LPT concerns remain: Bell Potter

Sim · 11-06-2008, 12:34 PM

Quote:

Listed property trusts (LPTs) are the biggest area of concern on the Australian Securities Exchange (ASX), Bell Potter director of research Peter Quinton warns.

“LPTs are a lot more complex now compared to what they used to be,” Quinton said.

“As a result they are running a lot more risk for not much extra return.”

Quinton said that while the sector still delivers about 87 per cent of its earnings from passive rental incomes, that’s not considered a defensive position in the current volatile investment market.

He said 13 per cent of trust earnings were sourced from developments that will be more difficult to undertake in the present economic climate. The debt levels of LPTs had also risen to 34 per cent this year, compared to 25 per cent in the late 90s.

Quinton said these higher debt levels created potential refinancing risks.

“There are going to be more Centros in this sector,” he warned.

“It is a sector to totally avoid until further notice.”

... (more)

austini · 11-06-2008, 01:25 PM

Hey Sim,

Thanks for that.

I don't expect to see much of a turn around in this sector for some time yet. However forecasting is still anyone's best guess. But what the hell as mentioned in my other thread I couldn't resist buying a small qty of SLF at their current levels. For me holding the index is the only way I would buy into this sector. With the index ETF If one goes belly up then it just drops down or out of the index. So out with the bad air, in with the good. I certainly wouldn't feel comfortable directly holding individual LPT stocks at the moment.

Cheers - Gordon

Sim · 11-06-2008, 01:38 PM

Agree austini - I think either an ETF or a property securities fund is the better way to invest in this sector.

My only concern with an index tracking fund is that there are relatively few LPTs - so the larger ones would have a disproportionately high representation in the index. If one of them (eg Centro) starts to go bad - there is no discretion to dump it early - the index tracker has to wait until it gets dumped from the index (or the index gets re-weighted).

... but then again I guess that's part of the whole argument for-and-against indexing versus stock picking isn't it?

venger0 · 11-06-2008, 03:07 PM

Good point Sim. There are only about 30-40 LPTs i think. What that means to me is that we can continue to treat is as a separate asset class but i would probably restrict my aust. REIT index to only up to 15% of my total asset allocated.
Having said that, more seasoned investors who have held LPTs through the ups and downs over the last few decades might still be comfortable with a higher percentage.

austini · 11-06-2008, 03:25 PM

Hi Sim,

Yes, Westfield makes up close to 40% of the index (see below). I haven't really looked into Westfield that much lately but from what I understand it is in pretty good shape to take advantage of any other LPTs that might get into trouble. So unless Westfield or the next couple of majors get into trouble then the others don't really make up that much of the index. And as mentioned in another thread my allocation to this sector overall is in the range of 5 - 10% maximum. Plus I don't (and won't) own any outside of the SMSF. So it's a long term thing.

Westfield Group 39.45
Stockland 11.37
Gpt Group 7.76
Goodman Group 7.74
Dexus Property Gp 6.18
Cfs Retail Prop 4.99
Mirvac Group 4.12
Ing Industrial Fd 2.50
Cmnwlth Prop Offic 2.36
Macquarie Office 2.33
Ing Office Fund 2.10
Valad Property Gp 2.03
Macquarie Countryw 1.68
Abacus Property Gr 1.08
Centro Retail Grp 0.77
Babcock & Brown Ja 0.73
Tishman Speyer Off 0.71
Macquarie Ddr Tst 0.65
Bunnings Warehouse 0.58
Centro Props Gpltd 0.35
Apn/Uka Euro Retl 0.27

Cheers - Gordon

ilori · 11-06-2008, 10:31 PM

Interestingly... I receive market reports from Bell Potter and on 4 June 08 they had Mirvac rated a Buy (Unchanged). Internal conflict?

ilori · 11-06-2008, 10:49 PM

... also, just checked a Bell Potter report for 3 June 08 and list under heading of 'S&P/ASX Property 300 Accumulation' has list of LPTs and many rated Buy...

No comment... just saying what is in the report...