: up 5c on the news.

[Aaron]

Only read the article in the herald but the boss of Precinct Properties was asking bosses to force workers back to the office otherwise they lose the cafes and other retailers as well without the office workers.
Probably nothing but could indicate a softening demand for office space as well as retail on the bottom floor.

[Waltzing]

as stated above.

NZ Herald PCT today asking for some Karens and Bruces to return to CBD...

it wont just be in Auckland.

[LaserEyeKiwi]

Only read the article in the herald but the boss of Precinct Properties was asking bosses to force workers back to the office otherwise they lose the cafes and other retailers as well without the office workers.
Probably nothing but could indicate a softening demand for office space as well as retail on the bottom floor.

I loved the Bay food area when i visited it a while back - but what made it nice is also the worst possible design for a pandemic with the lack of any boundaries between eateries, and a literal busy shared thoroughfare that runs right through the middle of individual restaurants & bars dining areas, all in a closed environment. Eating their is the equivalent of going to a 1000 person indoor concert.

[Snoopy]

NPF Fund Constituent Metrics (EOCY2021 historical)

A day of a hawkish outlook on interest rates, and an invasion of the Ukraine marks a new year index low. What happened to property?



TickerIssuer
Shareholder Historical Gross PIE Dividend Yield Equivalent (EOCY2021)
Reporting Period
NTA per share
Share Price (EOCY2021)
Changed Share Price (24-02-2021)


PCTPrecinct Properties NZ. Ltd,
5.10%
FY31-08-2021
$1.52
$1.67
$1.49 (-10.8%)


GMTGoodman Property Trust.
2.91%
HY30-09-2021
$2.496
$2.58
$2.45 (-5.0%)



KPGKiwi Property Group.
6.63%
HY30-09-2021
$1.42
$1.195
$1.075 (-10.0%)
[/TD]


PFIProperty for Industry
3.59%
HY30-06-2021
$2.714
$2.98
$2.775 (-6.9%)



ARGArgosy Property Ltd.
5.65%
HY30-09-2021
$1.64
$1.60
$1.36 (-15%)



VHPVital Healthcare Property Trust
3.74%
FY30-06-2021
$2.89
$3.15
$3.10 (-1.6%)


SPGStride Property Group: SPL & SMIL
5.07%
HY30-09-2021
$2.24
$2.11
$1.93 (-8.5%)


IPLInvestore Property Ltd.
5.52%
FY30-09-2021
$2.20
$1.95
$1.74 (-10.8%)



For comparison the NZX50 started the year at 13,150 and has declined to 11,733 over the same time period: A fall of 10.8%

SNOOPY

[LaserEyeKiwi]

Weekly update…
13564

[Waltzing]

https://www.stuff.co.nz/life-style/homed/real-estate/127865315/empty-office-buildings-transformed-into-new-apartments

[LaserEyeKiwi]

https://www.stuff.co.nz/life-style/homed/real-estate/127865315/empty-office-buildings-transformed-into-new-apartments

yup - a good back up option for any commercial office (or hotel) operator in the event of a major change in demand in a potential long extended pandemic environment.

[Waltzing]

might see some price action in the COMP PROPS as the 10's move down so much for breaking and holding above 2.

[Snoopy]

might see some price action in the COMP PROPS as the 10's move down so much for breaking and holding above 2.


Are you referring to the 10 year bond rate Waltzingironman?

https://tradingeconomics.com/new-zealand/government-bond-yield

Looks like 2.785% here in NZ and still rising.

I notice the USD 10 year bond rate is falling below 2% (perhaps that is what you refer to). But I suspect that is a transient 'war effect' with people rushing to the 'safe' USD currency. Inflation is still rampant in the USA so I can't see US interest rates staying down for long. But if interest rates do stay down you could be right. Commercial property real estate yields will need to decrease, and that would mean higher prices for NZ listed property trusts.

SNOOPY

[winner69]

Are you referring to the 10 year bond rate Waltzingironman?

https://tradingeconomics.com/new-zealand/government-bond-yield

Looks like 2.785% here in NZ and still rising.

I notice the USD 10 year bond rate is falling below 2% (perhaps that is what you refer to). But I suspect that is a transient 'war effect' with people rushing to the 'safe' USD currency. Inflation is still rampant in the USA so I can't see US interest rates staying down for long. But if interest rates do stay down you could be right. Commercial property real estate yields will need to decrease, and that would mean higher prices for NZ listed property trusts.

SNOOPY

The gap between 2yr and 10yr is a bit of a worry …….must be saying something….wonder what?

Even Guru Mark from Craig’s sent out a message the other day . Am the only one worried about the current state of 2s 10s?

[Waltzing]

yes US 10's.

cant see comp props moving back up but as MR B states if inflation is here for a while and it sure looks like it as they cut off from russian oil and gas slowly.

Draghi comments over night.

US needs to bring its pipelines on line.

till then inflation in food and oil

3 years by some CEO's in the USA to ramp up shipments.

[LaserEyeKiwi]

Talk this morning is central bank rate hike expectations have decreased given the impact of War-induced oil spikes slowing economic growth. EU bonds falling back into sub-0% territory on recession worries.

[fungus pudding]

Talk this morning is central bank rate hike expectations have decreased given the impact of War-induced oil spikes slowing economic growth. EU bonds falling back into sub-0% territory on recession worries.

'Talk this morning' certainly sounds like a credible source.

[LaserEyeKiwi]

'Talk this morning' certainly sounds like a credible source.

As discussed on CNBC, Bloomberg TV networks and seen in overnight market commentary.

[LaserEyeKiwi]

Weekly update:

13580

[NZSilver]

Thanks laser eye,much appreciated you sharing the updates weekly

[LaserEyeKiwi]

Weekly update (added change since start of 2021 also):

13609

[NZSilver]

Thanks LEK, like the comments on the side too. Interesting to see how the aren't moving in unison

[LaserEyeKiwi]

Snoopy post copied from the IPL thread:


Following the revelation (to me) that Investore has no employees, I thought it might be useful to restate expenses in a way that compares with other companies that do employ people. Effectively I am looking at what would happen if the 'contract work' was brought in house. Furthermore I am looking to compare those returns with similar property companies.



Property Expenses FY2021
Investore As Presented
Investore with In House Staff
Argosy As Presented
Property For Industry As Presented
Goodman Property Trust As Presented


Management expenses
$0m
$1.102m
$0m
$4.612m


Management Services Contracted
$1.102m
$0m
$0m
$0m



Other administration expenses
$0.831m
$0.831m
$11.888m
$2.652m
$2.700m


Direct property operating expenses
$8.701m
$8.701m
$25.762m
$16.753m
$29.0m


Accounting expenses
$0.250m
$0.250m
$0.194m
$0.201m
$0.300m


Performance fee expense
$2.076m
$0m
$0m
$0m
$13.7m


Asset Management fee expense
$4.965m
$7.041m
$0m
$0m
$12.8m


Total expenses {A}
$17.925m
$17.925m
$37.844m
$24.218m
$58.5m









Gross Income from rentals
$64.514m
$64.514m
$111.522m
$108.653m
$182.0m


Building Portfolio Valuation (avg) {B}
$966.5m
$966.5m
$1,938m
$1,841.9m
$3,431.7m


Total Operating Expense to Operating Income Ratio {A}/{B}
1.85%
1.85%
1.95%
1.31%
1.70%




Notes

i/ 'Building portfolio average value' for ARG is from Argosy thread post 368. 'Building portfolio average value' for 'Property for Industry' on post 5 of the PFI thread. 'Building Portfolio average value' for Investore is from post 253 on the Stride thread.2021

What constitutes a 'similar' property company is open for debate.

I have selected Argosy for four reasons:

1a/ At the end of Calendar Year date, and considering the big 8 property companies, Argosy was the closest in yield to 'Investore'. That is equivalent to saying it has an equivalent 'market risk' from an investor perspective.
1b/ Argosy does own some big box retail stores - like Investore - albeit making up only 12.5% of the total portfolio (Refer Argosy thread post 368).
1c/ Argosy no longer has external managers, having bought them out in 2011 (in contrast to Investore).
1d/ Argosy has a very high occupation rate of their properties of 99% (c.f. Investore 0.9% vacancy rate)

Furthermore I have selected 'Property for Industry' as a second comparator because:

2a/ They have long term stable tenants.
2b/ They have a very high occupation rate, 100% as of EOFY2021.
2c/ Property for Industry does not have external property managers (the external management contract was bought out in 2017).
2d/ The construction of the buildings in the portfolio is generally 'big box type', even though they are not used for retail purposes.

Finally I have selected the 'Goodman Property Trust', as a third comparator because:

3a/ they operate 'big box buildings' (albeit not in retail) AND
3b/ they do have an external property manager (the same situation Investore is in).
3c/ Building property valuation for GMT averaged over the year is (from GMT AR2021):

0.5 ($3,074.0m + $3,789.3m) = $3,431.7m

3d/ they have a high portfolio occupancy rate of 98%

[LaserEyeKiwi]

Continued…


We now come to the nub of this series of posts. Are the 'asset managing' hyenas ripping so much flesh off these fat property company carcasses, that the remaining feed left for we dogs (the shareholders), is not worth bloodying our snouts for?

I was surprised, from the four under comparison, to see that ARG had the highest Operating Expense to Operating income ratio (OEOIR) at 1.95%. And being 'management contract free', there were no hyenas in sight! The other hyena free listing, PFI, had the lowest OEOIR, with the two hyena harbouring asset managers IPL and GMT occupying the middle ground. Based on the OEOIR figures alone, and my admittedly small sample of four, one might conclude that having no external management contracts as a matter of principle is not a cost issue, - despite those companies overthrowing their management contracts claiming they were doing the best thing for shareholders at the time. However, digging a bit deeper, there is a little more to it than that.

ARG is an outlier in the portfolio in a composition comparative sense. It has by far the smallest amount of tenanted 'big boxes' (it is in fact 40.4% office buildings). My feeling is that office buildings are more likely to be shared. That means there are more tenants to deal with on a per square metre basis. This in turn translates to more management time and cost. Furthermore over FY2021, ARG was also dealing with the after effects of earthquake claims in Wellington, in particular a claim on their 'former New Zealand Post House' on Waterloo Quay. Tough negotiations with the insurance companies were completed. These are a couple of very real reasons that might explain why the Argosy OEOIR was the highest of the four companies looked at.

Of the two 'hyena guarded' companies, IPL and GMT, it was GMT which had the lower OEOIR ( 1.7% vs 1.85% ). However, you can see by the respective annual revenue figures that GMT is by far the larger entity, by a factor of 3.5 in fact (in revenue terms). Shouldn't one expect some economies of scale? Given the differential in revenue streams, I think the 'only slightly lower' OEOIR at GMT is disappointing. So is all this pointing to the expected high value (before I did my calculations) of OEOIR for IPL being not as bad as I thought?

IPL has some "in built economies of scale' itself. 64% of their anchor tenants are Countdown supermarkets. I would think that those on each side of these supermarket letting transactions would know each other very well. Furthermore, the leasing contracts I would expect to be very similar across all Countdown sites. In terms of shortages of customers, you would have to conclude that the supermarket industry was least affected by the pandemic. If anything, any "revenue connected rent contracts" would have been supercharged. It may be a reflection of this that has come through in the significant 'performance fee' earned over the FY2021 period for operating IPL.

GMT is in a similar market demographic 'sweet spot', being a major landlord to another fast growing sector - the freighting business. Tenants NZ Post 6.8%, DHL 3.8%, Freightways 2.6%, Fliway 2.4%, Toll 2.3%, Mainfreight 2.2%, and Linfox 2.1%, add up to more than 22% of the GMT portfolio. Furthermore, third largest tenant overall, 'Officemax' (2.9% of the portfolio, and strictly not a freighting business) is transitioning from physical stores to a nationwide warehouse distribution network. The 'performance fee' for GMT over FY2021 made up a very high 52% of all 'management fees' over FY2021. Yet even despite that, the overall OEOIR at GMT was still less than the same rate at IPL.

Taking account of all of these factors, my overall opinion is that the hyenas are ruling the carcass at IPL. Yet so fat is the IPL beast, in relative terms, there is sufficient fat on the bone left for the dogs to dive in after the hyenas have had their share. But as always, the "dive in price" has to be right.

A further argument, in shareholder value terms, is that Mr Market will sort all of the hyenas out. Because if those hyenas are really denying the dogs their rightful dividend stream, the respective company share prices will be marked down accordingly. And that will bring the dividend yield back to 'fair value'. But does that argument hang together in this context?

[LaserEyeKiwi]

Continued…


I have added some snapshot valuation metrics, to be part of the ensuing discussion.



Dividend and Capital Movements FY2021
Investore As Presented
Investore with In House Staff
Argosy As Presented
Property For Industry As Presented
Goodman Property Trust As Presented


Dividend Payments over FY2021
($27.980m)
($27.980m)
($53.464m)
($37.961m)
($78.3m)


Normalised Profit (After Tax) {A}
$24.316m
$24.316m
$48.324m
$79.002m
$72.864m


New Capital Raised over FY2021
$102.652m
$102.652m
$16.404m
$6.585m
$172.0m


Shareholder Equity (EOFY) {B}
$765.674m
$765.674m
$1,280.635m
$1,562.662m
$2,962.9m


Total Operating Expense to Operating Income Ratio (OEOIR)
1.85%
1.85%
1.95%
1.31%
1.70%


Return on Equity (ROE) {A}/{B}
3.18%
3.18%
3.77%
5.06%
2.46%


Gross Dividend Yield (Based on SP @ EOCY2021)
4.23%
4.23%
4.29%
3.15%
2.53%




Notes

1/ Earnings related calculations are based on Operating Earnings.

2/ Normalised NPAT Calculations:
2a/ Investore: 0.72($29.949m+$3.553m+$0.294m-$0.024m) = $24.316m
2b/ Argosy: 0.72($95.625m-$32.691m+$4.183m) = $48.324m
2c/ Property for Industry: 0.72($517.151m-$392.518m-$2.636m-$12.271m) = $79.003m
2d/ Goodman Property Trust: 0.72($114.9m-$13.7m) = $72.864m

3/ New capital raised includes dividends reinvested under the respective 'Dividend Reinvestment Plans' (Argosy, Property for Industry) and separate 'New Capital Raisings' (Investore, Goodman Property Trust).

4/ Gross dividend yield is from the 'Listed Property Trusts' thread, post 1178.

-----------------------

Students of property may observe that in all cases (bar PFI), the dividend paid exceeded the normalised profit. This has implications for future company growth. Because if you wish to grow your company and your cash outgoings exceed your income, then this means you will have to attract new capital if your company is to expand. Some companies have a subtle way of doing this, by implementing a dividend investment plan. The example to note here is Argosy. Argosy have persuaded enough people that reinvesting their dividend is a good idea, so that paying out a dividend greater than the earnings received becomes a sustainable policy.

Other companies that have just made an acquisition or are raising more capital with the idea of making an acquisition or doing an own build have gone the more conventional capital raising way (Investore, Goodman). BUT (and here is the key point of this post):

If your company is cursed with an inefficient cost structure, then all of the new capital raised will also be deployed under that inefficient cost structure. Mr Market cannot account for this difference in execution efficiency, because he doesn't know when in advance significant new capital will be raised, or even if it will be raised. Yet because of the high payout ratio of these property companies (often over 100% in my examples), it is almost certain that when a significant new asset is to be acquired, then a capital raising will be necessary. How then, do we use this information when evaluating what property company to buy?

It is tempting to dismiss out of hand, a company with a high 'Operating Expense to Operating Income Ratio' (OEOIR). But OEOIR is only one element of the cost structure. Perhaps a better indicator of the cost structure is to look at 'Return on Shareholder Equity' (ROE). All else being equal, a higher OEOIR should be indicative of a lower ROE. So what do we see in these four actual examples?

PFI has the lowest OEOIR and the highest ROE, which is the reverse correlation I am looking for. But the next lowest OEOIR, GMT, has the lowest ROE. This is a terrible result and points to inefficiencies elsewhere in the GMT company structure (albeit one inefficiency may be not yet optimally deploying the cash issue of money raised in September/October 2020 before the 31st March 2021 balance date). However this new capital raised was only 6% of the company equity at balance date, so maybe the relative inefficiencies lie elsewhere?

Argosy has the highest OEOIR, but also the second highest ROE (a surprise). This means it is good enough to finish second in overall capital efficiency terms.

Investore is mediocre in this comparative set with a higher than average OEOIR, but a lower than average ROE (an expected result). This means in 'capital efficiency' terms, I rate these shares from best to worst: PFI, ARG, IPL and GMT. Nevertheless this is not the end of the story from an investment perspective. If you can't buy your capital efficient shares at the right price, or one of more these four is excessively leveraged, then your actual investment returns can become undone.

[LaserEyeKiwi]

Continued…


There is a problem with investing in the 'best' business you can find in a sector of business opportunities. Mr Market is always one step ahead of you. He has already driven up the price of your favoured investment to make the 'marginal price risk' on purchase, similar to all of those other alternative sector investments. In theory Mr Market is very efficient at doing this. In practice, not always so.

For this exercise, to equalise the return on alternative capital investments, Mr Market should rightfully pay a higher price for a company with a higher ROE. Thus we can calculate a relative 'price premium guidance formula' that will provide a guidance to 'relative return'. But a 'relatively' good return may still be poor if the base rate we are comparing that with is too low. So attention shifts back to the IPL 'base earnings rate', and we are ASSUMING:

a/ That the seemingly low reference ROE figure for IPL, is...
b/ Modified by a market discount factor so that our investor can buy the associated implied revenue stream at an appropriate discounted rate, and....
c/ So harvest an acceptable return for the said investor,

appropriate for this class of investment, .....that our investor may be seeking.




GMT
IPL
ARG
PFI


Return on (Net) Equity
2.46%
3.18%
3.77%
5.06%


Investment Property Premium/Discount Factor
0.774
1.000
1.186
1.591


Equity per Share
$2.496
$2.20
$1.64
$2.714


ROE equalised on IPL Net Equity per Share
$1.93
$2.20
$1.95
$4.32


Share Price 31-12-2021
$2.58
$1.95
$1.60
$2.98


SP Premium/Discount @31-12-2021 to Equalised IPL Net Equity 31-12-2021
+33.7%
-11.4%
-17.9%
-31.0%





Share Price 08-03-2022
$2.34
$1.71
$1.40
$2.645


SP Premium/Discount @08-03-2021 to Equalised IPL Net Equity 31-12-2021
+21.2%
-22.3%
-28.2%
-38.8%




OK, what does the above table mean? In the centre of the table are two emboldened figures reading $2.20. The first figure is the net asset backing of IPL shares (see Listed Property Trust Thread post 1182). The second figure is the adjusted net asset backing of IPL shares which is still $2.20 - exactly the same number. This gives you a clue about what this table is showing. This table is a comparative set of numbers outlining the virtue of investing in a different property share, relative to IPL. The relative virtue of investing in IPL compared to itself is 'no difference'. This is why the table is showing no difference in the 'asset backing' of IPL and the 'adjusted net asset backing' of IPL (the 'adjustment factor' in this instance is 1).

If you had bought IPL shares on 31st December 2021, then you would have bought an asset giving a return of 3.18% on the value of the net assets invested. However, those shares were offered on the market at a discount to face value on that date, at $1.95. Because you were able to buy these shares at a discount, this means the return on the money you outlaid will be higher than the calculated ROE (retrospective coupon rate). Your underlying return rate will be at a figure of:

(220/195) x 3.18% = 3.59%, in fact.

The real implied retrospective 'dividend rate' is even higher than this. That is because Investore have a history of paying out more than their earnings as dividends (See post on this thread 'Dogs vs Hyenas part 8'). I make no judgement -at this point- as to whether that underlying implied return rate is 'good' or 'bad'. That decision is entirely up to the investor. But what the table above is trying to tell us is whether other 'alternative investments in the same sector' are 'better' or 'worse' than Investore, and by how much. Next - a working example of what I am talking about.

Suppose, on 31-12-2021, you bought some shares in Investore at $1.95 each. That price is an 11.4% discount to the asset backing of the share (see above table for all these referenced numbers). Buying something for less than it is worth is a good thing for an investor to do. In fact, doing that is the basis for all successful investing. However the asset backing of a property share can go up and down for different reasons. So just because you bought a share below asset backing on a particular date, does not rule out the possibility of that asset backing falling back towards the price you paid at a later date (a very real possibility with rising interest rates). Interest rates are not the only factor in determining the 'worth' of a share though. The rental income stream you can achieve from the net tangible assets is another. A higher rental income stream from the same dollar value of net assets manifests itself as a higher 'return on equity'. It is this effect I have tried to capture in my 'equalisation of equity' calculations.

Nominally on that same date you could have bought some Argosy shares at $1.60, which would still have been at a discount to the NTA of $1.64. But the percentage discount on that deal would have been 2.4%, verses 11.4% on the hypothetical IPL purchase on the same date. So the IPL deal was the better deal, right? Actually no, because it is ARG that are 'working their net assets harder' (this is where my adjustment factors in that table come in). So once you make the ROE equalizing adjustment, you can see that the Argosy deal is the better deal with 22.3% -28.2% = a 5.9 percentage point further discount than was available on the IPL deal. At this point I need to jump in and say that a 5.9 percentage point margin on the relative value of the purchase price of an asset is not that great a difference. Such a variation is within the realm of 'normal market trading' over a month. So if you were building a property portfolio of listed property assets, it would not be unreasonable to take up both deals. The whole point of this table is that basing a value criterion strictly on net asset backing, particularly when the book value of assets are vulnerable, is perhaps not the best option when taking an investment return perspective.

Yet basing an investment decision purely on a return calculation, such as I am suggesting, is still a 'one dimensional' calculation. There are other factors to consider.

[LaserEyeKiwi]

Continued…


Here follows a little lesson on ranking potential investments only on returns.




Valuation Metrics FY2021
Investore As Presented
Investore with In House Staff
Argosy As Presented
Property For Industry As Presented
Goodman Property Trust As Presented


Dividend Payments over FY2021
($27.980m)
($27.980m)
($53.464m)
($37.961m)
($78.3m)


Normalised Profit (After Tax) {A}
$24.316m
$24.316m
$48.324m
$79.002m
$72.864m


New Capital Raised over FY2021
$102.652m
$102.652m
$16.404m
$6.585m
$172.0m


Shareholder Equity (EOFY) {B}
$765.674m
$765.674m
$1,280.635m
$1,562.662m
$2,962.9m


Return on Equity (ROE) {A}/{B}
3.18%
3.18%
3.77%
5.06%
2.46%


Gross Dividend Yield (EOCY2021)
4.23%
4.23%
4.29%
3.15%
2.53%


Gross Income from rentals {C}
$64.514m
$64.514m
$111.522m
$108.653m
$182.0m


Net Operating Profit Margin {A}/{C}
37.7%
37.7%
43.3%
72.7%
40.0%


Bank and Bond Debt (EOFY) {D}
$277.363m
$277.363m
$754.421m
$598.653m
$730.1m


MDRT {D}/{A}
11.4 years
11.4 years
15.6 years
7.58 years
10.0 years

















Total expenses {A}
($17.925m)
($17.925m)
{$37.844m}
($24.218m)
($58.5m)


Building Portfolio Valuation (avg) {B}
$966.5m
$966.5m
$1,938m
$1,841.9m
$3,431.7m


Total Operating Expense to Operating Income Ratio {A}/{B}
1.85%
1.85%
1.95%
1.31%
1.70%




Notes

1/ Earnings related calculations are based on Operating Earnings.

2/ Normalised NPAT Calculations:
2a/ Investore: 0.72($29.949m+$3.553m+$0.294m-$0.024m) = $24.316m
2b/ Argosy: 0.72($95.625m-$32.691m+$4.183m) = $48.324m
2c/ Property for Industry: 0.72($517.151m-$392.518m-$2.636m-$12.271m) = $79.003m
2d/ Goodman Property Trust: 0.72($114.9m-$13.7m) = $72.864m

3/ New capital raised includes dividends reinvested under the respective 'Dividend Reinvestment Plans' (Argosy, Property for Industry) and separate 'New Capital Raisings' (Investore, Goodman Property Trust).

4/ Gross dividend yield is from the 'Listed Property Trusts' thread, post 1178.

----------------------


The previous post in this series talked about Argosy offering a better deal to investors than Investore, based on how well each company utilises their assets and based on current market prices. One way of getting more out of your unit holder equity is to leverage that equity up via borrowing. Companies call this making efficient use of their capital. But such a game does not come without associated risk. There are different metrics with which to measure leveraged risk. But my preference is something called 'Minimum Debt Repayment Time' (MDRT). Put simply, this is the answer to the question:

"How many years would it take to pay off all of a company's underlying debt, if all of the current year after tax profits were put towards paying off that company debt?"

The answer to that question, in years, is the current MDRT figure

If we look at Argosy vs Investore, we can see that MDRT is a whopping 4 years longer, and at 15.6 years, is four years longer than any of the other three protagonists. Given the marginal difference in purchase price value, as outlined in part 7, and the outlier MDRT value of 15.6, this would be enough to drop Argosy from my preferred purchase list in favour of Investore.

My rule of thumb to evaluate the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

Looked at in this light, the debt levels of three of our four protagonists are a 'cause for concern'. Is my 'worry scale' too sensitive on debt, because I am not used to looking at property companies? It could be, as the more steady and predictable a company's cashflows are, the more debt can be safely serviced. There are two ways to quickly reduce debt for a property company:

1/ Sell some properties.
2/ Raise more equity to replace some debt via a cash issue of new shares.
3/ Revalue some of your existing properties upwards.

There has been a lot of '3' going on in recent times from all of the protagonists. But in a new climate of falling property values, it may be that option '2' is the best solution for squaring up balance sheets in the near future. Solution '2' is not usually great for existing shareholders when future earnings streams are diluted as a result.

Taking all of this information into account, the best investment in the big box property sector is surprisingly clear cut. There is one company that has the lowest MDRT, the highest adjusted return on asset, the greatest dividend cover from earnings and is the company that can be bought at the largest discount to adjusted asset value. That company is PFI (Property for Industry).

This may come as a surprise. Purely on market measures, show PFI offers the second lowest dividend yield.

[LaserEyeKiwi]

Added Gross dividend yield and NTA / discount to NTA columns:

13615

[Waltzing]

ARG 2021 FY.

"ValuationsThe work performed by independent valuers resulted in an annual revaluation uplift of $157.7 million, or a 8.5% increase on book values prior to the revaluation. By location, Auckland was the largest contributor to the total year end revaluation gain with $150.2million or 95% of the total portfolio gain. By sector, Industrial was a strong driver of the overall gain at$129.9 million, up 15.2%. Large Format Retail increased by $29.3 million or 15.9% and the Office portfolio declined marginally by -$1.5 million, or -0.2%. The office portfolio results were driven primarily due to Wellington office developments. 7WQ was impacted by façade costs and our green development at 8-14 Willis Street/360 Lambton Quay was impacted by increased development costs, increased nonrecoverable opex and a provision for development risk applied by the valuer.The average portfolio cap rate firming over the last 12 months has been 58 basis points. Following the revaluation, Argosy’s portfolio shows a contract yield on values of 5.63% and a yield on fully let market rentals of 5.78%"

Industrial was the biggest re value gainer. Could it be that industrial has lagged over the years and going forward it going to remain more highly valued then it was.

GTM being more industrial may have the advantage as far as capital cost development by a large margin over others such as ARG, PCT and KPG.

ARG appear to spend the most on its capital assets per dollar of valuations.

[LaserEyeKiwi]

ARG 2021 FY.

"ValuationsThe work performed by independent valuers resulted in an annual revaluation uplift of $157.7 million, or a 8.5% increase on book values prior to the revaluation. By location, Auckland was the largest contributor to the total year end revaluation gain with $150.2million or 95% of the total portfolio gain. By sector, Industrial was a strong driver of the overall gain at$129.9 million, up 15.2%. Large Format Retail increased by $29.3 million or 15.9% and the Office portfolio declined marginally by -$1.5 million, or -0.2%. The office portfolio results were driven primarily due to Wellington office developments. 7WQ was impacted by façade costs and our green development at 8-14 Willis Street/360 Lambton Quay was impacted by increased development costs, increased nonrecoverable opex and a provision for development risk applied by the valuer.The average portfolio cap rate firming over the last 12 months has been 58 basis points. Following the revaluation, Argosy’s portfolio shows a contract yield on values of 5.63% and a yield on fully let market rentals of 5.78%"

Industrial was the biggest re value gainer. Could it be that industrial has lagged over the years and going forward it going to remain more highly valued then it was.

GTM being more industrial may have the advantage as far as capital cost development by a large margin over others such as ARG, PCT and KPG.

ARG appear to spend the most on its capital assets per dollar of valuations.

I wonder if that is simply a factor that the land value of “Industrial” property tends to make up a larger portion of its overall value, and land value increases have been significant lately.

[fungus pudding]

I wonder if that is simply a factor that the land value of “Industrial” property tends to make up a larger portion of its overall value, and land
value increases have been significant lately.

Stop wondering. Industrial zoned land is usually relatively inexpensive compared to retail and commercial zones. Then factor in car parking, often required for commercial tenants. I think you'll find land content is generally a larger slice of the total than industrial. Of course there will be exceptions.

[LaserEyeKiwi]

Stop wondering. Industrial zoned land is usually relatively inexpensive compared to retail and commercial zones. Then factor in car parking, often required for commercial tenants. I think you'll find land content is generally a larger slice of the total than industrial. Of course there will be exceptions.

wouldnt a warehouse shell be a hell of a lot smaller capital value than a large multistory office or Mall? Look at what Sky just sold a couple of warehouses for in Mt wellington - it was basically all land value.

[LaserEyeKiwi]

Added Gross dividend yield and NTA / discount to NTA columns:

13615

KPG just passed 6.5% gross dividend yield.

crazy.

[fungus pudding]

wouldnt a warehouse shell be a hell of a lot smaller capital value than a large multistory office or Mall? Look at what Sky just sold a couple of warehouses for in Mt wellington - it was basically all land value.

Usually it will be lower construction cost, but so will the land be much cheaper because of zoning. You'll always find exceptions.

[NZSilver]

Bought a few more arg yesterday... Still like these

[fungus pudding]

Bought a few more arg yesterday... Still like these

I bought milk, bread, laundry powder and breakfast cereal.

[Habits]

I bought milk, bread, laundry powder and breakfast cereal.

Very nice timing, I have heard the whispers they are about to rocket higher.

[NZSilver]

Anything else fungus? surely you have been dabbling..

[fungus pudding]

Anything else fungus? surely you have been dabbling..

No. But a bloke I know sold some Restaurant Brand shares a while back. He didn't post it on this site though.

[LaserEyeKiwi]

Weekly Update:
13628

[Waltzing]

on a day when many states sides were commenting on future rate hicks and increasing yields on the 10 NZ comp props held there own.

but they could still come under more pressure.

[LaserEyeKiwi]

GMT indicates its portfolio revaluation (3.4% increase for the half year ended 31 March)

https://www.nzx.com/announcements/389378

[Snoopy]

GMT indicates its portfolio revaluation (3.4% increase for the half year ended 31 March)

https://www.nzx.com/announcements/389378

I am astonished by the comment below:

"John Dakin, Chief Executive Officer said, “Values of high-quality logistics and warehouse property have continued to increase over the last six months, although at a slower pace. With cap rates stable, it has been strong rental growth and new leasing that have been the main drivers of the revaluation gain."

"Underpinned by a growing digital economy, customer demand for distribution space close to consumers continues to exceed supply in the locations where we invest.” "

With interest rates rising significantly over the last six months (my reference fixed interest deposit rate has gone from 1.25% to 1.8% over the last six months), how on earth can John Dakin claim that capitalization rates are stable? I am pleased to see rents are increasing though, but I would be surprised to see the share price rise as a result. In my view. The share price of GMT has already got ahead of itself in anticipation of rising rents.

SNOOPY

[winner69]

I am astonished by the comment below:

"John Dakin, Chief Executive Officer said, “Values of high-quality logistics and warehouse property have continued to increase over the last six months, although at a slower pace. With cap rates stable, it has been strong rental growth and new leasing that have been the main drivers of the revaluation gain."

"Underpinned by a growing digital economy, customer demand for distribution space close to consumers continues to exceed supply in the locations where we invest.” "

With interest rates rising significantly over the last six months (my reference fixed interest deposit rate has gone from 1.25% to 1.8% over the last six months), how on earth can John Dakin claim that capitalization rates are stable? I am pleased to see rents are increasing though, but I would be surprised to see the share price rise as a result. In my view. The share price of GMT has already got ahead of itself in anticipation of rising rents.

SNOOPY

Isn’t he just saying cap rates are still around 4.2% ….nothing to be ‘astonished’ about as aren’t these driven more by demand

Mind you a year ago cap rate was 4.7% …the 4.2% was 6 months ago and about that now.

[Snoopy]

Isn’t he just saying cap rates are still around 4.2% ….nothing to be ‘astonished’ about as aren’t these driven more by demand

Mind you a year ago cap rate was 4.7% …the 4.2% was 6 months ago and about that now.


From Investopedia:
"The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor's potential return on their investment in the real estate market.'

I think I was conflating the 'capitalisation rate' with the 'discount rate' of future cashflows. I guess 'capitalisation rate' and 'measuring future cashflows' are alternative valuation techniques, that -ultimately- should lead to the same answer when valuing a property. I don't see how capitalisation rates can stay constant in a rising interest rate environment. No independent valuers game to cut their valuations as yet? So could this be a case of Dakin simply looking at the figures he wants to see?

SNOOPY

[LaserEyeKiwi]

From Investopedia:
"The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor's potential return on their investment in the real estate market.'

I think I was conflating the 'capitalisation rate' with the 'discount rate' of future cashflows. I guess 'capitalisation rate' and 'measuring future cashflows' are alternative valuation techniques, that -ultimately- should lead to the same answer when valuing a property. I don't see how capitalisation rates can stay constant in a rising interest rate environment. No independent valuers game to cut their valuations as yet? So could this be a case of Dakin simply looking at the figures he wants to see?

SNOOPY

Stepping back a bit - from a purely business sense (and ignoring the commercial property industry norms around cap rates etc) - if an asset is generating more income, then that asset should logically be increasing in value, all else being equal. Flowing on from that, those higher income levels should flow through to higher reported profits for the company that owns the assets, and higher dividend yields for shareholders, again all else being equal.

Which brings us to internet rates. Higher interest rates are obviously a negative for any business that carries debt exposed to those higher interest rates. But how much does that actually financially impact our NZ listed property trusts is determined by how much debt they carry, and when those debt contracts were entered into.

Looking at the last published gearing ratios from earnings sees an average gearing ratio for the NZ REITs of just 29.6% (Goodman & Stride ratios are a bit fluffy, they list multiple different ones and before/after planned capital raises - I have included the post cap raise expected ratio)
13635
Compare that to the average REIT in the USA carrying over 50% gearing.

At 30% gearing and with strong rental growth, the net income of the NZ listed property companies don’t look to be at much threat yet from the increased interest rates, and since much of their existing debt was entered into at similar internet rate levels to today, then impact should be minimal or non-existant possibly, depending on when debt contracts are rolling over at each company.

remember interest rates are still near historic lows, and even after projected rises over next 18-24 months, will still just be returning to a relatively low rate, or normal if comparing to post 2009 rates.

13636

Looking at that graph - it becomes apparent that our listed property companies didn’t experience a massive valuation increase when interest rates plummeted two years ago, so expecting a large valuation decrease now probably isn’t warranted.

[Waltzing]

Hey winner(*n)

LEK

look like revals are still going to be recorded on the up side this QTR for property trusts.

NZX Market Announcements (https://announcements.nzx.com/detail/389378)

[LaserEyeKiwi]

Weekly update:

13644

[Ferg]

Thanks for the regular update LEK. It is much appreciated. What is the source for the NTA? In other words, how recent is it?

[LaserEyeKiwi]

Thanks for the regular update LEK. It is much appreciated. What is the source for the NTA? In other words, how recent is it?

Using the figures from NZX website every Friday after market close when I put the table together. Same for the gross dividend yield figure.

[winner69]

Updated this

If that Smartshares Comm Property thing NPF is a good proxy for the value of listed property and if historic correlation with 10 year govt stock is still relevant than listed property stocks on the NZX are still about 25%/30% over priced.

Then again some of them are priced quite a way below NTA ……it might be that the valuers are being too bullish with their valuations and we could be seeing negative revaluations coming through this year - even though the that valuer said the other dy cap rates were stable.

Said much the same as at the end of December - since then NPF is down 7% while 10 year rate has gone from 2.37% to 3.35% - so maybe the numbers do say something and it just takes a while for things to revert to 'normal'

Maybe correlation not relevant anymore or the market is a bit irrational but whatever I have faith in the model and it has kept me out of commercial property shares for a few years (except a couple of quick trades during covid crisis times)

[Waltzing]

some bigger orders numbers turning up for ARG and GMT in the depths.

well that would put ARG down in the 1.15 and if inflation drop off tjhe cliff in 2 to 3 years it off to the races again.

[Beagle]

some bigger orders numbers turning up for ARG and GMT in the depths.

well that would put ARG down in the 1.15 and if inflation drop off tjhe cliff in 2 to 3 years it off to the races again.

I only have a very small "caretaker" sized stake in ARG left in this sector. REIT's historically perform very poorly in a rising interest rate environment.

I'd need to see a new long term uptrend formed, say a breakout of the 200 day MA to get serious in this sector again.

[Waltzing]

once again the Beagle has run off with a bowl fill of breakie...

two tops above 1.60; well the FED said inflation was temp...

still stocks often return to there highs but a third time in the distant future?

who knows..

dont expect to see anything in this sector for a few years hence.

[Snoopy]

What is this AFFO (Adjusted Funds From Operations) that that a lot of these NZ property companies seem to talk about as a proxy for Net Profit? Seems dodgy to me. But if everyone is doing it it must be O.K.?


I posed the above question on the Argosy thread. But it is of more general interest. So I am going to answer it here.

https://www.investopedia.com/terms/a/affo.asp

This is a non-GAAP measure. So the definition at investopedia comes with a rider:

"Though no one official measure exists, a AFFO formula is along the lines of"

AFFO= Adjusted funds from operations:
AFFO = FFO + rent increases - capital expenditures - routine maintenance amounts.

Where FFO or 'Funds from operations' is defined as follows:
FFO = net income + amortization + depreciation - capital gains from property sales

-----------------

As I suspected, this is what I would class as the Ronnie Biggs approach to accounting: IOW 'a desperate grab for cash'. I find it easier to think about AFFO by putting everything into one equation.

AFFO = net income + (amortization - property sales capital gains) + (depreciation - capital expenditures - routine maintenance) + rent increases

The first bracketed pair makes sense. Amortisation is likely caused by paying over book value to acquire a property. OTOH property sales above book value can create 'super profits'. So this bracket removes the result of one off capital movements on both buy and sell transactions.

The second bracket cancels itself out, provided capital expenditure and routine maintenance equal the depreciation for the year. From the 2011-2012 income year depreciation was removed for buildings with an estimated useful life of 50 years or more. However, depreciation on non-residential buildings at the rate of 2% diminishing value and 1.5% straight line from the 2020/21 income year (beginning 1 April 2020 for standard balance date taxpayers) was reintroduced. This means the change in tax law post Covid-19 will have increased the AFFO earnings number for NZ REITs. The main gripe I have here is that, with building costs escalating wildly, it is likely that capital expenditure, if it does occur, will be greater than the depreciation previously charged. Making this adjustment, it looks like building costs are being modelled at today's costs. And that will not be realistic once new capital expenditure starts.

The last add on is the one that looks desperate. This is booking future rent income before it is received. While building tenants do sign long term contracts, some tenants go broke as well. So including future income like this does appear presumptuous.

I am giving AFFO a 'thumbs down'. But don't pay any attention to me. I am just a 'new to property' investor throwing my accounting tools out of my play pen.

SNOOPY

[LaserEyeKiwi]

I posed the above question on the Argosy thread. But it is of more general interest. So I am going to answer it here.

https://www.investopedia.com/terms/a/affo.asp

This is a non-GAAP measure. So the definition at investopedia comes with a rider:

"Though no one official measure exists, a AFFO formula is along the lines of"

AFFO= Adjusted funds from operations:
AFFO = FFO + rent increases - capital expenditures - routine maintenance amounts.

Where FFO or 'Funds from operations' is defined as follows:
FFO = net income + amortization + depreciation - capital gains from property sales

-----------------

As I suspected, this is what I would class as the Ronnie Biggs approach to accounting: IOW 'a desperate grab for cash'. I find it easier to think about AFFO by putting everything into one equation.

AFFO = net income + (amortization - property sales capital gains) + (depreciation - capital expenditures - routine maintenance) + rent increases

The first bracketed pair makes sense. Amortisation is likely caused by paying over book value to acquire a property. OTOH property sales above book value can create 'super profits'. So this bracket removes the result of one off capital movements on both buy and sell transactions.

The second bracket cancels itself out, provided capital expenditure and routine maintenance equal the depreciation for the year. From the 2011-2012 income year depreciation was removed for buildings with an estimated useful life of 50 years or more. However, depreciation on non-residential buildings at the rate of 2% diminishing value and 1.5% straight line from the 2020/21 income year (beginning 1 April 2020 for standard balance date taxpayers) was reintroduced. This means the change in tax law post Covid-19 will have increased the AFFO earnings number for NZ REITs. The main gripe I have here is that, with building costs escalating wildly, it is likely that capital expenditure, if it does occur, will be greater than the depreciation previously charged. Making this adjustment, it looks like building costs are being modelled at today's costs. And that will not be realistic once new capital expenditure starts.

The last add on is the one that looks desperate. This is booking future rent income before it is received. While building tenants do sign long term contracts, some tenants go broke as well. So including future income like this does appear presumptuous.

I am giving AFFO a 'thumbs down'. But don't pay any attention to me. I am just a 'new to property' investor throwing my accounting tools out of my play pen.

SNOOPY

At least this measure (AFFO) removes the capital appreciation from portfolio revaluations from the profit figure.

[Waltzing]

SP's holding up under the pressure of the yield curves.

Money seeking save havens.

[Waltzing]

strong demand again today in this sector money chasing safety.

[LaserEyeKiwi]

Weekly update
13669

[Waltzing]

certainly looked like the market still wants land and buildings this week.

[Snoopy]

Precinct reported this morning.

https://www.nzx.com/announcements/387758

Selling off some assets into a “partnership” with a Singapore firm (Precinct will keep a quarter ownership stake in the properties). Gearing will fall to 20% following the divestment.

no “material” revaluation for the assets in the 6 month period ending Dec 31st.

Market likes it: up 5c on the news.

Since this announcement and the PCT share price hitting $1.58, this share has gone ex an 1.675c dividend and the share price has closed at $1.57 six weeks later. If that counts as 'excitement', then find me another party! Still, a little boring in the foundations of a portfolio generally puts an investor in good stead,, so I view this 'lack of excitement' as good.

I have been reviewing the half year presentation. I had envisaged that inflation might be good for commercial property owners in general over the long term (because rampant construction inflation increases the book value of existing buildings) and was interested to see PCT's comments on that subject. The following quotes are from PCT presentation HY2022 slide 11.

----------------

Inflation

• Current elevated inflation expected to put pressure on interest rates and operating costs,
• A passive management approach will be adversely impacted through increase in costs.
• Active management provides exposure to capturing upside within an inflationary environment.

-------------------

These comments were made in the context of 'freeing up development capital' by allowing the Singaporeans to unload some PCT properties into a joint venture. The comments seem to be saying that rather than sit there and 'manage passively' a go ahead property company should 'do stuff'. But what should a go ahead property company be doing? More from slide 11....

----------------

Construction costs
• Supply chain constraints, material shortages and high demand driving significant cost escalation
• Elevated programme and cost risk due to labour shortages and disruptions (e.g. self-isolation)
• Quality of the main contractor and main subtrades is critical

--------------------

That sounds like property development is pretty tricky in the current environment. So are PCT advocating buying more existing buildings, instead of developing their own? These would be the same buildings that are under pressure from inflation driven operating costs remember. Is now a good time to buy commercial property? Or when the cheque from the Singaporean investors arrives, will 'the institutional imperative' take over which will see PCT buy 'any old thing'? What are PCT saying about the commercial property market here in their 'Key Themes' slide 11? I can't decode it.

SNOOPY

[Waltzing]

got whatch the gearing statements in COMP PROPS.

its gearing to revaluations can make the gearing look good.

[LaserEyeKiwi]

Weekly Update

13703

[winner69]

Weekly Update

13703

Could we say a better week for property?

[LaserEyeKiwi]

Since this announcement and the PCT share price hitting $1.58, this share has gone ex an 1.675c dividend and the share price has closed at $1.57 six weeks later. If that counts as 'excitement', then find me another party! Still, a little boring in the foundations of a portfolio generally puts an investor in good stead,, so I view this 'lack of excitement' as good.

I have been reviewing the half year presentation. I had envisaged that inflation might be good for commercial property owners in general over the long term (because rampant construction inflation increases the book value of existing buildings) and was interested to see PCT's comments on that subject. The following quotes are from PCT presentation HY2022 slide 11.

----------------

Inflation

• Current elevated inflation expected to put pressure on interest rates and operating costs,
• A passive management approach will be adversely impacted through increase in costs.
• Active management provides exposure to capturing upside within an inflationary environment.

-------------------

These comments were made in the context of 'freeing up development capital' by allowing the Singaporeans to unload some PCT properties into a joint venture. The comments seem to be saying that rather than sit there and 'manage passively' a go ahead property company should 'do stuff'. But what should a go ahead property company be doing? More from slide 11....

----------------

Construction costs
• Supply chain constraints, material shortages and high demand driving significant cost escalation
• Elevated programme and cost risk due to labour shortages and disruptions (e.g. self-isolation)
• Quality of the main contractor and main subtrades is critical

--------------------

That sounds like property development is pretty tricky in the current environment. So are PCT advocating buying more existing buildings, instead of developing their own? These would be the same buildings that are under pressure from inflation driven operating costs remember. Is now a good time to buy commercial property? Or when the cheque from the Singaporean investors arrives, will 'the institutional imperative' take over which will see PCT buy 'any old thing'? What are PCT saying about the commercial property market here in their 'Key Themes' slide 11? I can't decode it.

SNOOPY

Sounds like a double edge sword - Inflation good for existing property revaluations, bad for new construction plans. In the end is it all a wash if they are able to raise rents enough to compensate? Does active management imply they might be able to pick up distressed assets at discount prices if interest rate rises catches some smaller over leveraged commercial property owners out? I havent seen any of that in the headlines yet, but there have been a few townhouse developments that have gone belly up over the last few weeks which might be a sign that some bargains might appear in commercial sector as well.

With the NZ listed property firms all with rather low gearing (~30%) they would all no doubt be sniffing around for bargains.

[LaserEyeKiwi]

Could we say a better week for property?

Will be interesting to see what happens with the very low dividend paying names on the list now that term deposit rates are now catching up or even surpassing the yields.

One can now get term deposit rates of over 3.5% from NZ banks. A bit of a tough sell to potential investors for those companies offering less than 3% yields.

https://www.interest.co.nz/saving/term-deposits-1-to-5-years

13706

[Waltzing]

US 10 Yr while not the the NZ it still shows a direction and it hit over 2.7.

Land prices holding up and maybe never coming down and increasing at a faster and faster pace..

leases being inflation proofed and some of these listed props will catch up with deposit rate increases.

[Aaron]

Will be interesting to see what happens with the very low dividend paying names on the list now that term deposit rates are now catching up or even surpassing the yields.

One can now get term deposit rates of over 3.5% from NZ banks. A bit of a tough sell to potential investors for those companies offering less than 3% yields.

https://www.interest.co.nz/saving/term-deposits-1-to-5-years

13706

Might be a tougher sell if we start to see some capital losses AND a low dividend yield. You are definitely losing to inflation in fixed interest but at least you know how much capital is coming back. Term deposits don't drop 20%-30% in value unless the bank goes under. Interest rates may need to move higher before this becomes more likely. Property and debt have traditionally been an inflation hedge but is that true if starting from high valuations?

Lot of boomers retiring over the next couple of years, they will have the stability of a mortgage free house but fluctuations in portfolio value will be a lot scarier if you have plans for it. Hard to hold for the long term when your long term is getting shorter.

Disclaimer: Putting forward a different view and fearmongering as I am invested for a down market.

[winner69]

As I've shown before pretty strong correlation between NPF share price (I use as a proxy for the listed property stocks) and 10 Year Govt stock. Statistically 10 Year Govt stock yield accounts for about 50% of the prevailing NPF share price. Eliminate outliers like early days of covid and more recent data points the Rsqrd value is .87 - very strong correlation

On this basis listed property stocks are about 25% overvalued

NPF has never been so 'overvalued' - now even more 'overvalued' than they were in the despair created in the yearly days of covid in 2020 when they got to being about 20% 'undervalued'

My conclusion p somethings got to give in next month or two