Listed Property Trusts

[LaserEyeKiwi]

Some big reductions in 10-yrs this week/month, really a swift change in sentiment.

US 10 yr dropped from 3.2% to 2.65% during the month.

NZ 10 yr dropped from a peak of 4.28% last month down to 3.39% today.

Rather dramatic, and may be an unexpected support for property stocks and their underlying asset valuations.

wouldn’t surprise me if we have seen the peak of fixed Mortgage & term deposit rates already.

[Grimy]

Yes the yields on a few bonds I've had on watchlist have dropped a bit in the past couple of weeks. Glad to have secured a few at decent rates about a month or so back.

[LaserEyeKiwi]

Weekly update:

14044

Some big upward movements there - surprising to see GMT now with a yield of under 2.9% with Term deposits at 4%, punters must really be betting on some growth there despite the headwinds.

[winner69]

Those discounts to NTA May be justified

Valuers saying they are finding it hard to guess what things are worth




Valuation losses likely as commercial property enters new cycle

https://www.nbr.co.nz/property/valuation-losses-likely-as-commercial-property-enters-new-cycle/

Prob paywalled

[fungus pudding]

Those discounts to NTA May be justified

Valuers saying they are finding it hard to guess what things are worth




Valuation losses likely as commercial property enters new cycle

https://www.nbr.co.nz/property/valuation-losses-likely-as-commercial-property-enters-new-cycle/

Prob paywalled

Not paywalled on other sites.

https://thethreadtimes.com/valuation-losses-likely-as-commercial-property-enters-new-cycle

[NZSilver]

Not paywalled on other sites.

https://thethreadtimes.com/valuation-losses-likely-as-commercial-property-enters-new-cycle

Thank you FP

[winner69]

Vital report a solid result

Unlike many in sector shareholders get a pay rise this year ….keeping un with inflation

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/VHP/396763/376299.pdf

[LaserEyeKiwi]

Weekly Update:

(VHP results - increase in NTA, and gearing fell to 30%)

Average gearing of our basket of property stock is now just 29%.

14059

[LaserEyeKiwi]

Weekly Update:

Positive NTA revaluations this earnings cycle highlighted with a green background (see VHP & PCT so far), any negative ones will be in red if they happen.

14076

[LaserEyeKiwi]

Crikey what happened at the close today? Most of the listed property stocks had a bit of a dive.

[Habits]

Crikey what happened at the close today? Most of the listed property stocks had a bit of a dive.

OCA fell to $1. Inflation and interest rate worries which will keep property prices down?

[RTM]

“NZ will have a housing surplus in 12 months - Kiwibank”
Herald

Maybe this is weighing on property prices as well.

[troyvdh]

Wow....what a surprise.
What I'm intimidating is do folk really think that property prices can continue on this path....it's insane and unsustainable. That is my opinion.

[LaserEyeKiwi]

Wow....what a surprise.
What I'm intimidating is do folk really think that property prices can continue on this path....it's insane and unsustainable. That is my opinion.

Industrial/commercial/office/retail property is valued very differently to residential.

I wouldn’t go near residential housing in most parts of NZ as the yields are usually pitiful or negative with a mortgage, but the listed property trusts we are talking about on this thread have income streams (rental income) that make most of them good value investments.

[Waltzing]

LEK... Asia wharehouse facilities are fully rented out and no sign of down grades yet.

[LaserEyeKiwi]

Weekly Update:

More positive NTA revaluations, Gearing remains low (~29% average)

14093

[Rawz]

Thanks LEK, so helpful! Seeing all data on the reits in one spot.

I like how we can see your stuff on mobile as well

[ithaka]

Jarden Insights: The pulse of listed property
Rising interest rates and the risk of a recession has put pressure on listed property valuations on New Zealand and Australian share markets. In this Jarden Insights episode, listed property analysts Arie Dekker and Lou Pirenc explain the impact this operating environment is having on acquisition activity and office occupancy rates, the outlook for retail rental earnings and why value could be emerging in the industrial asset class.
https://www.youtube.com/watch?v=wjhllKqeKhg

[LaserEyeKiwi]

Weekly update:

14127

[Ricky-bobby]

Thanks LEK! Great table

[LaserEyeKiwi]

Weekly Update:

14147

Note: the KPG gross dividend presented is juiced on a 12 month calculation basis as they are moving from half year to quarterly payments, so the current calculation includes two half year dividends + upcoming quarterly dividend.

[winner69]

LEK noted Note: the KPG gross dividend presented is juiced on a 12 month calculation basis as they are moving from half year to quarterly payments, so the current calculation includes two half year dividends + upcoming quarterly dividend.

What is the yield if you deduct upcoming quarter dividend from last years first half dividend …ie giving a yearly dividend.

[LaserEyeKiwi]

LEK noted Note: the KPG gross dividend presented is juiced on a 12 month calculation basis as they are moving from half year to quarterly payments, so the current calculation includes two half year dividends + upcoming quarterly dividend.

What is the yield if you deduct upcoming quarter dividend from last years first half dividend …ie giving a yearly dividend.

It stays the same around 7% - the upcoming quarterly dividend is set at the current dividend rate, rather than the rate that will be declared at the next earnings in December.

Depending on how one looks at things, the upcoming dividend could be considered a one off bonus of sorts, as it effectively moves froward their whole dividend schedule going forward permanently by 3 months.

Eg, they paid their last 6 months dividend in late June, and over the next 6 months there will be 3 quarterly payments, so over the 12 months from June 1st 2022 to May 31st there will be the equivalent of 5 quarterly dividends paid - so perhaps the current 8.6% gross yield is actually valid to use for the next 9 months. The 5 quarterly payments rate wont be out of the system until we are one year past the June 2022 dividend payment.

Edit: actually it gets a bit more wonky that that. After the upcoming December 2022 quarterly dividend, the Dec 21 half year dividend falls off so we will have a “correct” dividend rate (1 half year from June 22 dividend + 2 quarterly dividends in Sep 22 & Dec 22), but then when the March quarterly dividend is paid we will be back to the equivalent of 5 x quarterly dividends in the trailing 12 months (June 22 half year + Sep, Dec & Mar quarterly’s)

[LaserEyeKiwi]

Note: I complied the week ending Sep 9th the share prices above this morning before market open from the NZX website, and there was obviously some impact from ex-dividend pricing action before market open (KPG being at 99.6 an obvious example)

[Rawz]

So we can’t just multiply the Sep 22 div by 4? 🥴

[LaserEyeKiwi]

So we can’t just multiply the Sep 22 div by 4? 若

Well that would miss the dividend increase expected in Dec at earnings, but would give you a good approximate estimate for forward 12 months dividend.

[Waltzing]

GMT still in demand .. another day of strong orders .

[Rawz]

Expect the reits to come under pressure today, with strong inflation rates will need to stay high or go higher?!

But then higher inflation should help property?

Isn’t all the rich listers buying lots of property??

[fungus pudding]

Expect the reits to come under pressure today, with strong inflation rates will need to stay high or go higher?!

But then higher inflation should help property?



Yes, and it will - give it time.

[Waltzing]

Good day to buy some more property stocks.

[Rawz]

Perhaps the reits with the biggest development pipeline will get hurt the most with this inflation? cost of builds going to skyrocket. Better to just sit on your portfolio of buildings and let inflation boost your rents and chip away at your debt.

Who has the biggest development pipeline? Looking at you KPG... No wonder it trades at the biggest discount to its peers

[fungus pudding]

Perhaps the reits with the biggest development pipeline will get hurt the most with this inflation? cost of builds going to skyrocket. Better to just sit on your portfolio of buildings and let inflation boost your rents and chip away at your debt.

Who has the biggest development pipeline? Looking at you KPG... No wonder it trades at the biggest discount to its peers


Exactly - completed buildings are a great hedge against inflation. But the ones still on the drawing board can suffer in the short term.

[LaserEyeKiwi]

Perhaps the reits with the biggest development pipeline will get hurt the most with this inflation? cost of builds going to skyrocket. Better to just sit on your portfolio of buildings and let inflation boost your rents and chip away at your debt.

Who has the biggest development pipeline? Looking at you KPG... No wonder it trades at the biggest discount to its peers

KPG only has $300 million in current capex commitments, mostly from the one major development underway currently which is already under construction - Sylvia Park BTR 1 (3 Te kehu way office tower is basically finished - to be occupied in 2023). Other than that it is just earthworks at Drury for the next 12-24 months.

They were very clear in last weeks investor day presentation that they will only commit to further development as market conditions allow.

[Rawz]

KPG only has $300 million in current capex commitments, mostly from the one major development underway currently which is already under construction - Sylvia Park BTR 1 (3 Te kehu way office tower is basically finished - to be occupied in 2023). Other than that it is just earthworks at Drury for the next 12-24 months.

They were very clear in last weeks investor day presentation that they will only commit to further development as market conditions allow.

Still, one day that drury land will be developed into a wonderful utopia and as we sit here that future cost is rapidly increasing.

[LaserEyeKiwi]

Still, one day that drury land will be developed into a wonderful utopia and as we sit here that future cost is rapidly increasing.

First up planned for Drury development proper is a “big box” retail center (“LFR Stage 1”).

Edit: Actually “LFR Stage 1” might be the big box centre going to be built at Sylvia park beside IKEA. But from previous plans I remember big box retailers were first stage of Drury as well.

But was surprised to hear that KPG also will have residential land sales as well from Drury to raise funds (I assumed residential land sales would only be done by the other Drury partners land holdings)

Development timetable from investor day:
14159

[LaserEyeKiwi]

Sylvia Park is really going to be a little city by the time that development schedule is finished: Many more BTR developments , 4 more office towers, more LFR, and even a hotel.

14158

[Waltzing]

KPG is certainly a very serious and powerful development group but is the CAP EX going to cover the considerable future expansion.

LEK may well have covered this already.

Is the expansion something can be self funded from current assets and future sales generated profits.

Looks like some of those artists impression and tables of future DEV in their presentations are very heavy on CX..

GMT powering up again... blue chip according to one property manager in auckland we speak to most weeks.

[LaserEyeKiwi]

KPG is certainly a very serious and powerful development group but is the CAP EX going to cover the considerable future expansion.

LEK may well have covered this already.

Is the expansion something can be self funded from current assets and future sales generated profits.

Looks like some of those artists impression and tables of future DEV in their presentations are very heavy on CX..

GMT powering up again... blue chip according to one property manager in auckland we speak to most weeks.

They have been talking about the “co-investment platfrom” as funding source a lot recently (not just for the intended upcoming standalone office portfolio sell down, but across their entire portfolio). They have a rather low average cost of debt, and none coming up for reneweal until ‘24, and it seems they dont really want to tap the debt market again while rates are high.

I’ve shared this before, but the asset selldown makes a lot of sense while the share price is trading so far below the book value - especially if they achieve “co-investment” near the book value, and it has the bonus of generating new income from the management fees being charged to the new equity partners.

[Rawz]

Is the KPG dividend at risk to develop Drury?

[LaserEyeKiwi]

Is the KPG dividend at risk to develop Drury?

Nope. Drury is a long term project - see development timeline above, and will be funded primarily from: asset sales (either outright like Northlands, or “co-investment” in existing & future portfolio) or debt.

[LaserEyeKiwi]

Weekly update:

14166

[Habits]

Weekly update:

14166

Some of these appear on a roll downwards... kpg and argosy!

[Ricky-bobby]

LEK, do u think KPG will keep delivering the same Div year on year? If so, it’s looking pretty attractive!!

[Rawz]

LEK, do u think KPG will keep delivering the same Div year on year? If so, it’s looking pretty attractive!!

That’s what I’m wondering. Presumably if they sell these malls and office buildings it’s less rents and less rents means less dividends?

There’s going to be a lag before the capital is put into drury development and rents achieved there

[LaserEyeKiwi]

LEK, do u think KPG will keep delivering the same Div year on year? If so, it’s looking pretty attractive!!

actual forward gross dividend is not 9% (that is technically the trailing 12 month dividend currently), but is somewhere in ~7% range.

Technically they are intending to grow the dividend 3% each year - BUT the current stated gross dividend yield is artificially higher as they are moving to quarterly payments and with the first one paid this month it technically raises the dividends paid over the trailing 12 months into that 9% + category as it includes two half year dividends PLUS the upcoming quarterly dividend in that 12 month period.

Eg current calculation is based on 8.725c gross dividend, but actual forward 12 month payment will likely be around ~7c gross dividend with the expected guided for dividend growth confirmed at the December Earnings result.

Current trailing 12 month Dividend:

Sep ‘22: 1.425+0.271 = 1.696 (quarterly)
Jun ‘22: 2.85+0.677 = 3.527 (half year)
Dec ‘21: 2.75+0.752 = 3.502 (half year)

Total current trailing 12 month dividend: 8.725c

[LaserEyeKiwi]

That’s what I’m wondering. Presumably if they sell these malls and office buildings it’s less rents and less rents means less dividends?

There’s going to be a lag before the capital is put into drury development and rents achieved there

This year is a transition year, but they have already said dividends will not reduce. There is ample room to maintain dividend (they are actually guiding to increase it). The lost net income from northlands (once the sale is actually settled), is less than the difference between AFFO & dividend amount paid last 12 months.

Factors for this:
- Payout % of AFFO can increase (up to 100%, from current ~90%)
- New office asset comes online in Q1 2023 (Te Kehu Way in sylvia park precinct), increasing income.
- New 295 unit BTR development comes online in Q2 2024 (BTR 1 in Sylvia Park precinct), increasing income significantly.
- Rent reviews are still increasing income from existing assets every year.
- no more covid lockdowns/rent reliefs going forward (which impacted FFO negatively in last two financial years)
- any sell down into co-investment platform will generate management fees on sold down equity share
- funds received from asset sales will generate interest and/or reduce debt interest expense, until funds can be redeployed for future developments.
- Even though Northlands is being 100% sold, KPG is still to receive some income as new owner has contracted KPG to continue managing the property.

[Ricky-bobby]

Thanks mate! Very insightful. How long have u been holding for? U sound pretty happy with them? They are now on my watchlist.

[dibble]

That’s what I’m wondering. Presumably if they sell these malls and office buildings it’s less rents and less rents means less dividends?

There’s going to be a lag before the capital is put into drury development and rents achieved there

Dont forget cash from eg asset sales or dividend reinvestment doesnt evaporate. Cash raised will ultimately be used to increase operational cashflow (directly eg WIP or maybe by decreasing debt and therefore interest or maybe for development, a longer term cash generator). So unless your company is run by idiots such cash movements ought be at least approximately neutral and hopefully ultimately positive, as I believe in this case.
If there is any "lag" there ought be a commensurate reward further down the track. That's investing for you.

If your company is in trouble and selling assets, whole different kettle of fish of course.

[Snoopy]

'A blast from the past', or more correctly 'from 2008'.



GMT @.99 a 10% div and a 5% discount to NTA
KIP @ .99 a 8% div and a 25% discount to NTA
ING @.69 a 11% div and a 40% discount to NTA
APT @.77 a 9% div and a 43% discount to NTA


For those that don't recognise three of those historic tickers:
a/ KIP (Kiwi Income Property Trust) is now KPG (Kiwi Property Group)
b/ ING Property Trust (ING) is now Argosy Property (ARG).
c/ AMP NZ Office Trust (APT) is now Precinct Properties (PCT)



Don't overlook the fact these are PIE returns - no need to include in tax return .


Good point made by Fungus above, but things are changing.



Property CompanyPIE income forecast?
DRP Active?Substantial New Capital last raised? (4)


Goodman Property TrustYes
NoApril 2022 (Bond Offer)


Vital Healthcare Property TrustYes
YesApril 2022 (Share Offer)


Property for IndustryYes
YesNovember 2017 (Bond Offer)


Precinct PropertiesPartial (1)
NoSeptember 2022 (Overseas Investment Partnership)


Argosy PropertiesYes
NoOctober 2020 (Bond Offer)


Investore Property Ltd.Yes
NoFebruary 2022 (Bond Offer)


Stride Property GroupPartial (2)
NoNovember/December 2021 (Share Offer)


Kiwi Property GroupPartial (3)
NoJuly 2021 (Bond Offer)



Notes

1/ A full PIE entity up to now, Precinct Properties have sold a chunk of their properties into a minority owned entity named the 'Precinct Pacific Investment Partnership'. This sale was announced as unconditional to the NZX on 15-09-2022. Precinct will continue to manage these properties for their overseas investment partners. But property management is not a class of business that falls under the PIE tax regime. Therefore, in the future, the 'property management' side of PCT will distribute profit that will have to be disclosed in individual investors tax return share income.
2/ Stride Property Group is a 'stapled entity' that contains two separate companies 'Stride Property Limited' (SPL) and 'Stride Investment Management Limited' (SIML). The former is a PIE entity. The latter manages properties largely owned by others. So income from SIML must be declared in your tax return, alongside other dividend share income.
3/ Kiwi Property Group (KPG) have informed the market that they are going to raise the capital needed for their Lynnmall, Sylvia Park and Drury Sites by selling down their separately owned office building portfolio to a co-investment entity. KPG will continue to manage these office buildings, but the management contract will not fall under the classification of PIE income. Dividends derived from earnings from this co-investment venture will therefore have to be disclosed on your tax return alongside your other share dividend income.
4/ Not including Dividend Reinvestment Plan (DRP) contributions.

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

Right now, Stride Property Group is the only one of the 'big eight' listed property entities on the NZX that does not have full PIE status. But Precinct Properties and Kiwi Property Group are in the process of adopting the 'Stride' model. Consider this post an 'advance warning' of the changing tax status of some of your property investments!

Some also regard property investment as a 'set and forget' formula to fund their retirement. However, this is a bit of a myth as all eight of our largest property investment entities have raised substantial capital over the last five years.

SNOOPY

P.S. I have also added information on which Property Investment companies have Dividend Reinvestment Plans (DRPs) that are currently active.

[Waltzing]

The DR siegal says the FED is over tightening as OIL prices come down...

Could these be bottoming in the next 12 months..

GMT had some bigger VOL yesterday.

[Doug]

Right now, Stride Property Group is the only one of the 'big eight' listed property entities on the NZX that does not have full PIE status.

Snoopy I'm struggling to find information confirming what you are saying. The SPG analysis on NZX says "Stride Property Group is a stapled group comprising Stride Property Limited ("Stride") and Stride Investment Management Limited ("SIML"). Stride is a listed portfolio investment entity (PIE) that invests in New Zealand office, retail and industrial property."

Do you have any references for this?

[fungus pudding]

Snoopy I'm struggling to find information confirming what you are saying. The SPG analysis on NZX says "Stride Property Group is a stapled group comprising Stride Property Limited ("Stride") and Stride Investment Management Limited ("SIML"). Stride is a listed portfolio investment entity (PIE) that invests in New Zealand office, retail and industrial property."

Do you have any references for this?

SIML is not a PIE. SPG is, according to the dividend statements.

[Doug]

SIML is not a PIE. SPG is, according to the dividend statements.

Thanks that's what I wanted to know.

[troyvdh]

Does anyone know which of these property companies have given investors the best return over the past 3 plus decades.

[winner69]

A must read …..US related but things like this happen in NZ

Historically, REITs have actually generated high returns in the period following rate hikes.
https://seekingalpha.com/article/4541940-important-message-to-reit-investors

[Waltzing]

Yep Winner() what do you put the increase in PIES downs to in 2007-8...

Ocr at the time was pretty up there.

[Rawz]

A must read …..US related but things like this happen in NZ

Historically, REITs have actually generated high returns in the period following rate hikes.
https://seekingalpha.com/article/4541940-important-message-to-reit-investors
That’s a good read. Thanks for posting W69.

I like the part about reits tripling in value post GFC crash.

And these key points:

Inflation has many positive effects on REITs:

It inflates the debt of REITs away.
It complicates new development projects, reducing new supply.
It increases the replacement value of existing properties.
It increases the growth of rents.
It makes buying real estate less affordable for people, and it makes sale and leaseback transactions more compelling for companies.

[winner69]

Thanks Rawz.

I wondered if US comparisons were relevant to NZ but did notice that KPG included a few slides re US REITs in their recent preso so I take it the comparisons are relevant.

[Snoopy]

Snoopy I'm struggling to find information confirming what you are saying. The SPG analysis on NZX says "Stride Property Group is a stapled group comprising Stride Property Limited ("Stride") and Stride Investment Management Limited ("SIML"). Stride is a listed portfolio investment entity (PIE) that invests in New Zealand office, retail and industrial property."


What you have quoted above is correct, except that abbreviating 'Stride Property Limited' to "Stride" is potentially misleading. Stride Property Limited is abbreviated elsewhere to SPL, to avoid confusion with SPG (The stapled entity also loosely known as 'Stride')



SIML is not a PIE. SPG is, according to the dividend statements.


SPG is more PIE than not, but the income generated is not entirely PIE income. However the income generated by SPL is 100% PIE income. This is why two separate dividends are declared on each dividend date.

https://www.nzx.com/instruments/SPG/dividends

The top figure (SPL) on each dividend date is all PIE income. The lower one (SIML) contains no PIE income.

SNOOPY

[LaserEyeKiwi]

So I am away on holiday - couldn’t see any company specific news so reinvested my KPG dividend at the current absurdly cheap price as I presume it is from a sentiment sell off that has driven the share price to a ~10% gross yield?!?

[LaserEyeKiwi]

Belated mini weekly update for last week.

(Crikey plenty of bloodshed combining last week and this week so far - bargain territory for some for these names)

14190

[LaserEyeKiwi]

Had to do a bonus mid-week update - BONKERS!!!

look at some of those discounts to NTA!!! KPG trading almost 40% under book value!!!!

amazing.

14191

[winner69]

Even worse than retire stocks LEK

Retire stocks on average down 3.7% so far this week

OCA now 30% discount to NTA / Book Value ...... BONKERS

[lawson]

Had to do a bonus mid-week update - BONKERS!!!

look at some of those discounts to NTA!!! KPG trading almost 40% under book value!!!!

amazing.

14191

Thanks LEK


52 Week Low
ARG $1.13
GMT $1.905
IPL $1.43
KPG new low today previous $.92
PCT new low today previous $1.27
PFI $1.31
SPG $1.60
VHP new low today previous $2.53

Most are getting close to re-testing lows though KPG, PCT and VHP are already trading below their previous 52 week low now.

edited to add: Sorry about the formatting.

[BlackPeter]

Even worse than retire stocks LEK

Retire stocks on average down 3.7% so far this week

OCA now 30% discount to NTA / Book Value ...... BONKERS

I guess the more interesting question will be - how much discount at the time SP starts bouncing back? This is the multi billion dollar question (if you add all REITS together ;) )...

[LaserEyeKiwi]

Maybe it was yesterday? Or is today a dead cat bounce?

[BlackPeter]

Maybe it was yesterday? Or is today a dead cat bounce?

Have a look at the volume ... pretty low for a trend change ;) .

[LaserEyeKiwi]

Bounce didn’t even last the full day. No life in that car.

[tim23]

I guess the more interesting question will be - how much discount at the time SP starts bouncing back? This is the multi billion dollar question (if you add all REITS together ;) )...

Revaluations south might be on their way though.

[Habits]

I was looking at a few of the REIT companies charts last night. In a clear downturn and probably difficult to say wheres the bottom. Plus side being these companies are supported by tangible assets, there will be a price floor. What we saw in march 2020 is irrational behaviour, motivated by a virus that would decimate the world. Crazy stuff

[bull....]

Revaluations south might be on their way though.

i agree with this. when is the question.

[Habits]

Most property stocks had a big bounce from mid afternoon which will help the figures

[LaserEyeKiwi]

Weekly update:

14200

[Old mate]

Kpg 10% yeild. Sustainable?

[LaserEyeKiwi]

Kpg 10% yeild. Sustainable?

I’m not sure what thread I posted it in, but the KPG divi is distorted due to timing of moving from half yearly to quarterly payments (so currently it includes 2 half year payments and one quarterly payment in the official gross dividend yield calculation, essentially 5 quarters instead of 4). Actual ongoing yield is closer to 8% (which is indeed sustainable).

[winner69]

The newly updated seismic hazard model that GNS put out the other day has put shock waves through building owners in places like Wellington ….one or two apparently use the word dire.

[LaserEyeKiwi]

The newly updated seismic hazard model that GNS put out the other day has put shock waves through building owners in places like Wellington ….one or two apparently use the word dire.

Doesn’t surprise me in the least. Anywhere outside of Hamilton/Auckland is better off sold than on the books.

[Baa_Baa]

Doesn’t surprise me in the least. Anywhere outside of Hamilton/Auckland is better off sold than on the books.

There are three major known active faults in the Waikato (https://www.waikatoregion.govt.nz/services/regional-hazards-and-emergency-management/earthquakes/#:~:text=There%20are%20three%20large%20active,Hill s%20north%2Deast%20of%20Mercer.), and there are 53 Auckland volcanoes (https://exploringauckland.com/auckland-volcanoes/) considered the most volcanic city in the world.

[Habits]

There are three major known active faults in the Waikato (https://www.waikatoregion.govt.nz/services/regional-hazards-and-emergency-management/earthquakes/#:~:text=There%20are%20three%20large%20active,Hill s%20north%2Deast%20of%20Mercer.), and there are 53 Auckland volcanoes (https://exploringauckland.com/auckland-volcanoes/) considered the most volcanic city in the world.

Here is a bit more for anyone interested:

three large active faults... in the Waikato region:
The Kerepehi Fault - extending along the Firth of Thames and the Hauraki Plains.The Rangipo Fault - on the eastern side of Mount Ruapehu.The Wairoa North Fault - running along the Bombay Hills north-east of Mercer.

[LaserEyeKiwi]

Weekly Update:

14228

[Waltzing]

Turning Japanese... japanese...

https://www.youtube.com/watch?v=IWWwM2wwMww

Lift off ....

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

[bull....]

kiwi property kpg first property co to release negative revaluations

https://www.nzx.com/announcements/400217

expect plenty more to come

[Rawz]

kiwi property kpg first property co to release negative revaluations

https://www.nzx.com/announcements/400217

expect plenty more to come

but no worries to the SP because the dividend yield is so good

" FY23 cash dividend guidance of no less than 5.70 cents per share remains unchanged. This figure represents a New Zealand tax-paid yield of 6.23% or gross equivalent yield of 9.30% (based on a closing share price of 91.5 cents recorded on 7 October 2022 and assuming a 33% tax rate for the gross equivalent yield)."

[LaserEyeKiwi]

kiwi property kpg first property co to release negative revaluations

https://www.nzx.com/announcements/400217

expect plenty more to come

3 other companies on our basket of listed property names have reported upwards valuations recently (VHP, PFI & PCT).

After this downwards revaluation by KPG, they now trade at a 31% discount to book value / NTA (vs a 37% discount previously)

[GTM 3442]

Property Trusts are basically an income investment.

With term Deposit rates now at about 4%, how far do property company shares have to fall to make their dividend yields competitive?

[Aaron]

Property Trusts are basically an income investment.

With term Deposit rates now at about 4%, how far do property company shares have to fall to make their dividend yields competitive?

Equity also carries a lot more risk than fixed interest so you would want an equity risk premium in your calculations as well.

[LaserEyeKiwi]

Equity also carries a lot more risk than fixed interest so you would want an equity risk premium in your calculations as well.

precisely - usually at least a percentage point or two in risk premium. Strange how some on our list have yields below bank term deposit rates. They don’t have strong enough growth to back up that valuation seemingly.

[troyvdh]

Can anyone provide us with the Morningstar report ..announcement made today re listed entities.

[ithaka]

Recent transactions defy commercial property crash fears

Listed REIT pricing implies a commercial property crash, with major groups such as Dexus (ASX: DXS) and GPT Group (ASX:GPT) trading at 35% discounts to net tangible assets, or NTA. Transaction evidence remains thin, but a handful of recent deals suggest capitalisation-rates (yields used to value property) haven’t risen much yet, and valuations have not crashed.


Dexus Wholesale Property Fund sold Shepparton Marketplace for AUD 92 million in early October on a cap-rate of 6.25% to Metro Holdings of Singapore. Charter Hall Retail REIT (ASX:CQR) acquired an AUD 120 million stake in a portfolio of Z Energy service stations in New Zealand on a cap-rate of 5.5% (announced Aug. 29, 2022). The Australian Financial Review reported a Bunnings site in Melbourne had sold for AUD 80 million in the last week of September, on a cap-rate of 3.95%. None of these deals is much worse than cap-rates seen in late 2021.


Admittedly, rate rises probably aren’t over, and we expect further price falls in property. There’s probably selection bias too, with better deals publicised, but transactions at steeper discounts kept confidential for now. Even so, this evidence supports our base case that the market is holding up compared with doomsday fears that prevail in listed markets.

Looking at the transactions in more detail, we believe the Dexus and Charter Hall deals are reasonable representations of the where the market is—that is, lower, but not crashing. The 3.95% cap-rate on the Bunnings deal was remarkably low—reportedly lower than the 10-year bond yield at the time the deal was struck. It’s also lower than the average cap-rates reported by BWP Trust (the listed REIT that owns numerous Bunnings sites across Australia)—it reported an average cap-rate of 5.11% in December 2021 and 5.04% in June 2022. We don’t read too much into this deal as the buyer was reportedly an individual private investor. Private, individual buyers typically have a limited influence on the market, because they can’t usually afford the massive price tags on major shopping centres and A-grade office towers—pricing there is typically dominated by institutional investors.


A more convincing piece of evidence was Charter Hall Retail REIT’s acquisition of a portfolio of Z Energy service station assets on a cap-rate of 5.5%. That compares with the group’s acquisition of an Ampol portfolio in December 2021 on a cap-rate of 5.0%. The characteristics of the portfolios are similar, and therefore provide a reasonable benchmark for how the market has moved. Both portfolios have triple-net leases (where tenants pay outgoings), have rent linked to CPI with a 2% floor and 5% cap, and the WALE for the Ampol transaction in December 2021 was 15.6 years, versus 15.3 years for the Z Energy deal in August 2022. Both the portfolios are located predominantly in metropolitan areas (78% for Z Energy, while the Ampol portfolio is 75% metro or “commuter metro” according to Charter Hall). The major difference is that the Z Energy portfolio is in New Zealand, whereas the Ampol portfolio is in Australia. New Zealand typically has slightly higher cap-rates than Australia so, if anything, the implication from this transaction is that the market widening in cap-rates so far is less than 50 basis points.


Singapore-listed Metro Holdings acquired Shepparton Marketplace, a mall in regional Victoria, for AUD 88 million on a cap-rate of 6.25%. The asset was sold by the Dexus Wholesale Property Fund. The property is reportedly the dominant mall in the area. By comparison, Stockland said cap-rates on its roughly comparable retail town centre portfolio averaged 6.1% at June 2021 (when lockdown fears were acute), 5.9% at December 2021 (before interest rate rises) and remained flat at 5.9% by June 2022.


It’s difficult to make definitive claims as cap-rates vary on every property depending on occupancy, lease terms, opportunities for redevelopment or enhancement of the asset, and so on. The Charter Hall deal and the Shepparton Marketplace purchase both imply only modest cap-rate widening so far. The reality may be slightly worse given the aforementioned selection bias and the fact that these deals are smaller than major shopping centres or CBD office towers (which can sell for hundred of millions of dollars). But we think these deals support the view that the market is not crashing.


It’s worth revising why physical prices matter—REITs need to own their properties to collect the rent, so we value REITs based on the cash-flows generated by the properties, not what they might be able to sell the properties for. However, physical prices do offer real-world backing to our discounted cash-flow valuations. And in some cases physical property prices can be absolutely critical.


Physical prices matter most to REITS with excessive debt. It can affect covenants imposed by lenders, and if a REIT is trying to reduce debt by selling assets, physical property pricing is critical.


It’s also worth mentioning that physical property prices are also important for property fund managers who charge management fees based on the value of client property portfolios, and performance fees linked to the returns of the portfolios. Charter Hall, Goodman Group, and Lendlease are the major property fund managers we cover, but many of the traditional REITs have at least some funds management exposures. Pricing also matters for developers such as Lendlease, Mirvac and Stockland. We ascribe a high uncertainty rating to Lendlease given the importance of development earnings for the group (development is important for Mirvac and Stockland but both have substantial passive rental portfolios).


We think Unibail-Rodamco-Westfield, or URW, and Cromwell have too much debt, and both are striving to pay off debt by selling assets. The prices they achieve on sales are critical to their valuation, and we account for this by ascribing high uncertainty ratings to both names. URW’s most recent sale was at a 10.7% discount to book value, and sold on a yield of “sub 6%”. Since the deal was struck in August, market volatility and interest rates have increased, which is likely to put further pressure on pricing. However, this remains consistent with our assumption that the group sells properties on an average 6.25% yield.


We think Scentre Group’s debt is also too high. Our base case there is that the group can grow its way out of its debt load as its earnings recover from the pandemic, though an equity raising remains a risk.


Many REITs are now undervalued relative to our unchanged fair value estimates. But names with higher debt are most vulnerable if interest rate rises go beyond expectations.

[winner69]

Thanks Ithaca for posting that ….very interesting

[bull....]

Recent transactions defy commercial property crash fears

Listed REIT pricing implies a commercial property crash, with major groups such as Dexus (ASX: DXS) and GPT Group (ASX:GPT) trading at 35% discounts to net tangible assets, or NTA. Transaction evidence remains thin, but a handful of recent deals suggest capitalisation-rates (yields used to value property) haven’t risen much yet, and valuations have not crashed.


Dexus Wholesale Property Fund sold Shepparton Marketplace for AUD 92 million in early October on a cap-rate of 6.25% to Metro Holdings of Singapore. Charter Hall Retail REIT (ASX:CQR) acquired an AUD 120 million stake in a portfolio of Z Energy service stations in New Zealand on a cap-rate of 5.5% (announced Aug. 29, 2022). The Australian Financial Review reported a Bunnings site in Melbourne had sold for AUD 80 million in the last week of September, on a cap-rate of 3.95%. None of these deals is much worse than cap-rates seen in late 2021.


Admittedly, rate rises probably aren’t over, and we expect further price falls in property. There’s probably selection bias too, with better deals publicised, but transactions at steeper discounts kept confidential for now. Even so, this evidence supports our base case that the market is holding up compared with doomsday fears that prevail in listed markets.

Looking at the transactions in more detail, we believe the Dexus and Charter Hall deals are reasonable representations of the where the market is—that is, lower, but not crashing. The 3.95% cap-rate on the Bunnings deal was remarkably low—reportedly lower than the 10-year bond yield at the time the deal was struck. It’s also lower than the average cap-rates reported by BWP Trust (the listed REIT that owns numerous Bunnings sites across Australia)—it reported an average cap-rate of 5.11% in December 2021 and 5.04% in June 2022. We don’t read too much into this deal as the buyer was reportedly an individual private investor. Private, individual buyers typically have a limited influence on the market, because they can’t usually afford the massive price tags on major shopping centres and A-grade office towers—pricing there is typically dominated by institutional investors.


A more convincing piece of evidence was Charter Hall Retail REIT’s acquisition of a portfolio of Z Energy service station assets on a cap-rate of 5.5%. That compares with the group’s acquisition of an Ampol portfolio in December 2021 on a cap-rate of 5.0%. The characteristics of the portfolios are similar, and therefore provide a reasonable benchmark for how the market has moved. Both portfolios have triple-net leases (where tenants pay outgoings), have rent linked to CPI with a 2% floor and 5% cap, and the WALE for the Ampol transaction in December 2021 was 15.6 years, versus 15.3 years for the Z Energy deal in August 2022. Both the portfolios are located predominantly in metropolitan areas (78% for Z Energy, while the Ampol portfolio is 75% metro or “commuter metro” according to Charter Hall). The major difference is that the Z Energy portfolio is in New Zealand, whereas the Ampol portfolio is in Australia. New Zealand typically has slightly higher cap-rates than Australia so, if anything, the implication from this transaction is that the market widening in cap-rates so far is less than 50 basis points.


Singapore-listed Metro Holdings acquired Shepparton Marketplace, a mall in regional Victoria, for AUD 88 million on a cap-rate of 6.25%. The asset was sold by the Dexus Wholesale Property Fund. The property is reportedly the dominant mall in the area. By comparison, Stockland said cap-rates on its roughly comparable retail town centre portfolio averaged 6.1% at June 2021 (when lockdown fears were acute), 5.9% at December 2021 (before interest rate rises) and remained flat at 5.9% by June 2022.


It’s difficult to make definitive claims as cap-rates vary on every property depending on occupancy, lease terms, opportunities for redevelopment or enhancement of the asset, and so on. The Charter Hall deal and the Shepparton Marketplace purchase both imply only modest cap-rate widening so far. The reality may be slightly worse given the aforementioned selection bias and the fact that these deals are smaller than major shopping centres or CBD office towers (which can sell for hundred of millions of dollars). But we think these deals support the view that the market is not crashing.


It’s worth revising why physical prices matter—REITs need to own their properties to collect the rent, so we value REITs based on the cash-flows generated by the properties, not what they might be able to sell the properties for. However, physical prices do offer real-world backing to our discounted cash-flow valuations. And in some cases physical property prices can be absolutely critical.


Physical prices matter most to REITS with excessive debt. It can affect covenants imposed by lenders, and if a REIT is trying to reduce debt by selling assets, physical property pricing is critical.


It’s also worth mentioning that physical property prices are also important for property fund managers who charge management fees based on the value of client property portfolios, and performance fees linked to the returns of the portfolios. Charter Hall, Goodman Group, and Lendlease are the major property fund managers we cover, but many of the traditional REITs have at least some funds management exposures. Pricing also matters for developers such as Lendlease, Mirvac and Stockland. We ascribe a high uncertainty rating to Lendlease given the importance of development earnings for the group (development is important for Mirvac and Stockland but both have substantial passive rental portfolios).


We think Unibail-Rodamco-Westfield, or URW, and Cromwell have too much debt, and both are striving to pay off debt by selling assets. The prices they achieve on sales are critical to their valuation, and we account for this by ascribing high uncertainty ratings to both names. URW’s most recent sale was at a 10.7% discount to book value, and sold on a yield of “sub 6%”. Since the deal was struck in August, market volatility and interest rates have increased, which is likely to put further pressure on pricing. However, this remains consistent with our assumption that the group sells properties on an average 6.25% yield.


We think Scentre Group’s debt is also too high. Our base case there is that the group can grow its way out of its debt load as its earnings recover from the pandemic, though an equity raising remains a risk.


Many REITs are now undervalued relative to our unchanged fair value estimates. But names with higher debt are most vulnerable if interest rate rises go beyond expectations.

think your last sentence is very important. rising rates crush companies NTA when debt is high and combined with falling asset values.

[LaserEyeKiwi]

Recent transactions defy commercial property crash fears

Listed REIT pricing implies a commercial property crash, with major groups such as Dexus (ASX: DXS) and GPT Group (ASX:GPT) trading at 35% discounts to net tangible assets, or NTA. Transaction evidence remains thin, but a handful of recent deals suggest capitalisation-rates (yields used to value property) haven’t risen much yet, and valuations have not crashed.


Dexus Wholesale Property Fund sold Shepparton Marketplace for AUD 92 million in early October on a cap-rate of 6.25% to Metro Holdings of Singapore. Charter Hall Retail REIT (ASX:CQR) acquired an AUD 120 million stake in a portfolio of Z Energy service stations in New Zealand on a cap-rate of 5.5% (announced Aug. 29, 2022). The Australian Financial Review reported a Bunnings site in Melbourne had sold for AUD 80 million in the last week of September, on a cap-rate of 3.95%. None of these deals is much worse than cap-rates seen in late 2021.


Admittedly, rate rises probably aren’t over, and we expect further price falls in property. There’s probably selection bias too, with better deals publicised, but transactions at steeper discounts kept confidential for now. Even so, this evidence supports our base case that the market is holding up compared with doomsday fears that prevail in listed markets.

Looking at the transactions in more detail, we believe the Dexus and Charter Hall deals are reasonable representations of the where the market is—that is, lower, but not crashing. The 3.95% cap-rate on the Bunnings deal was remarkably low—reportedly lower than the 10-year bond yield at the time the deal was struck. It’s also lower than the average cap-rates reported by BWP Trust (the listed REIT that owns numerous Bunnings sites across Australia)—it reported an average cap-rate of 5.11% in December 2021 and 5.04% in June 2022. We don’t read too much into this deal as the buyer was reportedly an individual private investor. Private, individual buyers typically have a limited influence on the market, because they can’t usually afford the massive price tags on major shopping centres and A-grade office towers—pricing there is typically dominated by institutional investors.


A more convincing piece of evidence was Charter Hall Retail REIT’s acquisition of a portfolio of Z Energy service station assets on a cap-rate of 5.5%. That compares with the group’s acquisition of an Ampol portfolio in December 2021 on a cap-rate of 5.0%. The characteristics of the portfolios are similar, and therefore provide a reasonable benchmark for how the market has moved. Both portfolios have triple-net leases (where tenants pay outgoings), have rent linked to CPI with a 2% floor and 5% cap, and the WALE for the Ampol transaction in December 2021 was 15.6 years, versus 15.3 years for the Z Energy deal in August 2022. Both the portfolios are located predominantly in metropolitan areas (78% for Z Energy, while the Ampol portfolio is 75% metro or “commuter metro” according to Charter Hall). The major difference is that the Z Energy portfolio is in New Zealand, whereas the Ampol portfolio is in Australia. New Zealand typically has slightly higher cap-rates than Australia so, if anything, the implication from this transaction is that the market widening in cap-rates so far is less than 50 basis points.


Singapore-listed Metro Holdings acquired Shepparton Marketplace, a mall in regional Victoria, for AUD 88 million on a cap-rate of 6.25%. The asset was sold by the Dexus Wholesale Property Fund. The property is reportedly the dominant mall in the area. By comparison, Stockland said cap-rates on its roughly comparable retail town centre portfolio averaged 6.1% at June 2021 (when lockdown fears were acute), 5.9% at December 2021 (before interest rate rises) and remained flat at 5.9% by June 2022.


It’s difficult to make definitive claims as cap-rates vary on every property depending on occupancy, lease terms, opportunities for redevelopment or enhancement of the asset, and so on. The Charter Hall deal and the Shepparton Marketplace purchase both imply only modest cap-rate widening so far. The reality may be slightly worse given the aforementioned selection bias and the fact that these deals are smaller than major shopping centres or CBD office towers (which can sell for hundred of millions of dollars). But we think these deals support the view that the market is not crashing.


It’s worth revising why physical prices matter—REITs need to own their properties to collect the rent, so we value REITs based on the cash-flows generated by the properties, not what they might be able to sell the properties for. However, physical prices do offer real-world backing to our discounted cash-flow valuations. And in some cases physical property prices can be absolutely critical.


Physical prices matter most to REITS with excessive debt. It can affect covenants imposed by lenders, and if a REIT is trying to reduce debt by selling assets, physical property pricing is critical.


It’s also worth mentioning that physical property prices are also important for property fund managers who charge management fees based on the value of client property portfolios, and performance fees linked to the returns of the portfolios. Charter Hall, Goodman Group, and Lendlease are the major property fund managers we cover, but many of the traditional REITs have at least some funds management exposures. Pricing also matters for developers such as Lendlease, Mirvac and Stockland. We ascribe a high uncertainty rating to Lendlease given the importance of development earnings for the group (development is important for Mirvac and Stockland but both have substantial passive rental portfolios).


We think Unibail-Rodamco-Westfield, or URW, and Cromwell have too much debt, and both are striving to pay off debt by selling assets. The prices they achieve on sales are critical to their valuation, and we account for this by ascribing high uncertainty ratings to both names. URW’s most recent sale was at a 10.7% discount to book value, and sold on a yield of “sub 6%”. Since the deal was struck in August, market volatility and interest rates have increased, which is likely to put further pressure on pricing. However, this remains consistent with our assumption that the group sells properties on an average 6.25% yield.


We think Scentre Group’s debt is also too high. Our base case there is that the group can grow its way out of its debt load as its earnings recover from the pandemic, though an equity raising remains a risk.


Many REITs are now undervalued relative to our unchanged fair value estimates. But names with higher debt are most vulnerable if interest rate rises go beyond expectations.

thanks for posting!

[Habits]

EXcellent post Ithaka.. I also agree completely with the comment from bull.

Not part of this thread but rural land will be feeling the squeeze for the next few years following the He waka plan.

[winner69]

Guru Mark Lister got it sussed - in the media market update today -

Lister said over the next six months commercial property prices would decline. It was one of the reasons that listed property company stocks were currently trading at lower prices, because the market knew it was coming and investors had accordingly sold off property shares, he said. Commercial property stocks were a little pinched today with Kiwi Property Group down 2.8% to 87.5 cents and Investore Property falling 1.3% to $1.50. Goodman Property was 0.5% to $2.01.

[Baa_Baa]

Guru Mark Lister got it sussed - in the media market update today -

Lister said over the next six months commercial property prices would decline. It was one of the reasons that listed property company stocks were currently trading at lower prices, because the market knew it was coming and investors had accordingly sold off property shares, he said. Commercial property stocks were a little pinched today with Kiwi Property Group down 2.8% to 87.5 cents and Investore Property falling 1.3% to $1.50. Goodman Property was 0.5% to $2.01.

Wise words from Guru Mark Lister, though regardless of whether one sold out, lightened up or continues to hold (those choices have been made), we are in a rare time where most companies and listed property related companies in particular, are moving towards the long term value investor opportunity.

The only really important thing imo is to keep monitoring the market and have plenty of dry powder to deploy when you think it's turning. Remember the core business of these companies is largely unaffected by the capital valuation of their properties, they will continue to trade profitably.

We might see some interim things like property acquisitions, share buy backs, increased dividends to compete with bank deposits. Just be ready to wade in when you think it's the right time. I'll be hugely increasing my property exposure as soon as I see it turn up and volume returns. Patience will be key waiting for this.

[Habits]

If "hugely increasing" means what I think it does ie hundreds of thousands of dollars, or more, I think I would be tempted to start taking a position. Otherwise if you wait, a large volume potentially moves the market further away from your ideal buy price.

[winner69]

Those property companies with high percentage of office space might find it difficult to make a buck in a year or two if this guy is right and the revolution continues

He asks - How many over-borrowed commercial property businesses will go broke? What does it mean for the returns of super funds that own most of the office towers? Should APRA ask them?



https://thenewdaily.com.au/finance/2022/10/13/working-from-home-kohler/

[Rawz]

Those property companies with high percentage of office space might find it difficult to make a buck in a year or two if this guy is right and the revolution continues

He asks - How many over-borrowed commercial property businesses will go broke? What does it mean for the returns of super funds that own most of the office towers? Should APRA ask them?



https://thenewdaily.com.au/finance/2022/10/13/working-from-home-kohler/

This article is on the money with working from home, commute, saving transport/parking money etc. thanks for sharing.

The cities will change and good. Doesnt mean the CBD is worthless. Just needs a rethink. Office towers will imo become more spread out and more 'comfortable'. Using the same amount of space but less desks. More couches and bean bags sort of thing.. So you work from home 2-3 days and when you go to the office its enjoyable. Rather than rows and rows of desks and screens. Bins at the end of the rows, big printers every 5 rows, you know what i mean.

KPG are on the money building small office towners next to malls out of the CBD and in the suburbs.

[kiora]

EXcellent post Ithaka.. I also agree completely with the comment from bull.

Not part of this thread but rural land will be feeling the squeeze for the next few years following the He waka plan.

Farming profitability may be affected by the He waka plan but capital values have been underpinned higher by what C farmers are prepared to pay ie a lot higher than what S & B farmers can justify on their returns

[SailorRob]

Guru Mark Lister got it sussed - in the media market update today -

Lister said over the next six months commercial property prices would decline. It was one of the reasons that listed property company stocks were currently trading at lower prices, because the market knew it was coming and investors had accordingly sold off property shares, he said. Commercial property stocks were a little pinched today with Kiwi Property Group down 2.8% to 87.5 cents and Investore Property falling 1.3% to $1.50. Goodman Property was 0.5% to $2.01.


Guru, or self confessed hopeless stock picker who's firm has no track record of being able to beat the returns of the general market?

[Rawz]

Guru, or self confessed hopeless stock picker who's firm has no track record of being able to beat the returns of the general market?

Dont be so hard on him, no one can beat the market in the long run

[SailorRob]

Recent transactions defy commercial property crash fears

Listed REIT pricing implies a commercial property crash, with major groups such as Dexus (ASX: DXS) and GPT Group (ASX:GPT) trading at 35% discounts to net tangible assets, or NTA. Transaction evidence remains thin, but a handful of recent deals suggest capitalisation-rates (yields used to value property) haven’t risen much yet, and valuations have not crashed.


Dexus Wholesale Property Fund sold Shepparton Marketplace for AUD 92 million in early October on a cap-rate of 6.25% to Metro Holdings of Singapore. Charter Hall Retail REIT (ASX:CQR) acquired an AUD 120 million stake in a portfolio of Z Energy service stations in New Zealand on a cap-rate of 5.5% (announced Aug. 29, 2022). The Australian Financial Review reported a Bunnings site in Melbourne had sold for AUD 80 million in the last week of September, on a cap-rate of 3.95%. None of these deals is much worse than cap-rates seen in late 2021.


Admittedly, rate rises probably aren’t over, and we expect further price falls in property. There’s probably selection bias too, with better deals publicised, but transactions at steeper discounts kept confidential for now. Even so, this evidence supports our base case that the market is holding up compared with doomsday fears that prevail in listed markets.

Looking at the transactions in more detail, we believe the Dexus and Charter Hall deals are reasonable representations of the where the market is—that is, lower, but not crashing. The 3.95% cap-rate on the Bunnings deal was remarkably low—reportedly lower than the 10-year bond yield at the time the deal was struck. It’s also lower than the average cap-rates reported by BWP Trust (the listed REIT that owns numerous Bunnings sites across Australia)—it reported an average cap-rate of 5.11% in December 2021 and 5.04% in June 2022. We don’t read too much into this deal as the buyer was reportedly an individual private investor. Private, individual buyers typically have a limited influence on the market, because they can’t usually afford the massive price tags on major shopping centres and A-grade office towers—pricing there is typically dominated by institutional investors.


A more convincing piece of evidence was Charter Hall Retail REIT’s acquisition of a portfolio of Z Energy service station assets on a cap-rate of 5.5%. That compares with the group’s acquisition of an Ampol portfolio in December 2021 on a cap-rate of 5.0%. The characteristics of the portfolios are similar, and therefore provide a reasonable benchmark for how the market has moved. Both portfolios have triple-net leases (where tenants pay outgoings), have rent linked to CPI with a 2% floor and 5% cap, and the WALE for the Ampol transaction in December 2021 was 15.6 years, versus 15.3 years for the Z Energy deal in August 2022. Both the portfolios are located predominantly in metropolitan areas (78% for Z Energy, while the Ampol portfolio is 75% metro or “commuter metro” according to Charter Hall). The major difference is that the Z Energy portfolio is in New Zealand, whereas the Ampol portfolio is in Australia. New Zealand typically has slightly higher cap-rates than Australia so, if anything, the implication from this transaction is that the market widening in cap-rates so far is less than 50 basis points.


Singapore-listed Metro Holdings acquired Shepparton Marketplace, a mall in regional Victoria, for AUD 88 million on a cap-rate of 6.25%. The asset was sold by the Dexus Wholesale Property Fund. The property is reportedly the dominant mall in the area. By comparison, Stockland said cap-rates on its roughly comparable retail town centre portfolio averaged 6.1% at June 2021 (when lockdown fears were acute), 5.9% at December 2021 (before interest rate rises) and remained flat at 5.9% by June 2022.


It’s difficult to make definitive claims as cap-rates vary on every property depending on occupancy, lease terms, opportunities for redevelopment or enhancement of the asset, and so on. The Charter Hall deal and the Shepparton Marketplace purchase both imply only modest cap-rate widening so far. The reality may be slightly worse given the aforementioned selection bias and the fact that these deals are smaller than major shopping centres or CBD office towers (which can sell for hundred of millions of dollars). But we think these deals support the view that the market is not crashing.


It’s worth revising why physical prices matter—REITs need to own their properties to collect the rent, so we value REITs based on the cash-flows generated by the properties, not what they might be able to sell the properties for. However, physical prices do offer real-world backing to our discounted cash-flow valuations. And in some cases physical property prices can be absolutely critical.


Physical prices matter most to REITS with excessive debt. It can affect covenants imposed by lenders, and if a REIT is trying to reduce debt by selling assets, physical property pricing is critical.


It’s also worth mentioning that physical property prices are also important for property fund managers who charge management fees based on the value of client property portfolios, and performance fees linked to the returns of the portfolios. Charter Hall, Goodman Group, and Lendlease are the major property fund managers we cover, but many of the traditional REITs have at least some funds management exposures. Pricing also matters for developers such as Lendlease, Mirvac and Stockland. We ascribe a high uncertainty rating to Lendlease given the importance of development earnings for the group (development is important for Mirvac and Stockland but both have substantial passive rental portfolios).


We think Unibail-Rodamco-Westfield, or URW, and Cromwell have too much debt, and both are striving to pay off debt by selling assets. The prices they achieve on sales are critical to their valuation, and we account for this by ascribing high uncertainty ratings to both names. URW’s most recent sale was at a 10.7% discount to book value, and sold on a yield of “sub 6%”. Since the deal was struck in August, market volatility and interest rates have increased, which is likely to put further pressure on pricing. However, this remains consistent with our assumption that the group sells properties on an average 6.25% yield.


We think Scentre Group’s debt is also too high. Our base case there is that the group can grow its way out of its debt load as its earnings recover from the pandemic, though an equity raising remains a risk.


Many REITs are now undervalued relative to our unchanged fair value estimates. But names with higher debt are most vulnerable if interest rate rises go beyond expectations.


This informative post says it all.

These are awful businesses that make stuff all cash relative to their invested capital or equity capital and have been propped up by 'earnings' from revaluations which are a joke.

I assume these cap rates are Gross and even if not they are absolutely awful.

Look at the cash flow statements of any of these businesses over the last decade and decide what CAPEX is actually maintenance vs growth or 'greening' buildings'

My earlier Argosy post below sums up the whole sector. When compared to investments in productive businesses these things are a joke.



Some interesting commentary on Argosy lately. Forgive me in case I've missed something as I'm not familiar with this company nor these types of businesses but having a look over a few years of financials, it appears to me that they earn an absolute pittance (in cash) on their capital, even on equity capital or market cap value.

When you look at reported earnings it's better but this seems to be just from revaluations - the actual cash earnings are slim indeed. The gross yields that are reported on different properties seem slim enough let alone considering that costs need to come out of them. The cash flow statements are sobering reading when you relate them back to the capital at work. It looks like the dividend isn't even covered by cash. I'm wondering what happens if the revaluations go into reverse as they may do with higher risk free rates?

Then I think that maybe the market is telling us this by valuing the assets at a fraction of 'NTA' - after all what use are assets if they don't generate cash? Something like property that has a pretty robust NTA as defined by what you could actually realise in a sale, if trading well below book in the market, then what does this mean.

[BlackPeter]

Dont be so hard on him, no one can beat the market in the long run

I think Warren Buffet did, didn't he?

[SailorRob]

I think Warren Buffet did, didn't he?


I wasn't sure if his post was sarcastic or not. Many many people beat 'the market' over the long term, and many more beat it before fees and expenses so if matched by a private investor without fees then they would also beat it.

Lot's of data out there on this with audited track records.

But it's extremely difficult to do, less than 10% of professional managers can do it over 10 to 15 years.

[LaserEyeKiwi]

Weekly Update:

14243

[Waltzing]

slammer of a week for this sector...

nice work on the LEK report.

If anyone uses 365... link to examples using stock market function. we have it automated to databases but this was an early example showing excel users how its done.

https://www.thespreadsheetguru.com/blog/excel-stock-history-function

[troyvdh]

Circumstances

[Ricky-bobby]

Hey team, thought this might be of interest https://en.freedom24.com/ideas/13216-tricon-residential-investidea

[SailorRob]

These companies truly are astounding businesses

Argosy net margins 2018-2021;

106% 99% 184% and 180%

Google;

23% 21% 22% and 29.5%

Argosy has massively higher net income than total Revenue.

The holy grail has been discovered.

[LaserEyeKiwi]

These companies truly are astounding businesses

Argosy net margins 2018-2021;

106% 99% 184% and 180%

Google;

23% 21% 22% and 29.5%

Argosy has massively higher net income than total Revenue.

The holy grail has been discovered.

well most educated investors would be using FFO (funds from operations) to determine actual underlying earnings for listed property names, and ignore the big profits & losses caused by portfolio revaluations (which actually have zero relevance to underlying cashflow growth)

BUT….hundreds of thousands of kiwis actually did use that “holy grail” strategy above you joke about to build enormous amount of collective wealth by way of the ludicrous residential property market - easy to get 100%+ annual returns on your original investment when you can buy a property with 10% down (perhaps 0% if using other equity as collateral) and enjoying 10% CAGR asset appreciation for a couple of decades. Of course that party is now well and truly over for the foreseeable future as the values vastly overshot any form of fundamental support many years ago, but a lot of people have done very well previously.

[SailorRob]

well most educated investors would be using FFO (funds from operations) to determine actual underlying earnings for listed property names, and ignore the big profits & losses caused by portfolio revaluations (which actually have zero relevance to underlying cashflow growth)

BUT….hundreds of thousands of kiwis actually did use that “holy grail” strategy above you joke about to build enormous amount of collective wealth by way of the ludicrous residential property market - easy to get 100%+ annual returns on your original investment when you can buy a property with 10% down (perhaps 0% if using other equity as collateral) and enjoying 10% CAGR asset appreciation for a couple of decades. Of course that party is now well and truly over for the foreseeable future as the values vastly overshot any form of fundamental support many years ago, but a lot of people have done very well previously.

Well said yep.

I would counter however that no wealth was built at all as no extra goods or services were created. NZ is no richer from the ludicrous residential property market. But yes individuals have done extremely well with returns on equity of many thousands of percent. Ultimately this is all someone else's debt or it doesn't exist at all in aggregate. You only need one or two transactions to lift (or drop) the market values for everything else around, which is why it's important not to get your valuations from such places but from a realistic estimate of the present value of net future cash flows as you have alluded to.

All that said I still can't get my head around Argosy (or property in general) valuations based on the actual cash flows relative to the assets employed, the equity or the market valuations. I mean yep you're getting a return but it's very slim.

[BlackPeter]

Well said yep.

I would counter however that no wealth was built at all as no extra goods or services were created. NZ is no richer from the ludicrous residential property market. But yes individuals have done extremely well with returns on equity of many thousands of percent. Ultimately this is all someone else's debt or it doesn't exist at all in aggregate. You only need one or two transactions to lift (or drop) the market values for everything else around, which is why it's important not to get your valuations from such places but from a realistic estimate of the present value of net future cash flows as you have alluded to.

All that said I still can't get my head around Argosy (or property in general) valuations based on the actual cash flows relative to the assets employed, the equity or the market valuations. I mean yep you're getting a return but it's very slim.

Hmm ... not sure I understand all this pea counting lingo in some of the previous posts. However - if I forget all this talk about lazy balance sheets and look into the financial reward of holding Argosy:

Dividend yield at SP = $1.16 is 5.7% (and looks stable), PE (both forward as well as backward) between 7 and 8 which looks really cheap and earnings trend is even still slightly growing (sure, that's a forecast).

Who cares with these returns whether the equity might be a bit lazy?

In my books this looks like a solid investment ... what's wrong with that?

[Waltzing]

could see ARG down at a dollar by this time next year if the OCR goes above 5...

[BlackPeter]

could see ARG down at a dollar by this time next year if the OCR goes above 5...

Absolutely - it could go further down, or maybe it doesn't. Same as any other stock.

I am just saying that in my view ARG is currently quite reasonably priced when looking at its fundamentals and at the income stream it produces. I didn't try to predict the absolut bottom (which is a fools errand anyway).

[Waltzing]

just before the GFC these stocks were on record high SP's for the time..

BP as you say you can never tell but this time the market is wary and Geo Risk around the world is looking high.

China is a basket case with the CCP going back to the days of MOA. Not quite that bad as the cultural revolution but growth stalling could impact global growth going forward and high debt in europe and US is not dissimilar to a global economic shock...

just saying...

[bull....]

all these stocks will have to be repriced lower now after todays cpi shocker

[Aaron]

Hmm ... not sure I understand all this pea counting lingo in some of the previous posts. However - if I forget all this talk about lazy balance sheets and look into the financial reward of holding Argosy:

Dividend yield at SP = $1.16 is 5.7% (and looks stable), PE (both forward as well as backward) between 7 and 8 which looks really cheap and earnings trend is even still slightly growing (sure, that's a forecast).

Who cares with these returns whether the equity might be a bit lazy?

In my books this looks like a solid investment ... what's wrong with that?

Just out of interest had a look at the 2022 annual report for ARG. EPS is .281 cents including subjective (bogus) revaluations.

At a shareprice of 1.16 and a P/E of 8 that is EPS of .145cents. Looking at the cashflow report (operating cashflow) EPS is .087cents (73,459/843,207).

How do you get .145 cents EPS. There are changes in derivative values which I do not fully understand what they represent. Big difference between .28cent or .15cents or .09cents. What earnings figure do people generally use if working out the E in P/E in this case it could be 4 (1.16/.281) or 8 or 13 (1.16/09)

Personally operating cashflow would seem to be a figure less likely to see extreme changes and therefore more helpful.

Although Ronaldsons question about the number of properties being bought and sold seems relevant if their business is also flipping properties as operating cashflow would not include these profits(losses).

[Rawz]

Is P/E even a good way to value a reit? probably not.

[Aaron]

Is P/E even a good way to value a reit? probably not.

I like easy so P/E is a tick in that regard. I suppose it is a relative valuation to compare with other companies. The dividend discount model seemed pretty simple and enough variables to tweak to make your valuation fit.

I guess I need to do the hard work and understand what each company is doing as the yield on PFI and GMT seem to indicate they are either very popular (industrial) or doing a lot of development that is coming on stream sooner or later.

What would you suggest is a better, easy way to value a REIT?

[Waltzing]

wonder what deposit rates will move to...

quality could be very cheap here for when things cool off... and they usually do but sell on the next top..

the swings in the market appear to be getting bigger each time.

[BlackPeter]

Just out of interest had a look at the 2022 annual report for ARG. EPS is .281 cents including subjective (bogus) revaluations.

At a shareprice of 1.16 and a P/E of 8 that is EPS of .145cents. Looking at the cashflow report (operating cashflow) EPS is .087cents (73,459/843,207).

How do you get .145 cents EPS. There are changes in derivative values which I do not fully understand what they represent. Big difference between .28cent or .15cents or .09cents. What earnings figure do people generally use if working out the E in P/E in this case it could be 4 (1.16/.281) or 8 or 13 (1.16/09)

Personally operating cashflow would seem to be a figure less likely to see extreme changes and therefore more helpful.

Although Ronaldsons question about the number of properties being bought and sold seems relevant if their business is also flipping properties as operating cashflow would not include these profits(losses).

OK - Churchill once said "only trust a statistic if you made it up yourself"... and this is as well true for PE's.

There are hundreds of (valid) ways to generate PE's ... and to compare them you need to know how they are generated.

My (10 yr) backward PE's are based on the average earnings of the last 10 years divided by the share price at current. Average PE for ARG over the last 10 financial years was 15 cents (per year) ... this gives you a great idea how a company performs throughout at least one full economic cycle.

If you want to check my Excel calculations, here are the individual data: 2022: $0.28; 2021: $0.29; 2020: $0.14; 2019: $0.16; 2018: $0.12; 2017: $0.13; 2016: $0.10; 2015: $0.08, 2014: $0.12; 2013: $0.07

My (3 yr) forward PE is the average of the earnings of the last published FY plus the analyst estimates for the coming three years (which, being forecasts may or may not be correct) - again, divided by the current SP. Average forecast EPS (consensus) is 16 cents (28 cents for 2022, 8 cents for 2023 and 14 cents each for 2024 and 2025).

Other people use different timeframes (often just the last and the coming year)- and this is fine. Just means that the values they get represent different things ... and I normally want to measure the long term behaviour of a company instead of being excited about the odd great year and depressed about the odd not so good one and on the way losing the sight for the big picture.

Horses for courses. Clear like mud?

[winner69]

BP's 10 year history of ARG made have a look at their numbers

Morningstar numbers show Total Shareholder Return (dividends and capital gains) for the last 9.5 years is 5.6% pa

Suppose that's not too bad

[Aaron]

OK - Churchill once said "only trust a statistic if you made it up yourself"... and this is as well true for PE's.

There are hundreds of (valid) ways to generate PE's ... and to compare them you need to know how they are generated.

My (10 yr) backward PE's are based on the average earnings of the last 10 years divided by the share price at current. Average PE for ARG over the last 10 financial years was 15 cents (per year) ... this gives you a great idea how a company performs throughout at least one full economic cycle.

If you want to check my Excel calculations, here are the individual data: 2022: $0.28; 2021: $0.29; 2020: $0.14; 2019: $0.16; 2018: $0.12; 2017: $0.13; 2016: $0.10; 2015: $0.08, 2014: $0.12; 2013: $0.07

My (3 yr) forward PE is the average of the earnings of the last published FY plus the analyst estimates for the coming three years (which, being forecasts may or may not be correct) - again, divided by the current SP. Average forecast EPS (consensus) is 16 cents (28 cents for 2022, 8 cents for 2023 and 14 cents each for 2024 and 2025).

Other people use different timeframes (often just the last and the coming year)- and this is fine. Just means that the values they get represent different things ... and I normally want to measure the long term behaviour of a company instead of being excited about the odd great year and depressed about the odd not so good one and on the way losing the sight for the big picture.

Horses for courses. Clear like mud?

Cheers for that, so it includes revaluations, in that case as interest rates rise we might be getting a pretty small E in the P/E as capital gains turn to capital losses with rising capitalisation rates. Also actual cash finance costs will be rising. Tough times for Listed Property Trusts for the near term IMO. Maybe the much awaited pivot will put a rocket under the property company share prices.

[BlackPeter]

Cheers for that, so it includes revaluations, in that case as interest rates rise we might be getting a pretty small E in the P/E as capital gains turn to capital losses with rising capitalisation rates. Also actual cash finance costs will be rising. Tough times for Listed Property Trusts for the near term IMO. Maybe the much awaited pivot will put a rocket under the property company share prices.

It does include income through property revaluation. This is correct. This is the reason that I always try to get a timeframe longer than the normal economical cycle (7 years give or take) ... and sure, maybe the last (really long) bull run makes the numbers look a bit better.

Does not matter a lot to me, given that I compare all companies using the same criteria :) - strictly observing Churchills rule.

[LaserEyeKiwi]

I like easy so P/E is a tick in that regard. I suppose it is a relative valuation to compare with other companies. The dividend discount model seemed pretty simple and enough variables to tweak to make your valuation fit.

I guess I need to do the hard work and understand what each company is doing as the yield on PFI and GMT seem to indicate they are either very popular (industrial) or doing a lot of development that is coming on stream sooner or later.

What would you suggest is a better, easy way to value a REIT?

FFO (Funds From Operations) or AFFO (adjusted FFO) is usually regarded as the way to value a REIT on its underlying cashflow.

Net income is inappropriate given the revaluation component greatly hides underlying operational performance. Revaluations are basically meaningless for companies that do not intend to sell their core portfolio holdings any time soon. So using PE means you might think a company with a big revaluation is doing very well, when in reality its core operations may be suffering - or vice versa: a company with a large devaluation may have strong underlying core operational growth.

Revaluations are generally driven by interest rate / cap rate contractions and expansions, which have little to do with core operational performance of a REIT which is primarily driven by occupancy rates & good rental income increases.

[winner69]

BP's 10 year history of ARG made have a look at their numbers

Morningstar numbers show Total Shareholder Return (dividends and capital gains) for the last 9.5 years is 5.6% pa

Suppose that's not too bad

thought I'd look at KPG as well

KPG TSR last 8.5 years has been -1.6%pa v ARG 5.6% pa

TSR is Capital gains plus dividends with dividends reinvested

Interesting

[troyvdh]

I understand that PFI ...had achieved..at least until a few years ago ...a return of 11 % compounded pa for 20 years.
In addition I believe that PFI has existed ...same title...for what 3 decades ?.

[SailorRob]

OK - Churchill once said "only trust a statistic if you made it up yourself"... and this is as well true for PE's.

There are hundreds of (valid) ways to generate PE's ... and to compare them you need to know how they are generated.

My (10 yr) backward PE's are based on the average earnings of the last 10 years divided by the share price at current. Average PE for ARG over the last 10 financial years was 15 cents (per year) ... this gives you a great idea how a company performs throughout at least one full economic cycle.

If you want to check my Excel calculations, here are the individual data: 2022: $0.28; 2021: $0.29; 2020: $0.14; 2019: $0.16; 2018: $0.12; 2017: $0.13; 2016: $0.10; 2015: $0.08, 2014: $0.12; 2013: $0.07

My (3 yr) forward PE is the average of the earnings of the last published FY plus the analyst estimates for the coming three years (which, being forecasts may or may not be correct) - again, divided by the current SP. Average forecast EPS (consensus) is 16 cents (28 cents for 2022, 8 cents for 2023 and 14 cents each for 2024 and 2025).

Other people use different timeframes (often just the last and the coming year)- and this is fine. Just means that the values they get represent different things ... and I normally want to measure the long term behaviour of a company instead of being excited about the odd great year and depressed about the odd not so good one and on the way losing the sight for the big picture.

Horses for courses. Clear like mud?


BlackPeter you have obviously done your work here and your focus on long term numbers is great but I think there are a few things you are missing. This is definitely not a solid investment. Most consider a term deposit safe, where it is one of the few investments where you are guaranteed to lose purchasing power over time.

If you hold this for 10 years or more you will earn perhaps 3% over inflation if you're lucky and this might be what you're after. In the long term all you will earn owning a business is its return on capital.

What has been brought up in previous posts I can assure you is not 'pea counting lingo' it is what actually (all that) matters with long term investing.

This is a separate issue from the core argument I'm going to make here but by counting all the 'earnings' from property revaluations that have occurred during this last historically anomalous period, you are kidding yourself as you are thinking over the cycles they will average out to be real. They will not, as the multiples to actual cash flows cannot continually rise. They will either plateau or they will become losses which may then become gains again but they will never continually grow in relation to the cash flows/earnings as this is impossible, it would be permanent multiple expansion. They can puff up and deflate but cannot continue to be revalued higher - not more than inflation. It is totally impossible otherwise they would become bigger than the whole economy (they are not productive assets). Nominally yes they will continue to grow over time. But that's not what investing is about or we'd move to Zimbabwe.

Look at the gross cap rates they are getting from their assets, they are abysmal. Study the assets they have and ask what they can return in cash over the long term. Who cares what the dividend is unless you know where it comes from, it may not reflect what the business is actually doing. Often companies borrow to pay the dividend.

My main point however is more importantly earnings themselves don't matter and earnings per share don't matter and the P/E ratios or the PEG ratios don't matter unless you relate them back to the capital required to produce them. A term deposit will continually produce increasing EPS if you reinvest the capital. Whoop de doo. You need to look at the balance sheet and look at the capital that they are putting to work to produce these increasing (Fake) earnings. The returns are absolutely shocking and thus so will yours be by mathematical definition unless you can time the market (or the company can time the market by selling and repurchasing property continually).

If you consider 2 different companies, company 1 and 2 and each have real cash earnings of $1 per share and both companies want to grow earnings by 6% over the next year, how would they do that? Growing earnings requires that you invest capital into the business to expand it (unless you have the ARG magic money tree of revaluations) so how much cash would they have to reinvest to increase earnings by 6%?

Well that depends on the business, specifically what returns it can earn on capital reinvested into the business. How much additional profit is created for each dollar it invests.

If company 1 is able to return 20% on capital then for each $1 it reinvests it will earn 20% of that dollar back in profit so to grow profits by 6% it would need to reinvest 30% of the years profits and be free to distribute 70% of profit as debt reduction, dividend or stock buyback.

If company 2 can only earn 10% on its capital if it reinvested the same 30% of profit it would only generate 3% additional earnings so to get the full 6% that they want it needs to reinvest 60% of its earnings (or borrow more) leaving 40% to distribute.

This is all that matters over time and what drives your returns.

You can look at their balance sheet and business model andit's super easy to see the crap results you will get as a long term shareholder. It cannot be any other way unless they continually leveraged up.


Anything can happen in the short term but over the long term with these types of businesses I know what I am saying is right and you will have a poor result. Hell if you need any more proof, look at the total returns you've had over this cycle which has been up there with the greatest in the world in all of history...

[Baa_Baa]

@SailorRob I wonder if you're over thinking this, as most 'investors' imo wouldn't be too bothered with the long term underlying maths of their investment, or have the skills to calculate it as precisely as you do, and they can sell anytime they want to if they're uncomfortable.

Fact is, however these property companies make their money, they've always paid out a relatively decent return, which can be reinvested or elsewhere, not taking into account the share market valuation which is imo irrelevant except for some who have the ability to buy low to get the best ROI or sell high to avoid a capital rout and forgo the ongoing ROI.

The current situation is a market sentiment that hates property, but the result is an opportunity to acquire a relatively low risk income at ridiculously low multiples to net tangible assets. Like, if you own the company and it sold everything, you'd get paid out more than the price you paid to acquire it.

Anyway, I'm not sure about the point you're trying to make with listed property companies, as imo it's irrelevant how they reward their shareholders through whatever cycles they are going though, and whatever giggery pokery they use to exploit cash, debt or valuations, as long as they reward their shareholders and don't go bust in the process.

Imo most investors are not so deeply concerned with the maths, when every quarter or half-year they get a slab of money or shares paid back and might only wonder if they might have got more from some other company. Most, imo again, aren't too concerned with the market price except whether it's a good time to buy, buy more, or sell above valuation.

My thesis is that property, all types, is a long term investment opportunity worthy of a position in ones portfolio, especially in NZ which loves property. All of them are super cheap to buy right now. Most pay a decent return frequently. They will all soon be challenged by the returns on other assets and be looking to increase returns to shareholder who may be wondering if their investment is better placed elsewhere.

[Rawz]

Good post BaaBaa. You pretty much said exactly what I was thinking. But said it far better than I could of.

[SailorRob]

@SailorRob I wonder if you're over thinking this, as most 'investors' imo wouldn't be too bothered with the long term underlying maths of their investment, or have the skills to calculate it as precisely as you do, and they can sell anytime they want to if they're uncomfortable.

Fact is, however these property companies make their money, they've always paid out a relatively decent return, which can be reinvested or elsewhere, not taking into account the share market valuation which is imo irrelevant except for some who have the ability to buy low to get the best ROI or sell high to avoid a capital rout and forgo the ongoing ROI.

The current situation is a market sentiment that hates property, but the result is an opportunity to acquire a relatively low risk income at ridiculously low multiples to net tangible assets. Like, if you own the company and it sold everything, you'd get paid out more than the price you paid to acquire it.

Anyway, I'm not sure about the point you're trying to make with listed property companies, as imo it's irrelevant how they reward their shareholders through whatever cycles they are going though, and whatever giggery pokery they use to exploit cash, debt or valuations, as long as they reward their shareholders and don't go bust in the process.

Imo most investors are not so deeply concerned with the maths, when every quarter or half-year they get a slab of money or shares paid back and might only wonder if they might have got more from some other company. Most, imo again, aren't too concerned with the market price except whether it's a good time to buy, buy more, or sell above valuation.

My thesis is that property, all types, is a long term investment opportunity worthy of a position in ones portfolio, especially in NZ which loves property. All of them are super cheap to buy right now. Most pay a decent return frequently. They will all soon be challenged by the returns on other assets and be looking to increase returns to shareholder who may be wondering if their investment is better placed elsewhere.


@SailorRob I wonder if you're over thinking this, as most 'investors' imo wouldn't be too bothered with the long term underlying maths of their investment, or have the skills to calculate it as precisely as you do, and they can sell anytime they want to if they're uncomfortable.

I don't feel like what I have written has been understood. It's not the math that matters, it is the returns you make on your investment which are governed by the math. It's not the math behind the bridge design that people care about, it's that the bloody thing doesn't collapse.

You cannot earn more than the business you own earns unless you're trading in and out.

Fact is, however these property companies make their money, they've always paid out a relatively decent return, which can be reinvested or elsewhere, not taking into account the share market valuation which is imo irrelevant except for some who have the ability to buy low to get the best ROI or sell high to avoid a capital rout and forgo the ongoing ROI.


Nobody has the ability to consistently time the market, but yes if you're happy with the 'relatively decent' return that is all that matters. But I would not call it anything like decent or an appropriate market return.

The current situation is a market sentiment that hates property, but the result is an opportunity to acquire a relatively low risk income at ridiculously low multiples to net tangible assets. Like, if you own the company and it sold everything, you'd get paid out more than the price you paid to acquire it.


The market is telling us the NTA is rubbish and I think the revaluations will tell us this too and the reported NTA's will come to Earth. You could not achieve NTA in the marketplace. The income isn't low risk if you want to increase purchase power as per my term deposit example. It's low volatility but you won't do much better than inflation.

Anyway, I'm not sure about the point you're trying to make with listed property companies, as imo it's irrelevant how they reward their shareholders through whatever cycles they are going though, and whatever giggery pokery they use to exploit cash, debt or valuations, as long as they reward their shareholders and don't go bust in the process.


This is exactly my point. Shareholders are not rewarded. You are getting a crap return on capital that is well below market returns on equity.

Imo most investors are not so deeply concerned with the maths, when every quarter or half-year they get a slab of money or shares paid back and might only wonder if they might have got more from some other company. Most, imo again, aren't too concerned with the market price except whether it's a good time to buy, buy more, or sell above valuation.


Ignorance is bliss in this case then (and I don't mean this patronisingly it's just the truth) but surely the recent market price action must concern them.

My thesis is that property, all types, is a long term investment opportunity worthy of a position in ones portfolio, especially in NZ which loves property. All of them are super cheap to buy right now. Most pay a decent return frequently. They will all soon be challenged by the returns on other assets and be looking to increase returns to shareholder who may be wondering if their investment is better placed elsewhere.



They are not cheap at all based on the cash you will get out of them compared to the money you put in. They are cheap compared to their old NTA's and their old share prices.


If you're happy with inflation plus 2-3% then I have zero argument.

[SailorRob]

Good post BaaBaa. You pretty much said exactly what I was thinking. But said it far better than I could of.

Have a crack Rawz, love to hear your thoughts.

[Rawz]

Have a crack Rawz, love to hear your thoughts.

I’m just an pleb surrounded by you learned individuals, battling away best I can and suffering from imposter syndrome lol

However I don’t think you can do too wrong buying a reit while they are out of fashion. You can buy KPG today with a 10% yield and sit on that yield waiting for the interest rate cycle to do its thing. One day we know rates will cycle back down which will push the SP up. In the meantime what’s wrong with sitting around collecting a 10% div while you wait for the capital gain. It’s nice and easy and will be a fairly good protector against inflation.

I wouldn’t hold forever for reasons you have outlined above.

[SailorRob]

If anyone can show me how you can get a return that is more than 2 or 3% above inflation by owning ARG over the long term, say 10 years or more then I'd be grateful. Doesn't need to be complicated, just show me where the money comes from.

[SailorRob]

I’m just an pleb surrounded by you learned individuals, battling away best I can and suffering from imposter syndrome lol

However I don’t think you can do too wrong buying a reit while they are out of fashion. You can buy KPG today with a 10% yield and sit on that yield waiting for the interest rate cycle to do its thing. One day we know rates will cycle back down which will push the SP up. In the meantime what’s wrong with sitting around collecting a 10% div while you wait for the capital gain. It’s nice and easy and will be a fairly good protector against inflation.

I wouldn’t hold forever for reasons you have outlined above.

Good Post, I'm not familiar with KPG but will have a look and see if the dividend is sustainable. If it is I will buy it!

What I can say without looking at it is that for the owner of a couple of years you've got a 10% divvy now but you've lost a ton in capital value.

[Waltzing]

BP i agree that the longer the dividend is paid YTD over time says more about the management of the clients and the buildings. Bad management equals no clients equals no dividends...

its pretty simple really. These are defensive and once every 10 year economic shock their values goes up and the rest of the time they go no where..

Want growth gamble on a big tech stock...

[SailorRob]

BP i agree that the longer the dividend is paid YTD over time says more about the management of the clients and the buildings. Bad management equals no clients equals no dividends...

its pretty simple really. These are defensive and once every 10 year economic shock their values goes up and the rest of the time they go no where..

Want growth gamble on a big tech stock...

Nobody is talking about gambling on tech stocks mate.

[BlackPeter]

If anyone can show me how you can get a return that is more than 2 or 3% above inflation by owning ARG over the long term, say 10 years or more then I'd be grateful. Doesn't need to be complicated, just show me where the money comes from.

OK - lets see:

Buy ARG in mid January 2012 for 80 cents per share
Earn over 10 years 62 cents in dividends per share
Sell it in January 2022 for 153 cents per share

... and you made: (153+62)-80 cents = 135 cents.

80 cents grew in 10 years into 215 cents, this is an annual return of slightly above 10%!

Average inflation during this time was something like 2% pa (even with the ramp last year)

Not bad in my books.

And, while timing obviously matters - a quick look at the long term chart will show you that I didn't pick the best possible scenario (though admittedly not the worst possible either), Actually - I started with a random date.

Great investment ... not stellar, but very solid indeed.

[winner69]

OK - lets see:

Buy ARG in mid January 2012 for 80 cents per share
Earn over 10 years 62 cents in dividends per share
Sell it in January 2022 for 153 cents per share

... and you made: (153+62)-80 cents = 135 cents.

80 cents grew in 10 years into 215 cents, this is an annual return of slightly above 10%!

Average inflation during this time was something like 2% pa (even with the ramp last year)

Not bad in my books.

And, while timing obviously matters - a quick look at the long term chart will show you that I didn't pick the best possible scenario (though admittedly not the worst possible either), Actually - I started with a random date.

Great investment ... not stellar, but very solid indeed.

Shame that 153 is now only 115 - return drops to 7.6% pa

Stlll great investment ....not stellar, but solid

it's all about time in the market rather than timing the market eh

[SailorRob]

OK - lets see:

Buy ARG in mid January 2012 for 80 cents per share
Earn over 10 years 62 cents in dividends per share
Sell it in January 2022 for 153 cents per share

... and you made: (153+62)-80 cents = 135 cents.

80 cents grew in 10 years into 215 cents, this is an annual return of slightly above 10%!

Average inflation during this time was something like 2% pa (even with the ramp last year)

Not bad in my books.

And, while timing obviously matters - a quick look at the long term chart will show you that I didn't pick the best possible scenario (though admittedly not the worst possible either), Actually - I started with a random date.

Great investment ... not stellar, but very solid indeed.

Agreed, very solid indeed. (EDIT) After thinking about it, no it's absolute crap in comaprison to the general market, US or NZ.

Past results have no bearing on what I am highlighting though, it's the future that matters. And the long term results will be determined by what I have highlighted.

Anyone in peroperty has killed in since 2012 or indeed in the sharemarket.

2012 through until now has been a massive historical anomoly, you've made those returns by leveraging up (the business) while we've had the lowest rates in recorded history.

[SailorRob]

Shame that 153 is now only 115 - return drops to 7.6% pa

Stlll great investment ....not stellar, but solid

it's all about time in the market rather than timing the market eh


Exactly my point Winner.

7.6% over this time period is so awful in comparison to the markets return of 12.34% that it is sickening.

A million dollars into the 'solid investment' in 2012 is 2.215 million today (not tax etc)

VS a million just in the market would be 3.63 million....

Lets all be honest, this is a very very poor outcome over this time period.

[Muse]

Exactly my point Winner.

7.6% over this time period is so awful in comparison to the markets return of 12.34% that it is sickening.

A million dollars into the 'solid investment' in 2012 is 2.215 million today (not tax etc)

VS a million just in the market would be 3.63 million....

Lets all be honest, this is a very very poor outcome over this time period.

I think LPT's as an investment attraction depends on the objectives and circumstances of its individual investors.

I doubt many LPT investors are trying to double their capital value every 5-6 years. Rather they see it as a risk adjusted income stream, that is desirable to them as but a part of their long term portfolio or to generate cash income through retirement. I think that's sensible enough especially viewed in the context of the later. People have difference objectives and circumstances, so while that might be sickening to you, could be appropriate for them.

disc not an owner of any LPTs.

[BlackPeter]

If anyone can show me how you can get a return that is more than 2 or 3% above inflation by owning ARG over the long term, say 10 years or more then I'd be grateful. Doesn't need to be complicated, just show me where the money comes from.


Agreed, very solid indeed. (EDIT) After thinking about it, no it's absolute crap in comaprison to the general market, US or NZ.

Past results have no bearing on what I am highlighting though, it's the future that matters. And the long term results will be determined by what I have highlighted.

Anyone in peroperty has killed in since 2012 or indeed in the sharemarket.

2012 through until now has been a massive historical anomoly, you've made those returns by leveraging up (the business) while we've had the lowest rates in recorded history.


Exactly my point Winner.

7.6% over this time period is so awful in comparison to the markets return of 12.34% that it is sickening.

A million dollars into the 'solid investment' in 2012 is 2.215 million today (not tax etc)

VS a million just in the market would be 3.63 million....

Lets all be honest, this is a very very poor outcome over this time period.

I note you are shifting the goal posts just to satisfy your argument.

You indicated that you are happy with 4% above inflation, which ARG easily provided.

But sure - I give you that listed property funds underperformed the NZX during the recent bull run (and I never said different).

However - what I don't understand is - while you are happy to use their past underperformance as guide for their future performance (if the outcome is bad), you are not happy to use their past performance as guide for their future performance (if the outcome is good).

Which one is it?

Anyway - I am not saying that they are the best vehicle to get rich fast, however - they are as well not the best vehicle to lose all your money quite fast.

Horses for courses - in the long run did property always keeps its value (yes, there have been some minor dips, but this does not change the trendline) ... and it is fair to assume that this will stay this way. Maybe not over the next 12 months, but highly likely over the next decade.

I learned at some stage from a wiser man than me that it is a good idea to buy cheap and to sell dear.

Property funds currently are cheap:

And as you rightly said - it is the future which matters :).

[LaserEyeKiwi]

I note you are shifting the goal posts just to satisfy your argument.

You indicated that you are happy with 4% above inflation, which ARG easily provided.

But sure - I give you that listed property funds underperformed the NZX during the recent bull run (and I never said different).

However - what I don't understand is - while you are happy to use their past underperformance as guide for their future performance (if the outcome is bad), you are not happy to use their past performance as guide for their future performance (if the outcome is good).

Which one is it?

Anyway - I am not saying that they are the best vehicle to get rich fast, however - they are as well not the best vehicle to lose all your money quite fast.

Horses for courses - in the long run did property always keeps its value (yes, there have been some minor dips, but this does not change the trendline) ... and it is fair to assume that this will stay this way. Maybe not over the next 12 months, but highly likely over the next decade.

I learned at some stage from a wiser man than me that it is a good idea to buy cheap and to sell dear.

Property funds currently are cheap:

And as you rightly said - it is the future which matters :).

Great post.

I would add that investing in a listed property portfolio brings with it a much different return profile than the broad sharemarket as a whole.

An investment in listed property names today is going to return via dividends a relatively secure return for the foreseeable future, regardless of how the rest of the sharemarket does.

For some people with a large sum to invest, a 6%-7%+ gross dividend in a tax efficient PIE friendly holding, is a return that is going to keep on paying out every quarter like clockwork, with likely an increase to the dividend most years. This dividend return on the initial investment remains the same regardless of the share/unit price of the company on any given day.

Compare that to an investment in the broad sharemarket where dividends return are pitiful (well below inflation), and in any given year your sum may reduce in size by 20% or more and take another year or more to recover.

Yes over the long term the broad sharemarket should outperform, but not everyone has that long enough time horizon to wait for recoveries. Like for those within 10 years of retirement, or at the other end, those saving for a first home, wedding, etc.

And some of us just like investing in things that are currently selling at big discounts and will highly likely outperform in the medium term as the cycle eventually reverses.

[LaserEyeKiwi]

When was the best time to invest in US REITs between 2004-2014?

14254

[Rawz]

When was the best time to invest in US REITs between 2004-2014?

14254

Interesting chart

[ithaka]

If anyone can show me how you can get a return that is more than 2 or 3% above inflation by owning ARG over the long term, say 10 years or more then I'd be grateful. Doesn't need to be complicated, just show me where the money comes from.
This reminded me of one of my favourite quotes

“Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go.”

— Benjamin Graham

[Baa_Baa]

When was the best time to invest in US REITs between 2004-2014?14254

Wilshire REIT's 1977 to-date 2022, including recession overlays. https://fred.stlouisfed.org/series/WILLREITIND

[LaserEyeKiwi]

Wilshire REIT's 1977 to-date 2022, including recession overlays. https://fred.stlouisfed.org/series/WILLREITIND

Handy site - thanks for sharing.

[SailorRob]

I note you are shifting the goal posts just to satisfy your argument.

You indicated that you are happy with 4% above inflation, which ARG easily provided.

But sure - I give you that listed property funds underperformed the NZX during the recent bull run (and I never said different).

However - what I don't understand is - while you are happy to use their past underperformance as guide for their future performance (if the outcome is bad), you are not happy to use their past performance as guide for their future performance (if the outcome is good).

Which one is it?

Anyway - I am not saying that they are the best vehicle to get rich fast, however - they are as well not the best vehicle to lose all your money quite fast.

Horses for courses - in the long run did property always keeps its value (yes, there have been some minor dips, but this does not change the trendline) ... and it is fair to assume that this will stay this way. Maybe not over the next 12 months, but highly likely over the next decade.

I learned at some stage from a wiser man than me that it is a good idea to buy cheap and to sell dear.

Property funds currently are cheap:

And as you rightly said - it is the future which matters :).


I note you are shifting the goal posts just to satisfy your argument.

You indicated that you are happy with 4% above inflation, which ARG easily provided.


As Jacinda would say, I absolutely refute that. I never said that at all and I never would be happy with a 4% real return. No goal posts getting shifted here. I said 'if you're happy with inflation plus 2-3% then I have no argument. The past is also irrelevant now.

But sure - I give you that listed property funds underperformed the NZX during the recent bull run (and I never said different).


Agreed.

However - what I don't understand is - while you are happy to use their past underperformance as guide for their future performance (if the outcome is bad), you are not happy to use their past performance as guide for their future performance (if the outcome is good).

Which one is it?


No, I used past performance to show that it is what is expected and predicted by the returns on capital that they generate. I said - well look at the results, they reflect what the returns on capital would suggest should happen.

Anyway - I am not saying that they are the best vehicle to get rich fast, however - they are as well not the best vehicle to lose all your money quite fast.


Depends when you bought in I guess but over time you won't lose money I agree.

Horses for courses - in the long run did property always keeps its value (yes, there have been some minor dips, but this does not change the trendline) ... and it is fair to assume that this will stay this way. Maybe not over the next 12 months, but highly likely over the next decade.


Yes but keeping value is not the name of this game. It's creating value.

I learned at some stage from a wiser man than me that it is a good idea to buy cheap and to sell dear.


It's not just a good idea, it's the way to very quickly become a Billionaire. Trouble is it's impossible to do consistently. I have wasted a lot of time on Sharetrader trying to get this across and I won't say any more. But yes what you say is very true. It's also a good idea to win every time you go into a casino.

Property funds currently are cheap:


On what basis? Cheap means that the present value of the net future cash flows is below a level that you would expect it to be in order for you to meet a return commensurate with the capital you are deploying today. I can assure you they are not at all cheap. They are probably fairly priced if you want a small return over inflation.


And as you rightly said - it is the future which matters :).[/QUOTE]



Yes

[SailorRob]

Great post.

I would add that investing in a listed property portfolio brings with it a much different return profile than the broad sharemarket as a whole.

An investment in listed property names today is going to return via dividends a relatively secure return for the foreseeable future, regardless of how the rest of the sharemarket does.

For some people with a large sum to invest, a 6%-7%+ gross dividend in a tax efficient PIE friendly holding, is a return that is going to keep on paying out every quarter like clockwork, with likely an increase to the dividend most years. This dividend return on the initial investment remains the same regardless of the share/unit price of the company on any given day.

Compare that to an investment in the broad sharemarket where dividends return are pitiful (well below inflation), and in any given year your sum may reduce in size by 20% or more and take another year or more to recover.

Yes over the long term the broad sharemarket should outperform, but not everyone has that long enough time horizon to wait for recoveries. Like for those within 10 years of retirement, or at the other end, those saving for a first home, wedding, etc.

And some of us just like investing in things that are currently selling at big discounts and will highly likely outperform in the medium term as the cycle eventually reverses.


Exceptional post. Well said.

[NZSilver]

Great posts on here over the last day or so, this is what sharetrader is all about.

[bull....]

I’m just an pleb surrounded by you learned individuals, battling away best I can and suffering from imposter syndrome lol

However I don’t think you can do too wrong buying a reit while they are out of fashion. You can buy KPG today with a 10% yield and sit on that yield waiting for the interest rate cycle to do its thing. One day we know rates will cycle back down which will push the SP up. In the meantime what’s wrong with sitting around collecting a 10% div while you wait for the capital gain. It’s nice and easy and will be a fairly good protector against inflation.

I wouldn’t hold forever for reasons you have outlined above.

what happens to div's for all these property type companies when debt has to be refinanced at higher rates one day or if rental income is lower because of economic conditions.

[Habits]

"Despite challenging global and domestic economic conditions, JLL’s Head of Research Gavin Read expects rents to continue to rise for quality properties with good tenants and covenants through the remainder of 2022 and into 2023.

“Premium locations with strong, long-term occupier-owner relationships continue to be highly desirable. This is particularly so in Auckland, where the latest wave of new builds and refurbishments are expected to set new rental benchmarks for the CBD,” says Read."

A bit unexpected. There is a divergence though, between prime office and not so prime.

Office Vertical Vacancy Review | JLL
https://www.jll.nz/en/trends-and-insights/research/office-vertical-vacancy-review

[Rawz]

what happens to div's for all these property type companies when debt has to be refinanced at higher rates one day or if rental income is lower because of economic conditions.

I guess that's why KPG currently has a 10% yield. Due to those risks. Need to factor those 'what if's' in and be rewarded appropriately for investing now

[bull....]

I guess that's why KPG currently has a 10% yield. Due to those risks. Need to factor those 'what if's' in and be rewarded appropriately for investing now

sure take into account what -if's related to macro things but also you need to guess where bonds are going to settle and then add a premium to you holding these stocks to get a guess on what may or may not be fair value in comparison to just holding a bond

[SailorRob]

"Despite challenging global and domestic economic conditions, JLL’s Head of Research Gavin Read expects rents to continue to rise for quality properties with good tenants and covenants through the remainder of 2022 and into 2023.

“Premium locations with strong, long-term occupier-owner relationships continue to be highly desirable. This is particularly so in Auckland, where the latest wave of new builds and refurbishments are expected to set new rental benchmarks for the CBD,” says Read."

A bit unexpected. There is a divergence though, between prime office and not so prime.

Office Vertical Vacancy Review | JLL
https://www.jll.nz/en/trends-and-insights/research/office-vertical-vacancy-review

What's Gavin Reads prior track record of predictions like.

[Rawz]

sure take into account what -if's related to macro things but also you need to guess where bonds are going to settle and then add a premium to you holding these stocks to get a guess on what may or may not be fair value in comparison to just holding a bond

were will bond yields will go? i may as well get the dart board out. who knows, honestly.

i listened to this podcast yesterday "Macro Voices". The guest speaker was Alex Gurevich and he thinks come 2024 we will be back to 0% govt bonds due to a deflationary depression. KPG sp would be back to $1.30 if that happened

[bull....]

were will bond yields will go? i may as well get the dart board out. who knows, honestly.

i listened to this podcast yesterday "Macro Voices". The guest speaker was Alex Gurevich and he thinks come 2024 we will be back to 0% govt bonds due to a deflationary depression. KPG sp would be back to $1.30 if that happened

all part of investing guessing the future and managing risk accordingly.

[fungus pudding]

were will bond yields will go? i may as well get the dart board out. who knows, honestly.

i listened to this podcast yesterday "Macro Voices". The guest speaker was Alex Gurevich and he thinks come 2024 we will be back to 0% govt bonds due to a deflationary depression. KPG sp would be back to $1.30 if that happened

Why not post the link? I presume it was this one.

https://www.macrovoices.com/1119-macrovoices-344-alex-gurevich-a-deflationary-depression-lies-ahead

[Rawz]

Why not post the link? I presume it was this one.

https://www.macrovoices.com/1119-macrovoices-344-alex-gurevich-a-deflationary-depression-lies-ahead

Sorry, yes this is the one.

I recommend downloading spotify on your phone, get some ear buds and go for a nice walk getting some fresh air while listening :cool:
they do talk to a slide deck a little but one can look at that before the walk.

[SailorRob]

Sorry, yes this is the one.

I recommend downloading spotify on your phone, get some ear buds and go for a nice walk getting some fresh air while listening :cool:
they do talk to a slide deck a little but one can look at that before the walk.

They have so top quality guests. But you'll have one extremely smart successful guest argue convincingly of deflation, like the one you linked, and another arguing just as convincingly for the opposite. And both are 10x smarter than any of us.

[BlackPeter]

They have so top quality guests. But you'll have one extremely smart successful guest argue convincingly of deflation, like the one you linked, and another arguing just as convincingly for the opposite. And both are 10x smarter than any of us.

Just confirms that nobody (no matter how smart) is able to predict the future ... particularly in a level 2 chaotic system (like the world economy). Problem with these systems is that they change with the changing understanding of the participants of this very system. Not predictable.

[Habits]

What's Gavin Reads prior track record of predictions like.

I think that the use of the word "continue" says it all, there is demand or solid demand. Are you suggesting that Gavin could be just spruiking to set tenant expectations. That would be a dangerous game for a real estate agency that will bite them in the behind if not based on evidence.. No I haven't looked him up

[winner69]

Johnny Lee sort of saying less ‘experienced’ investors might be feeling a bit wary as values fall as property always go up. Interest rates to go higher and stay high for longer than many anticipate not the best place to be


Johnny Lee writes:

KIWI Property Group's update to market should give investors in the Listed Property Trust sector a good indication of the direction that market is heading.

Kiwi Property – owner of Sylvia Park in Auckland – reported a 5.8% fall in the value of its portfolio, a decrease of about $210 million.

Kiwi Property's share price, like many across the Listed Property Trust sector, has struggled in the face of rising interest rates, which has seen asset prices fall, the cost of borrowings increase, and dividend yields forced higher through lower share prices.

Operationally, the company stresses that conditions are improving. Occupancy is up, rents are rising and development is on track. Dividend guidance remains the same, implying the dividend yield of almost 8.00% gross will not be impacted – in the short-term.
Longer term will see other challenges emerge. Debt must eventually be refinanced, at rates almost certainly higher than those enjoyed over the past few years. Kiwi Property's 4.00% 2023 bonds trade at a slight discount now, demanding a rate closer to 5.50%. The challenge Kiwi Property will face – and indeed all property trusts will face – is to continue lifting lease income in the face of diminishing asset valuations.

Listed Property Trusts enjoyed a long time in the sun, as interest rates fell and investors, many of whom were new to investing, enjoyed the higher yields the sector offered. Now, interest rates are moving higher, unwinding some of these gains. Skilful management of assets will be key for the new environment we are entering


https://www.chrislee.co.nz/market-news
Hope Chris Lee doesn't mind me pasting this bit from his weekly newsletter (free) .... but if a few extra punters go to his site I'm sure he'll be pleased

[LaserEyeKiwi]

Johnny Lee sort of saying less ‘experienced’ investors might be feeling a bit wary as values fall as property always go up. Interest rates to go higher and stay high for longer than many anticipate not the best place to be


Johnny Lee writes:

KIWI Property Group's update to market should give investors in the Listed Property Trust sector a good indication of the direction that market is heading.

Kiwi Property – owner of Sylvia Park in Auckland – reported a 5.8% fall in the value of its portfolio, a decrease of about $210 million.

Kiwi Property's share price, like many across the Listed Property Trust sector, has struggled in the face of rising interest rates, which has seen asset prices fall, the cost of borrowings increase, and dividend yields forced higher through lower share prices.

Operationally, the company stresses that conditions are improving. Occupancy is up, rents are rising and development is on track. Dividend guidance remains the same, implying the dividend yield of almost 8.00% gross will not be impacted – in the short-term.
Longer term will see other challenges emerge. Debt must eventually be refinanced, at rates almost certainly higher than those enjoyed over the past few years. Kiwi Property's 4.00% 2023 bonds trade at a slight discount now, demanding a rate closer to 5.50%. The challenge Kiwi Property will face – and indeed all property trusts will face – is to continue lifting lease income in the face of diminishing asset valuations.

Listed Property Trusts enjoyed a long time in the sun, as interest rates fell and investors, many of whom were new to investing, enjoyed the higher yields the sector offered. Now, interest rates are moving higher, unwinding some of these gains. Skilful management of assets will be key for the new environment we are entering


https://www.chrislee.co.nz/market-news
Hope Chris Lee doesn't mind me pasting this bit from his weekly newsletter (free) .... but if a few extra punters go to his site I'm sure he'll be pleased

These guys love to throw FUD about Kiwi don’t they? Probably due to their favored listed sector names looking incredibly shabby by comparison in terms of dividend return (last time I looked institutions recommend GMT as their “top picks” in the sector, despite dividend rate under what you could get in a bank term deposit).

The vast majority of Kiwis bonds come up for renewal post 2024. At their last renewal they managed to replace a maturing bond that was previously on a 6.15% interest rate to a new 7 year term bond at 2.85% (amazing timing). which is why their average cost of debt came down a lot and sits at just 3.85% and 3.4 year average term to maturity.

Also, Kiwi has most of its interest rate exposure hedged, to the point that in the annual report they stated the following:


An increase in market interest rates gives rise to a favourable impact on profit or loss and equity due to the fair value of the interest rate derivatives increasing by more than the additional interest costs.

[winner69]

Also, Kiwi has most of its interest rate exposure hedged, to the point that in the annual report they stated the following:

Making money out of hedging .... skill or good fortune (luck)?

[SPC]

Love your work LEK ;)

[LaserEyeKiwi]

Making money out of hedging .... skill or good fortune (luck)?

Although presumably only profit on paper until sold (if sold).

Not that Kiwi will show a net profit anyway in the upcoming half year report given the portfolio devaluation.

FFO/AFFO should be what we are looking at across all these names of course.

[Rawz]

I love KPG like a lot of other STrs. The market just doesnt understand why its the best reit.

Much like another STr fan favorite, OCA.

[Habits]

Making money out of hedging .... skill or good fortune (luck)?

Neither I suppose.... its a Policy

[winner69]

I love KPG like a lot of other STrs. The market just doesnt understand why its the best reit.

Much like another STr fan favorite, OCA.

Investment Managers / Fund Managers who really are the market makers are renowned for not knowing as much as STers ... they tend to overlook the obvious potential ;)

[troyvdh]

A simplistic theory...Virtually every part of our economy requires a warehouse.

[LaserEyeKiwi]

Weekly update:

14264

[RTM]

Weekly update:

14264

Thanks LEK, its good to see that the ones that I have are not performing that differently from the rest of the group.
Appreciate you posting these updates.

[Rawz]

Weekly update:

14264

Wouldnt buy a reit with a gross div yield under 6% Goodman and PFI.. seriously?

Auckland airport new bond expected price is 5.90% come on these reits are going to suffer more devaluations, maybe min yield needs to be 7-8%???

[SailorRob]

A simplistic theory...Virtually every part of our economy requires a warehouse.

Yes there are many commodity products that every part of our economy requires, what is this theory though?

[troyvdh]

I reckon if Charlie Munger was a kiwi...he would have held PFI...11 % over past 3 decades.
They are buying back there own shares.
How many other property entities are doing this.

[troyvdh]

Sailor...your comment about property being a commodity. Can I suggest that you have made a profound statement about property being a commodity...like something to trade....sorry what do you think of the current state of affairs of housing in nz..cheers.

[Rawz]

I reckon if Charlie Munger was a kiwi...he would have held PFI...11 % over past 3 decades.
They are buying back there own shares.
How many other property entities are doing this.
11% over the past 3 decades? what is that? 11% pa total return inc dividends?

[Waltzing]

FAB chart Rawz... looks like the pastel line shows some possible down side but a share that warrants some deep research.

Is a house a commodity in that it houses raw material for producing more products.. well it houses humans that sometimes produce humans.

not sure the Point heads would call a COMOD usually its stones and stuff... makes concrete , steel and stuff.

[troyvdh]

I think so...I could be wrong.
To Rawz...

[LaserEyeKiwi]

Weekly Update:

14272

[fungus pudding]

Weekly Update:

14272

Interesting. So which one or ones would you recommend to stock up on?

[Rawz]

Can’t get my head around the div yield of Goodman and PFI… what am I missing here???

Why on earth would someone buy these today? You are not being rewarded for the risk. Better to put you money in the bank.

[LaserEyeKiwi]

Interesting. So which one or ones would you recommend to stock up on?

I would never give investment advice. I personally am investing with a long potential timeframe in what I see is very undervalued assets with KPG currently. Not everyone has as long a timeframe to place bets with of course.

[NZSilver]

Rawz what would happen to the share price of these if inflation significantly slowed and central banks began to cut?

[Rawz]

Rawz what would happen to the share price of these if inflation significantly slowed and central banks began to cut?

The reits with 6%+ yields would get a good SP bump. The rest wouldn’t move much I guess

[winner69]

Interesting article if you can access

WFH and the office real estate apocalypse
https://www.nbr.co.nz/on-the-money/wfh-and-the-office-real-estate-apocalypse/


Bit if a worry when things like this are said -

“The combination of declining cashflows and rising cap rates results in a substantial fall in the valuation of offices and suggests that remote work is a near-permanent shock. Ten years after the transition to work from home, office values remain at levels that are about 39% below 2019 valuations. Along paths where the economy remains in the WFH state for 10 years, office values in 2029 are 60% below their 2019 value.”

[LaserEyeKiwi]

Interesting article if you can access

WFH and the office real estate apocalypse
https://www.nbr.co.nz/on-the-money/wfh-and-the-office-real-estate-apocalypse/


Bit if a worry when things like this are said -

“The combination of declining cashflows and rising cap rates results in a substantial fall in the valuation of offices and suggests that remote work is a near-permanent shock. Ten years after the transition to work from home, office values remain at levels that are about 39% below 2019 valuations. Along paths where the economy remains in the WFH state for 10 years, office values in 2029 are 60% below their 2019 value.”

Conversions to residential are the answer to that particular hypothetical outcome. Makes sense for new office developments to be mixed-use developments (retail, office, commercial, residential, hotel etc) rather than office only. Alternatively developments can be geared to particular industries that can only operate onsite (for example KPG’s new almost complete office tower at sylvia park is for medical premises)

[winner69]

Seems that punters listening to PATTY and buying property and power stocks this week.

Good gains today

[LaserEyeKiwi]

Interesting comments from Precinct Properties yesterday:

- demand for new office space very high in Auckland & Wellington
- estimates 80-85% of workers have returned to office in Auckland
- Looking to get into residential developments

[winner69]

Opportunity knocks says Warren Couillault, from Hobson Wealth and Koura Wealth

Think he’s saying BUY


Does opportunity knock at the door of listed property?



https://businessdesk.co.nz/article/opinion/does-opportunity-knock-at-the-door-of-listed-property

[Swala]

Paywalled obviously. What's the jist of it?

[audiav]

Anecdotes on lucky breaks in his career including how he initially learned about property.
important metric, price to net tangible assets (P/NTA). Worth considering buying. If you read LEK charts and Sharetrader property threads you’ll be up with the play. Like his writing.

[LaserEyeKiwi]

Was going to post the same link as winner after just reading it. He specifically points out KPG.

Always good to see market participants spreading the word to everyone (after we have all completed our buy ins of course).

I liked that he points out the discount to assets for listed property are close to that seen during the depths of the GFC.

[Bjauck]

Was going to post the same link as winner after just reading it. He specifically points out KPG.

Always good to see market participants spreading the word to everyone (after we have all completed our buy ins of course).

I liked that he points out the discount to assets for listed property are close to that seen during the depths of the GFC.

The unsensational Financial Times reports that successful Hedge Fund Elliott, in a letter to investors, thinks the loose monetary conditions brought in during Covid will now see a 50% market decline - worse than the GFC.

https://www.marketwatch.com/story/hedge-fund-giant-elliott-warns-looming-hyperinflation-could-lead-to-global-societal-collapse-11667470081

Being the clever cookies that they are, a crisis does not stop their high investment returns.

[LaserEyeKiwi]

The unsensational Financial Times reports that successful Hedge Fund Elliott, in a letter to investors, thinks the loose monetary conditions brought in during Covid will now see a 50% market decline - worse than the GFC.

https://www.marketwatch.com/story/hedge-fund-giant-elliott-warns-looming-hyperinflation-could-lead-to-global-societal-collapse-11667470081

Being the clever cookies that they are, a crisis does not stop their high investment returns.

Ha ha ah Elliot. No reflection on yourself, but Elliot are the constant fear mongers who are always predicting doom. One only has to google their prediction in April 2020 (after the market bottomed) that the market was going to fall another 40% (the markets did the exact opposite).

Don’t take a single thing they predict seriously.

[LaserEyeKiwi]

Weekly Update:

14289

[LaserEyeKiwi]

GMT earnings - looks rather solid.

Don’t know how they get away with making absolutely no change to their NTA value however.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GMT/402106/383055.pdf

[winner69]

GMT earnings - looks rather solid.

Don’t know how they get away with making absolutely no change to their NTA value however.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GMT/402106/383055.pdf

Do punters get a pay rise .... increased dividend

[BlackPeter]

GMT earnings - looks rather solid.

Don’t know how they get away with making absolutely no change to their NTA value however.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GMT/402106/383055.pdf

On what basis? And why would anybody revalue their assets for half year?

[Ricky-bobby]

On what basis? And why would anybody revalue their assets for half year?

If selling assets or re-financing reasons?

[BlackPeter]

If selling assets or re-financing reasons?

Sure, but they only prepared an unaudited half year report ...

[LaserEyeKiwi]

On what basis? And why would anybody revalue their assets for half year?

They did revalue the assets, but came up with the exact same figure. They say their asset valuation didn’t change because the cap rate increase was precisely matched by uplift in value from rental income increases.

I’m not saying which way a re-valuation should have gone, but to come up with the exact same figure I find somewhat eyebrow raising.

[BlackPeter]

They did revalue the assets, but came up with the exact same figure. They say their asset valuation didn’t change because the cap rate increase was precisely matched by uplift in value from rental income increases.

I’m not saying which way a re-valuation should have gone, but to come up with the exact same figure I find somewhat eyebrow raising.

They didn't. They said they did some desk-top-valuation. This is at best a sanity check of the previous numbers and quality like GV's, not a re-valuation. Makes sense that they didn't change the numbers.

[SailorRob]

Sailor...your comment about property being a commodity. Can I suggest that you have made a profound statement about property being a commodity...like something to trade....sorry what do you think of the current state of affairs of housing in nz..cheers.

Yes there is nothing special about a warehouse even though many important parts of the economy need them they also need Diesel and hundreds of other things.

See my post (1628) and following discussion a few pages back.

My statement didn't infer anything about being something to trade although everything is a trade at the end of the day.

Current state of housing is a joke. A combination of regulative incompetence and the liquidity flywheel. https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

NZ is roughly 1% urbanised. Prime NZ land (the real good stuff) is around $10,000/acre so for a town size section about $1300, super easy to divide up using modern methods, chuck in a road and some power/pipes...

But for ordinary land much much less than this, town sized section would be $500 or less.

Would be a huge stretch to say a town sized section worth 10k, after all that's what you pay for the whole acre.

Chuck a house on built to 1980 standards which seems to be fine for most kiwis as that's what they're living in, 100 m2 detached garage built using modern factory construction methods, another few grand.

Everything else is fluff. If you want something bigger and flasher sure, but most of what we trade each other is just crap from the 80's on little sections. Worthless rubbish.

[Waltzing]

The smash up in this sector could last a while ....

https://www.stuff.co.nz/business/opinion-analysis/300737450/bank-profits-arent-the-problem-the-reserve-bank-is

[Bjauck]

The smash up in this sector could last a while ....

https://www.stuff.co.nz/business/opinion-analysis/300737450/bank-profits-arent-the-problem-the-reserve-bank-is By claiming the banks need to operate under an undefined social licence, the PM actually exposes the fact she is using them as a scapegoat for the failings of her own government and indeed of the whole NZ fiscal and financial regulatory system. She goes for the “easy” target.

[LaserEyeKiwi]

Weekly Update:

14311

===============================================

International Shipping costs continue to plummet, now below pre-pandemic levels.

14313

===============================================

Petrol (91) Prices up 5c week on week, Diesel flat:

14314

===============================================

Mortgage rates continue higher:

14315

===============================================

[NZSilver]

Thanks LEK, surely those container price drops will reduce inflation

[LaserEyeKiwi]

Thanks LEK, surely those container price drops will reduce inflation

Not just from lower shipping costs, but also as a forward signal perhaps that the global economy is slowing overall as there are less goods being moved.

[winner69]

IPL guidance F23 cash dividend 7.9 cents - the same as F22

NO pay rise for shareholders this year

Seems common theme for listed property stocks .... miserable lot

[mcdongle]

This is what interested me from the IPL report.

• Loss after income tax attributable to shareholders of $(27.7) million, as a result of a net $(42.7) million decrease in the fair value of its property portfolio over the six months to 30 September 2022. This decrease is due to a softening of capitalisation rates across the portfolio, driven primarily by the higher interest rate environment. This compares to a profit after income tax for HY22 of $56.9 million

[Sideshow Bob]

https://www.nzx.com/announcements/402941

Stride Property Group (Stride) (note 1) announces its interim results for the six months ended 30 September 2022 (HY23).
Key highlights
• Higher net rental income of $34.1m (HY22: $30.7m), up $3.4m or 11.2%
• Leasing activity in the Stride Property Limited (SPL) Office and Town Centre portfolio has been strong, delivering a 5% increase on previous rentals
• Stable management fee income (note 2) at $12.0m (HY22: $12.2m), down $0.2m or 1.2% from HY22, including a strong result from underlying recurring management fee income of $8.9m, up 16% (HY22: $7.6m), partially offsetting lower activity-based and performance fee income
• Higher profit before other (expense)/income and income tax at $25.3m, up 36% (HY22: $18.6m), or 8% after allowing for project costs in relation to Fabric Property Limited in HY22
• Net portfolio devaluation of $(51.8)m from 31 March 2022, contributing to a loss after income tax of $(53.1)m (HY22: $61.5m profit after income tax)
• Higher distributable profit (note 3) after current income tax of $29.3m, up 21.2% (HY22: $24.2m)
• Weighted average capitalisation rate as at 30 September 2022 for SPL’s directly held portfolio softened by 28bps to 5.6%, or by 27bps to 5.3% on a look-through basis. SPL’s directly held portfolio value is down (4.3)% in the six months to 30 September 2022, or (3.6)% on a look-through basis
• Net tangible assets (NTA) per share of $2.14, down 6.1% on 31 March 22. NTA does not include the value of SIML’s management contracts
• SPL’s loan to value ratio (LVR) (note 4) is 32%, as at 30 September 2022 or 38% on a committed basis (note 5). SPL’s committed look-through LVR (note 6) is 36%, and 28% on a balance sheet basis (note 7) after taking into account the value of SPL’s equity investments in its managed funds of $434m. SPL has current interest rate swaps in place representing 93% of drawn debt as at 30 September 2022, or 76% on a committed basis (note 5)
• Refined dividend policy to target a total cash dividend to shareholders that is between 80% and 100% of SPL’s distributable profit and 25% and 75% of the distributable profit of Stride Investment Management Limited (SIML) (note 8)
• Distributable profit guidance for FY23 of 10.0cps to 10.5cps, and updated dividend guidance of 8.00cps combined cash dividend for SPL and SIML for FY23, down from 9.91cps. This revised FY23 dividend guidance reflects a combined payout ratio of between 76% and 80% of Stride’s forecast distributable profit, reflecting a prudent approach to capital management in the current macroeconomic environment

[Aaron]

https://www.nzx.com/announcements/402941
• Distributable profit guidance for FY23 of 10.0cps to 10.5cps, and updated dividend guidance of 8.00cps combined cash dividend for SPL and SIML for FY23, down from 9.91cps. This revised FY23 dividend guidance reflects a combined payout ratio of between 76% and 80% of Stride’s forecast distributable profit, reflecting a prudent approach to capital management in the current macroeconomic environment

Damn a 19% drop in dividends just as the yield was starting to look appealing.

[Waltzing]

with the RBNZ over cooking the economy along with a high spending fiscal policy it could be a case of capital flight across all sectors coming up ....

[RTM]

with the RBNZ over cooking the economy along with a high spending fiscal policy it could be a case of capital flight across all sectors coming up ....

…capital flight across all sectors…hmmm, where is it going to fly to ? Won’t be property, in the bank is pretty unattractive, teslas ? Jags ? Boats ? Gold ? OffShore ( not great at todays XR ).

[Bjauck]

…capital flight across all sectors…hmmm, where is it going to fly to ? Won’t be property, in the bank is pretty unattractive, teslas ? Jags ? Boats ? Gold ? OffShore ( not great at todays XR ).
In 2020 about 39% of the share float of NZX all index was held by offshore interests. I don’t know what it is now but offshore interests could decide to repatriate their equity.

[winner69]

In 2020 about 39% of the share float of NZX all index was held by offshore interests. I don’t know what it is now but offshore interests could decide to repatriate their equity.

Who’ll be buying when they sell?

[Rawz]

Who’ll be buying when they sell?
I’ll buy some.

It’s not much, but it’s honest work

[Aaron]

Who’ll be buying when they sell?

Me if the price is right. Obviously going to have to be a lot lower than it is now.

[Ferg]

I’ll buy some.

It’s not much, but it’s honest work

Not all heroes wear capes...lol

...me too.

[LaserEyeKiwi]

Weekly update:

14346

================================================== ==

14347

================================================== ==

Diesel prices finally starting to ease up a bit:

14348

================================================== ==

Shipping costs continue to plummet - now down 80% over last 12 months.

14349

[NZSilver]

Thanks LEK, shipping and diesel prices dropping will feed through many parts of the economy. Prices only have to stabilise and stop going up for inflation to come back down. Seeing these prices actually come back could be very beneficial. All will be revealed in a few years.

[epower]

What I can’t understand about most NZX listed property trusts is that aren’t their rents linked to CPI inflation on most leases? CPI has been going up a lot lately yet the rents only go up 1-2% a year over the last decade.

Even if you buy a 5-6% yield, eventually that’s going to be a rubbish return if your dividend flows are only increasing 1-2% yearly.

Can someone fill in the knowledge gap here or confirm the above as I’m a bit perplexed. Looking at unlisted property funds (I’m not a wholesale investor so can’t participate) their rents are going up with inflation and unit prices too.

[Rawz]

I think it’s got something to do with the timing of rent reviews. Like only a % of the portfolio is due for a rent review in the reporting period.

[Sideshow Bob]

https://www.nzx.com/announcements/403203

Result for the six months ended 30 September 2022
29 November 2022

• AFFO materially reduced due to 35 Graham Street vacancy
• 35 Graham Street exit confirmed with a deferred settlement
• Settlement of Eastgate occurred on 29 August 2022
• Munroe Lane progressing well, with practical completion expected in late April 2023
• Stoddard Road to be marketed for sale in the first quarter of the New Year
• Company’s debt facilities renewed until 31 March 2025

Asset Plus Limited (NZX: APL) today announced its interim financial results for the six month period ended 30 September 2022, reporting total comprehensive income after tax of $0.29 million, down from $2.52 million in the prior corresponding period.

[LaserEyeKiwi]

Precint Property following KPG’s lead and divesting some wellington assets:

https://www.nzx.com/announcements/403221

[LaserEyeKiwi]

Precint Property following KPG’s lead and divesting some wellington assets:

https://www.nzx.com/announcements/403221

Ha - forget what I said about Precinct perhaps starting to divest from Wellington: today announces a new $250m wellington office project

https://www.nzx.com/announcements/403295

[ronaldson]

It's capital recycling in a clever way - especially retaining the management rights (and a 20% interest in) the Bowen Street properties.

Then pivot to directly invest the net proceeds into a seismic enhanced trophy construction project underpinned with a major Government anchor tenant.

[bull....]

better watch out

looks like there's a run by investors rushing to withdraw money from property funds oversea's is starting

Blackstone and Starwood funds limit withdrawals following surge of redemption requests
Big and small investors are queuing up to pull money out of real-estate funds, the latest sign that the surge in interest rates is threatening to upend the commercial-property sector.

https://www.livemint.com/market/stock-market-news/investors-yank-money-from-commercial-property-funds-pressuring-real-estate-values-11670329761658.html

[Aaron]

better watch out

looks like there's a run by investors rushing to withdraw money from property funds oversea's is starting

Blackstone and Starwood funds limit withdrawals following surge of redemption requests
Big and small investors are queuing up to pull money out of real-estate funds, the latest sign that the surge in interest rates is threatening to upend the commercial-property sector.

https://www.livemint.com/market/stock-market-news/investors-yank-money-from-commercial-property-funds-pressuring-real-estate-values-11670329761658.html


I had read there was concern that when everyone heads for the exits it might be a bit of a crush. Not allowing investors to withdraw funds is one way around that. Banks can do it too if there is a run on funds.

Listed property companies on the NZX do not have that ability so any rush for the exit will result in a bloodbath. I wonder what US investors see regarding commercial property? A big recession, higher vacancies, higher interest rates, the loss of brick and mortar thanks to the internet and high fuel prices?

Scary times.

P.S. I feel like a journalist trying to scare people into selling their property company shares to me at a decent yield.

[epower]

https://www.nzx.com/announcements/404302

The last few months of daily share buy backs for PFI to stop with this big fisher and paykel site upgrade.

[troyvdh]

Ive got a few...If I had a bit more cash I would be buying some more.

[winner69]

This guy keen on REITs

Re US but suppose it all applies here in NZ as well - 'In other words, this is one of the most telegraphed recessions EVER, and that is precisely why I'm deploying more capital into the sector. I've been waiting on this type of opportunity and now it's here'

https://seekingalpha.com/article/4568138-im-loading-up-on-reits-before-one-of-the-most-telegraphed-recessions-ever?mailingid=30185126&messageid=must_reads&serial=30185126.1575104&utm_campaign=Must%2BReads%2Brecurring%2B2023-01-07&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads

[Biscuit]

This guy keen on REITs

Re US but suppose it all applies here in NZ as well - 'In other words, this is one of the most telegraphed recessions EVER, and that is precisely why I'm deploying more capital into the sector. I've been waiting on this type of opportunity and now it's here'

https://seekingalpha.com/article/4568138-im-loading-up-on-reits-before-one-of-the-most-telegraphed-recessions-ever?mailingid=30185126&messageid=must_reads&serial=30185126.1575104&utm_campaign=Must%2BReads%2Brecurring%2B2023-01-07&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads

Historically, rising interest rates are almost invariably terminated by a recession. So, this year is either going to see "high" interest rates continue or a recession. Let's hope for a recession.

[Sideshow Bob]

Carnage underway in Europe

https://www.wealthmanagement.com/distressed/europe-bracing-sharp-abrupt-real-estate-reversal

[troyvdh]

PFI...Not unexpected.

[bull....]

property devaluations underway , nta falling as expected

https://www.nzx.com/announcements/410177

[BlackPeter]

property devaluations underway , nta falling as expected

https://www.nzx.com/announcements/410177

Interesting:

ARG SP dropped from 31-3-22 to 31-3-23 by 24.3%;
Average NZ property dropped in the same time frame by 13.3% and
ARG book value dropped by in the same timeframe by 6.4%;

Average house price trend:
https://www.qv.co.nz/price-index/?gclid=CjwKCAjwov6hBhBsEiwAvrvN6CL6kn1vrQbxqSNXz5c mdftDTk94sCuBm3dKLAWQG6e7lhOX_yr4shoCL00QAvD_BwE

First - great effort by this company in picking properties holding their value better than the average property, which clearly should be commended.

Second - a clear sign that markets overreacted when determining the SP (as they always do). There are just so many idiots in the market.

Third - great news for investors - I can see when looking at the comparison above where the deep value sits. Can you as well :) ?

[bull....]

Interesting:

ARG SP dropped from 31-3-22 to 31-3-23 by 24.3%;
Average NZ property dropped in the same time frame by 13.3% and
ARG book value dropped by in the same timeframe by 6.4%;

Average house price trend:
https://www.qv.co.nz/price-index/?gclid=CjwKCAjwov6hBhBsEiwAvrvN6CL6kn1vrQbxqSNXz5c mdftDTk94sCuBm3dKLAWQG6e7lhOX_yr4shoCL00QAvD_BwE

First - great effort by this company in picking properties holding their value better than the average property, which clearly should be commended.

Second - a clear sign that markets overreacted when determining the SP (as they always do). There are just so many idiots in the market.

Third - great news for investors - I can see when looking at the comparison above where the deep value sits. Can you as well :) ?

i see it more as relluctance of property companies to match reality with there valuations . same is happening in aus with reits
as well you have to have recent sales in the categories for valuations to catch up takes time

[BlackPeter]

i see it more as relluctance of property companies to match reality with there valuations . same is happening in aus with reits
as well you have to have recent sales in the categories for valuations to catch up takes time

Whatever - market saw it differently and SP even moved up a bit.

[NZSilver]

Agree with Bull on this, when they say 10% under-rented what do they mean?

[Bob50]

Interesting:

ARG SP dropped from 31-3-22 to 31-3-23 by 24.3%;
Average NZ property dropped in the same time frame by 13.3% and
ARG book value dropped by in the same timeframe by 6.4%;

First - great effort by this company in picking properties holding their value better than the average property, which clearly should be commended.

Second - a clear sign that markets overreacted when determining the SP (as they always do). There are just so many idiots in the market.

Third - great news for investors - I can see when looking at the comparison above where the deep value sits. Can you as well :) ?


Depends a bit on when their debts get renewed and if interest rates are higher for longer.
Their net interest expense is over 16 million and their net distributable income is 33 million. It makes an impact.
Will they retain all customers if we enter a recession?

Overseas reits are being hammered. Mostly on the office side. ARG has 15 office buildings-value 866 million compared to 35 industrial -value 1146 million. Office is not insignificant.
All figures from their latest report.

Disclaimer I own quite a few, I like the company but am cautious.

[Aaron]

deleted total rubbish

[BlackPeter]

Depends a bit on when their debts get renewed and if interest rates are higher for longer.
Their net interest expense is over 16 million and their net distributable income is 33 million. It makes an impact.
...


Absolutely - and yes, we don't know everything. How much of their liabilities are current might give a hint (it is a pittance - something like 3% of total), but sure - we don't know how much of the interest for the other liabilities is fixed for what periods.

Given that ARG is generally pretty careful in managing risks (Risk management takes a large part of their report) I would however assume that they staggered their liabilities as well in a sensible way, but time will tell - and hey, it looks like inflation has peaked.

That's good. As soon as markets smell dropping interest rates, the prices for pseudo bonds (like REITS) will go up again.




...
Will they retain all customers if we enter a recession?

Overseas reits are being hammered. Mostly on the office side. ARG has 15 office buildings-value 866 million compared to 35 industrial -value 1146 million. Office is not insignificant.
All figures from their latest report.

Disclaimer I own quite a few, I like the company but am cautious.


Being cautious is always a good strategy :) - and yes, REITS got hammered (not just overseas). I guess the real question is - how much of the downside risks are already priced in? I think the ones we know certainly are, and the ones we don't know can hit any stock (not just real estate).

At the end - people will always need places to live, to work and places to store and sell goods - no matter what the economy. Where would you see these customers go to - unless everything goes to hell (and I don't assume that)?

[SailorRob]

Do any of these companies make actual money, let alone in relation to their capital?

Having a look over a few years of financials, it appears to me that they earn an absolute pittance (in cash) on their capital, even on equity capital or market cap value. And this was in the zero rate days. Free money.

When you look at reported earnings it's better but this is just from revaluations - the actual cash earnings are slim indeed. The gross yields that are reported on different properties seem slim enough let alone considering that costs need to come out of them. The cash flow statements are sobering reading when you relate them back to the capital at work. It looks like the dividend are not even covered by cash.

The market is telling us this by valuing the assets at a fraction of 'NTA' - after all what use are assets if they don't generate cash?

Blackpeters argument regarding people always need places to live etc, while true it means nothing in terms of an industry being able to create value, there are countless examples of demand that will never go away and will indeed grow but doesn't mean anything about PROFIT.

[BlackPeter]

Do any of these companies make actual money, let alone in relation to their capital?

Having a look over a few years of financials, it appears to me that they earn an absolute pittance (in cash) on their capital, even on equity capital or market cap value. And this was in the zero rate days. Free money.

When you look at reported earnings it's better but this is just from revaluations - the actual cash earnings are slim indeed. The gross yields that are reported on different properties seem slim enough let alone considering that costs need to come out of them. The cash flow statements are sobering reading when you relate them back to the capital at work. It looks like the dividend are not even covered by cash.

The market is telling us this by valuing the assets at a fraction of 'NTA' - after all what use are assets if they don't generate cash?

Blackpeters argument regarding people always need places to live etc, while true it means nothing in terms of an industry being able to create value, there are countless examples of demand that will never go away and will indeed grow but doesn't mean anything about PROFIT.

Argosy had over the last couple of year an RoE of around 17%, and even 2020 (Covid shocker) it was 11%.
For KPG it was the last couple of years between 9 and 10%. Still not bad.

And obviously - they all are cyclicals (basically moving countercyclical with the interest rate), though with some downward resistance.

I'd consider these good and sustainable returns, but sure - other people prefer to shoot for the stars and falling flat down on their face.

There is something to be said about investors chasing unsustainable RoE's - the result is often much higher leverage, and we know what this means in times of high interest rates.

[SailorRob]

Cash cash cash

Not earnings. Anyone can post funny money revaluation earnings.

Show me the money.