Property Shares

[King1212]

Yes..I questioned that. They said because the have been growing the assets. Since started 2014.. they raised 2 times and this is the third. Their so of $1.05 is the total assets minus liabilities...so not like listed one..that some time trading multiple of NTA....

Great discussion guys....I am still deciding to join or not....but would like a commercial portfolio....I have rental, enough shares and now looking for steady income source...PMG pacific fund

[Tronald Dump]

I think with these sort of things you need to have a look at the total return and not get too fixated with yield.
PDS states that in 2014 the value was $1 and five years later they're raising new capital at $1.05.
Few thoughts.
1. If the level at which they are raising funds is representative of the net tangible asset backing of same this is a pitiful performance compared to the NTA growth of say GMT an active property developer and you could very easily make the case the vastly more experienced team at Goodman Property Trust who's shar price has nearly doubled over the same time have added substantially more value through their management and development activities. ARG another example and their share price has climbed 45% over that time. PFI another example and there are many more.
2. The question must be asked, why has the net tangible asset backing apparently gone backwards, (in real inflation adjusted terms) over the last 5 years since the inception of this fund when all the listed companies have done vastly better over the same timeframe ?
3. What does this suggest about the calibre of the management of this company and their property selection processes and criteria ?

To me management have shown woeful underperformance in terms of even keeping the net tangible asset backing the same in real inflation adjusted terms, let alone matching the listed company benchmark. The sum total of management's expertise since this was formed in 2014 so badly underperforms the market this suggests to me they have bought properties primarily for yield with little or no consideration given toward capital growth prospects.

Forecast are one thing, but as a bean counter I have learned to put far more stock on the long past track record of a company and while the yield has been okay, their track record of lack of growth suggests this is a dead end yield trap to me.

Notes. According to the reserve bank inflation calculator $1.00 in 2014 should presently be worth $1.06 based on general inflation and $1.42 based on housing inflation.
https://www.rbnz.govt.nz/monetary-po...ion-calculator thus managements long term track record is most unimpressive.

Good work Beagle. I'm not sure why you'd chase these unlisted 'opportunities' when it's so easy to get listed property exposure through Smartshares NZ Property ETF. This give diversified exposure to the listed property sector with daily liquidity, daily NTA price, and full transparency of holdings. Performance isn't too shabby either, +33% net of fees and 28% tax in the last 12 months, and +12.8% p.a. (i.e. +43.5% total return) over the last 3 years, also net of fees and 28% tax. I don't hold this fund but if you want property exposure it's well worth a look.

[Beagle]

Yes..I questioned that. They said because the have been growing the assets. Since started 2014.. they raised 2 times and this is the third. Their so of $1.05 is the total assets minus liabilities...so not like listed one..that some time trading multiple of NTA....

Great discussion guys....I am still deciding to join or not....but would like a commercial portfolio....I have rental, enough shares and now looking for steady income source...PMG pacific fund

You make a good point that many of the listed property trusts are trading at quite a percentage premium to NTA at present. That this one isn't and the yield are its strongest selling points.

[King1212]

Yes true....investing property need to see the NTA.....that what interested me with PMG. Our current property market is too high most **** houses are at least 100 to 150k asking price of CV value.n need heaps of works.

[fungus pudding]

You make a good point that many of the listed property trusts are trading at quite a percentage premium to NTA at present. That this one isn't and the yield are its strongest selling points.

Precisely. My ARG, GMT, PFI, PCT and SPG are all way above NTA so not keen on adding to them. Mitchell Mackersy have had a couple of excellent single asset syndicates recently. e.g The Spark building Wellington and Entertainment centre Ch-Ch. (disc: hold both)
http://mitchellmackersy.co.nz/projects/
These were available at between 100k and 200k. Both closed now, but some new ones on the horizon. Pacific might just be best current offering.

[Beagle]

Got this from their Auckland business development manager which may be of considerable assistance in considering this one. I am sure Mat won't mind me sharing.

NTA for the fund when the fund started was 92 cents. Getting registered with the FMA and running a MIS license and employing staff to look after the properties carries significant cost. Since then, NTA has increased to $1.05, thus, there is no dilution in value and investors in this round get full value. Very few industry participants in our sector go to the trouble of attaining a license to provide ‘retail’ funds – rather, you see wholesale offers that affords very little protection for investors and unfortunately the governance and recourse to the directors in ‘wholesale’ offers we see today is poor/non existent. We pride ourselves on trust and transparency and adhering to a SIPO that’s rigid and robust, thus, having a license to operate as a ‘retail’ fund provider makes us stand out.
The new asset was purchased at $56.16m and the valuation stands at $61m. Furthermore, Cap rates are compressing across the board and I would expect strong performance in the near term. First and foremost, our investors are seeking reliable yield first and capital preservation and growth come second.
NTA in the REITs has been exceptional of late. The global search for yield as pushing asset prices up everywhere and fund managers/large institutions need to keep pace with their Asset allocations. We are receiving high levels of enquiry from fund managers at present for 3 main reasons:
Our yields are better
We are not just another equity that trades on sentiment and is volatile – we only trade at the FMV of the assets which provides capital protection to investors that don’t want wild swings in value but rather a steady income stream that behaves like direct property should (A defensive investment class). Interestingly, we are seeing the REITS do exactly the same thing as they did prior to the GFC – increase leverage to assist ROI. Doing this works well until they get a run on selling by large intuitional investors and liquidity and capital erosion happens very quickly.
Our properties are value add. We buy properties that we can add value to over time. REITS typically buy new shiney A grade buildings that very little value can be added and Mr Market only allows either rental income growth or compressing cap rates to add value. Yes, some of our buildings are old/B grade but that’s what makes us different. As investors in the fund, we want to own assets that overtime we can enhance and add value to. Further, In recessions, A grade buildings lose more tenants to B grade/more affordable rent comparisons. We buy on Location and are not afraid to roll our sleeves up and do the hard yards to extract value. Smaller tenants do involve more work but they are much more easy to replace than a large tenant holding landlords at gun-point for want of a better term at rent review time.
Often comparing to REITS investors talk about liquidity – in my opinion and experience, when you have a diversified portfolio of bonds, cash, equities and fixed interest products, nearly all portfolios are instantly ‘liquid’. When things go bad/recessions, history reflects investor behavior tends to go back to bricks and mortar. Selling your income stream is not normally what investors do in times of uncertainty, thus, as we are 100% invested in Direct Property, our investors don’t compare us to REITS as we have vastly different characteristics and trade like direct property should – low levels of volatility and steady, reliable income. As a business that has been doing this for 27 years we have the experience and expertise to position our funds for the uncertain future.



Thanks

Best Regards

Mat

[King1212]

Thank u beagle!

[Arthur]

Underwriting terms appear not unreasonable as does the yield. Projected NTA as at 30 March 2020 didn't leap out of the PDS statement at me on a brief skim but I have very limited time to apply to this so its probably there, just I haven't noticed it.
Some of their buildings are quite old and I know the Kelston shopping centre has been a dog forever and a day. I think if we get tough economic times small tenants of small buildings are probably less resilient than big corporates or government departments leasing larger buildings off the listed property owners so there's definitely extra risk with smaller tenants.

On the yield front 7% seems reasonable and the closest comparative listed vehicle would be ARG which is also a PIE and on a grossed up basis assuming a 33% tax rate is yielding 6.5% forecast for FY20. ARG have a policy of only paying out sustainable dividends and deduct sufficient to pay incentive fees for lease renewals and repairs and maintenance sufficient to keep their buildings in a good state of repair.

For a half of one percent yield difference you're getting much better diversification with ARG, a proven sustainable dividend yield, generally more substantial sized tenants and the benefits of being listed with easy entry and exit to the shares.

I don't know much about these guys so can't comment further and I tend to stick to what I know and trust and if I need a yield boost to my portfolio there's any number of stocks like AIR, ZEL and HLG to name just 3 paying over 10% so its easy to make up that half a percent with some allocation elsewhere.

Agree 100% that domestic rental properties are a very tough gig especially under the current Govt regime heavily favoring tenants rights and with the widespread proliferation of methamphetamine adding to the already very high risks from tenant damage and with limited scope for capital gains and lack of ability to claim depreciation on the house and now ring fencing of rental losses, landlords look like they're on a hiding to nothing.

It appears that they do have some plans for value add. Take the "dog" Kelston Mall. They have a renovated Countdown, a McDonalds and a Mobil Station. There is a plan to make it more of destination by increasing services rather than retail. There is a medical centre, a pharmacy and there is soon to be a childcare centre. Think of the synergy of being able to drop of the child at the centre, do the shopping, pick up the prescription, fill the car up and grab some takeaways all in one place. It is also in an area where the population is predicted to grow strongly. They have another fund that specialises in standalone Childcare Centres they run at $3-5 million each, so it is possible that they have added $2 million in value to Kelston by adding one, before any synergy gains from the surrounding businesses. Maybe the mutt will turn out to be a pedigree afterall.

[Beagle]

Have to say the premium to NTA that most of the listed REIT's are trading at makes them a less than compelling proposition at current prices.

That said I feel compelled to post a concluding cautionary remark in this thread after reflecting upon the woeful NTA performance since its inception 5 1/2 years ago. $1.00 to $1.05 in 5.5 years in the N.Z. property market really marks this fund as a real standout underperformer.

Really with most properties having regular rent reviews to at least CPI and given the dramatic compression in the market capitalisation rates over the last 5 years upon which commercial property valuations are assessed its almost inconceivable how a funds original investors in 2014 at $1 could now only be looking at NTA of $1.05. It almost beggars belief how poorly this has performed.

The Reserve Bank inflation calculator, (google it) has general inflation and a number of other basis upon which inflation is measured. If you choose the property index you will see that since this funds inception to date the NZ property index is up 42%. If this fund had of matched that index the NTA would presently be $1.42.

The Auckland business manager can make whatever excuses he likes but the degree by which this fund has underperformed both the listed sector and the N.Z. property index is really breathtaking bad. It suggests to me that property selection has been based solely on yield with little or any regard for total shareholder return over time.
It may also suggest that leases do not have adequate rent review clauses, property management fees are too high relative to the market average or that execution of renovations and extensions has been very badly managed and or there have been bad cost blowouts.

Okay so the listed REIT's are trading at sizeable premium's to NTA and as mentioned above are certainly not compelling buying at present. Those looking to purchase something at NTA need to consider all other options and look at their long term track record.
Here's one https://www.oystergroup.co.nz/direct-property-fund Have a look at their track record of NTA growth.

Worth noting that the exit fee from the Oyster property group for investors to sell their stake if they choose too is just a notional $2 fee.
Exit from this fund is 1.5% plus GST which based on say a $200K investment is $3,000 + GST = $3,450. Ask yourself if simply matching one internal shareholders interest to sell with an incoming expression of investment interest should attract a fee of $3,450 or is $2 more reasonable ? What does this suggest about the reasonableness or lack thereof of their other property fees and whether this explains their woeful lack of NTA growth ?

If NTA is going backwards in just inflation adjusted terms with this fund when cap rates are firming so nicely, what happens when cap rates stop firming ?

Over nearly 40 years as an accountant I have learned from experience to put a lot of weight on a companies track record measured over no less than a 5 year period so one can make a proper assessment over a decent period of time and measure things up reasonably accurately. Projections are one thing, track record is far more important.

If one must buy an interest in commercial property at this point in the property cycle, (I personally do not think this is a good idea) with commercial capitalisation rates already having firmed up to level's "unseen in over 50 years", (comment made to me by John Bayley, owner of Bayley's a few months ago), one is best to look at perhaps buying an interest in a well established and well performing fund on the secondary market. I have provided an example of one that may merit further investigation above.

This 7% looks like a real yield trap to me with mostly very old properties. Past performance, (or lack thereof in this case) is no guarantee of future performance but I have learned it is the best guide we have got. Over and out from me on this one. Caveat Emptor and DYOR.

[King1212]

Thanks...been told that the raising is fully subscribed...n will close on 25sept..no extension.