Listed Property Trusts

[LaserEyeKiwi]

Yes another good point. The problem with DRPs is that by issuing more shares, and saving some immediate cashflow out, the company is reducing the earnings per share for future tax periods 'ad infinitum'. IOW they are kicking the 'cashflow balance can' 'down the road'.

This kind of behaviour is particularly egregious in the case of Investore that on 11/07/2022 commencing a share buyback that was paused om 08-09-2022 after shares had been bought back within the $1.65 to $1.75 price band. Yet on 28th June 2023, Investore announced a 'dividend reinvestment plan' for a share that went ex-dividend on 6th September 2023, with shares issued based on a 5 day weighted average share price of all trades after going ex-dividend. That DRP share price looks to be $1.26, and maybe lower if a discount applies. This is a terrible result for shareholders not in the DRP as the board has 'bought existing shares high' and is 'selling new shares low', destroying shareholder capital at a time the company needs it and diluting the value of the existing shareholder base forever going forwards.

For a 'no to low growth company', as most of these collective property ownership PIEs are, I would say DRPs are bad news for unit holders over the long term.

SNOOPY

Agree 100%

[ronaldson]

Yes, ARG have currently discontinued offering the DRIP, although it remains as an option to revert. Would be interesting to know exactly what considerations a Board take into account when turning it on and off. As you say, saving cashflow out is definitely not all there is to it, but a broader range of factors need to be in the mix.

[Sideshow Bob]

Yes, ARG have currently discontinued offering the DRIP, although it remains as an option to revert. Would be interesting to know exactly what considerations a Board take into account when turning it on and off. As you say, saving cashflow out is definitely not all there is to it, but a broader range of factors need to be in the mix.

Is it a better option to do a buyback? Especially at the current times when most LPT's are trading well under NTA.

[Snoopy]

Is it a better option to do a buyback? Especially at the current times when most LPT's are trading well under NTA.

I would say 'yes', can the dividend(s) and, it is a great time to do a buyback for most of these LPTs. But those unit holders who are relying on their LPT portfolio for income might grizzle, and rightly so. Probably the best solution in the modern world would be can the dividends and put all of these income investors onto Sharesies. That way they could sell five or ten shares in lieu of getting a cash divie and be better off. It is probably too much of a step psychologically for most LPT investors to do that though!

The truth is management of these LPTs has been caught out by a once in a generation sudden and severe rise in interest rates. I suspect the funding banks have a bigger say than what directors disclose as to what is going on. I mean, Investore putting on the market a couple of their non-core (sic) Countdown supermarkets up for grabs? Does anyone really believe that is in the long term interests of unit holders?

SNOOPY

[winner69]

Take ARG as an example

Since 2014 assets have increased at 7%pa and NTA/share at 6%pa

But dividend this year only 10% higher than 2014 ……say growth at 1% pa

Or about $1 billion more assets and not much of that has come back to shareholders

I still don’t get it …never mind that’s my problem

But ARG a good buy next month I reckon.

[LaserEyeKiwi]

I would say 'yes', can the dividend(s) and, it is a great time to do a buyback for most of these LPTs. But those unit holders who are relying on their LPT portfolio for income might grizzle, and rightly so. Probably the best solution in the modern world would be can the dividends and put all of these income investors onto Sharesies. That way they could sell five or ten shares in lieu of getting a cash divie and be better off. It is probably too much of a step psychologically for most LPT investors to do that though!

The truth is management of these LPTs has been caught out by a once in a generation sudden and severe rise in interest rates. I suspect the funding banks have a bigger say than what directors disclose as to what is going on. I mean, Investore putting on the market a couple of their non-core (sic) Countdown supermarkets up for grabs? Does anyone really believe that is in the long term interests of unit holders?

SNOOPY

Assuming a hypothetical situation where there are adequate buyers, they could also sell assets at market rate (the rate supposedly the units are trading at a big discount to), and put only the proceeds from those asset sales towards a share buyback (presuming they maintain gearing covenants). Thereby not touching the funds from operations used to pay dividends.

[LaserEyeKiwi]

GMT interim portfolio valuation

11/9/2023, 3:02 pmGENERAL

Goodman (NZ) Limited advises that GMT’s FY24 interim result is expected to include a $230 million or 4.7% reduction in the fair value of its property assets. Draft valuation reports from independent valuers indicate that the portfolio will be valued around $4.7 billion on 30 September 2023.

The softening in real estate investment yields over the last six months is reflected in the weighted average capitalisation rate of GMT’s investment portfolio, which has increased from 5.2% at 31 March 2023, to a forecast 5.6% at 30 September 2023.

James Spence, Chief Executive Officer said, “While current investor sentiment is being impacted by higher interest rates and macro-economic conditions, industrial property market fundamentals remain strong. GMT’s portfolio is 99% leased, with low vacancy and limited new supply across the sector contributing to very strong rental growth.”

Valuer assessed market rents for GMT have increased by a further 3.3% from 31 March 2023 (19% for FY23), partly mitigating the impact of higher capitalisation rates on valuations.

Subject to finalisation of GMT’s interim financial statements, the forecast valuation movement is expected to reduce net tangible assets by around 16 cents per unit (245.2 cents per unit at 31 March 2023).

Further details will be provided with the FY24 interim result on 9 November 2023.

[Sideshow Bob]

GMT already down about 4c when this announcement came through.

[Lego_Man]

Precinct appearing to be particularly hard hit as insto sells out of the head shares to buy the newly issued convertible notes.

[Snoopy]

As the OCR creep up, LPTs will be less and less attractive. All LPTs are leveraged and I assume their interest costs will only rise and thus reducing profits(and dividends). Recent tax changes will only add to the misery. I will be a cautious buyer and will add only if the price drops significantly from the current levels. I am surprised that the share prices are still holding up!!

Believe it or not, the above post is from August 2010! Who says history doesn't repeat.

Meanwhile here is an article about what high interest rates mean today for property investors:
https://www.newsroom.co.nz/corporate...cial-landlords

"Generally, banks will require a revaluation every one to three years depending on the property and its ownership (for example listed funds versus small off-market investors) to ensure that banks’ 65 percent prudential ratios are maintained. Many properties in the BNZ and other banks’ portfolios are about to be revalued at current market rates."

"As a rule of thumb, a building’s yield should be 2 percent above the risk-free interest rate (a bank 12-month deposit or 10-year-bond). So if the rate today is 5.7 percent, the yield or rental returns should be 7.7 percent. That’s fine in a low interest rate, strong market environment, but what if new revaluations come in low? That pushes the 65 percent loan to value ratio (LVR) out of whack and may mean owners need to present to their banks a case that demonstrates how they can improve revenues or reduce their exposure. There could be conversations about the need for rent reviews and other options. There’s a real likelihood that as valuations come in, they will come in lower than two years ago."

SNOOPY