Property Stocks

[Phaedrus]

[Lawso]

OK Phaedrus. So are you saying that Masfen & Co are lying when they say PFI's total return for 2005 was 21.5% versus NZX50's 10.6% gain? Or are you ignoring yields and just comparing the share price with the index figure?
And what about the five-year comparison - 16.7% total return v. 14.9%?
I continue to be very comfortable with my capital appreciation as a PFI holder. (But don't regret selling out of KIP.)

[duncan macgregor]

quote:Originally posted by Snoopy

quote:Originally posted by Phaedrus
Image showing NZSE50 outperforming KIP and PFI over the last two years deleted

I concur that no words are needed Phaedrus. Your chart shows why why I haven't been an enthusiastic property investor in the past. I venture to suggest that if you had drawn the same chart over a longer time period the result would have been the same.

SNOOPY

Snoopy ask PHAEDRUS to compare LPC or RBD charts over the period you have been holding to lets take the worst one KIP. I know you might become more enthusiastic then about listed property companies after that. Property is The easiest and best way to make money. The paddock next door has risen in value by 600pc in 11 years just sitting there with the farmer paying the rates for grazing. Try sticking that on a chart and compare it to the market. macdunk

[nelehdine]

Could we have the chart from 01.01.05 onwards, I think we would all agree that 2003/04 were great years for the NZX, but 2005 not that flash. Does the chart include the 5%+ divs paid out by KIP & PFI ??

[Phaedrus]

Comparison charts like this vary a lot depending on the start date and the period chosen. Both KIP and PFI out-performed the Index for 2005, for example.
The shorter the time period the better property companies appear. The longer the time period, the less favourable the comparison.
If stock prices are not corrected for dividends, these appear as vertical drops in the plot when they go ex.

[troyvdh]

re PFI....not only do I suspect that the divs have not been included...dont mean to be picky here but lets not forget the 2.5 % discount (used to be 5%) that is offered to those who partake of the share's in lieu.....

as an aside who know's ...in a few years will there be a NZ50....maybe 40....30......20...?

[Lawso]

No sensible person would buy any of the listed property stocks for capital growth alone. As Phaedrus's charts show, they have lagged behind the NZX50 on that basis. But for healthy yields + moderate capital appreciation and virtually no downturn risk, it's hard to go past the likes of PFI, MGP, CNZ & even KIP. For example, when I first bought PFI in '99 the price was 78c; today 119 - not spectacular but not to be sneezed at. Now I'm getting great growth through the DRP - might be able to afford one of Metlifecare's fancy apartments (Remuera or St Heliers, approaching $1m each) one of these days[^]

[duncan macgregor]

The only problem reading the chart is it is comparing apples and oranges. To get it accurate you would have to find out the average dividend on the nse 50 index, then compare that to the property trust dividend, taking into account the rise of the index against the rise in sp of the property trust. PHAEDRUS only gives the percentage rise in prices which is missleading in this situation. When i compare two companies charts over one year i always add the dividend, and allow for drops in price [stop loss triggers] in buy and sell decisions. To compare PFI with KIP you would have to take the dividends, plus any other bits and pieces into account, then you might find a completely different result. macdunk

[COLIN]

quote:Originally posted by Snoopy

quote:Originally posted by nelehdine


CDL seems to me to be a hotel company with a bit of residential section development thrown in , again a completely difficult kettle of fish to APT,KIP and PFI ... if you want quality commercial property exposure then these 2 aren't in the same league IMHO.

I've never considered myself any great expert on listed property, although I do follow it in passing in the media. Am posting here in the hope of gaining some enlightenment from you property types!

Have been looking at the hotel sector recently as a consequence of owning shares in SKC. Was trying to understand a bit better the dynamics of SKCs latest hotel expansion in Auckland. That is why I started looking at 'the competition' from CDL (now MCK) hotels.

I have come to the view that the quality of commercial property can be ranked as 'retail property', 'industrial & office property' and 'hotel property' in that order. My observation is that the market agrees with me, as hotels tend to trade at a large discount to NTA even in this current boom property market. Why is this?

In theory hotel operators are at the cutting edge of NZs biggest growth industry - tourism.

However, hotel operator owners have to spend their own money doing up their properties. Whereas in the case of commercial or retail it is the tenant who pays for office and shop fit out. Also when new hotels come onto the market that raises the standard of buildings and fittings. That means existing hotel owners are always playing 'catch up'. 'Catch up' in this case means a continual upgrade of carpet and interior fittings so that the 'short term tenants' that hotels are chasing have the impression that where they are staying is 'fresh'. The existing hotel operators cannot afford to put themselves at risk of being blacklisted by the fashion police (reef fish travel agents).

In summary, hotels are the 'airline owners' of the central city. Just like airlines, hotels require a high capital commitment and are always being undercut at the margins by competitors trying to fill space at any price. After all, when you have to pay the staff anyway, the incremental cost of filling 'one more room' is next to nil. That in turn breeds a culture of price discounting, just as in the airline business.

Some say established hotels are protected as business propositions by their unique downtown locations.

Perhaps no more land is being created. But above cities there is generally a surplus of air space. A competitor can generate a lot of extra room space from a very small footprint of land by simply building upwards. Thus the 'rarity value' of having a valuable central city site is not the barrier of entry to competition that it might otherwise be.

Because of the high fit out costs of a hotel, the buildings are not easily and economically convertible to alternative uses, like office or retail. Hotel operators are trapped in a high ongoing cost capital intensive fickle market. As a buisiness proposition, operating a chain of hotels stinks.

Would anyone like to refute my biased and superficial views?

SNOOPY

discl: don't hold any listed pure property investments

A good piece, Snoopy.
Long experience has taught me to stay away from airline stocks, hotel companies, and shares in any company with major exposure to the
tourism industry. There may be short windows of opportunity to profit from selected investments in these areas but, over time, tourism-related listed equity investments seem to suffer from the very fickle nature of that industry. One just needs to look at the c

[Snoopy]

quote:Originally posted by COLIN


A good piece, Snoopy.
Long experience has taught me to stay away from airline stocks, hotel companies, and shares in any company with major exposure to the
tourism industry. There may be short windows of opportunity to profit from selected investments in these areas but, over time, tourism-related listed equity investments seem to suffer from the very fickle nature of that industry. One just needs to look at the chequered career of Air NZ and its ongoing struggles, for example. Also, BRY really turned to custard when it invested heavily in Thistle Hotels. And, coming up to date, just look at the current fall-off in overseas tourism into NZ - at a time when the world economy is experiencing so many positive trends.

Hey Colin you were meant to rip my argument apart! Not agree with me! I think Warren Buffett has made good the argument against airlines so perhaps I was a bit naughty mentioning that 'a' word. I was aiming for a hotel 'death by association argument' and it looked like it worked on you ;-P.

I remember Mount Charlotte Hotels, as Thistle was called then, as the great turning point for Brierley Investments shares. From memory BRY made a meagre bid that should have been only good enough for a small proportion of the shares. Then the London stock market turned down and BRY found themselves with a lot more hotel shares then they anticipated - the beginning of the end. In theory if BRY had bought only 20-30% of the company they would have been OK, so management says. But even with long hindsight, something stinks about this deal.

If those English hotels were truly earning their cost of capital, BRY should have been OK buying the whole lot. Instead they were nearly brought to their knees! Even in more recent years Brierley in a precarious financial position, has been selling off certain Thistle Hotels. A sell off which has now put BRY in the soundest financial position they have been in for twenty years. Yet from my reading of the BRY annual reports, it doesn't look like the earning capacity of those Thistle Hotels has changed much. My only conclusion is that BRY bought the hotels for too high a price in the first place and later sold then for too high a price! Does the hotel market never learn?

To disprove your point on tourism shares Colin, there is one tourism share that since inception I have done very well out of, even though it has stagnated (share price wise) over the last couple of years. And that is Sky City (SKC). And the other great property based tourism share is of course AIA.

SNOOPY