Listed Property Trusts

[winner69]

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

[Beagle]

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

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

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

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

[Aaron]

Thanks, to clarify my dividends figures included imputation credits.

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

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


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

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

[epower]

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

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

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

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

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

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

[Waltzing]

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

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

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

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

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

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

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

They are heavy defensive stocks.

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

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

[Aaron]

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

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

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

[Snoopy]

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

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

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

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

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

The traditional hierarchy of investment risk and reward goes:

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

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

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

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

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

SNOOPY

[dibble]

Is the discount to NTA that relevant? .

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

[fungus pudding]

The traditional hierarchy of investment risk and reward goes:

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

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

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

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

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

SNOOPY

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

[Panda-NZ-]

ASP is on the move again finally.

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