Property Trusts

[Davo36]

I am looking into the commercial property trusts at the moment. A couple of people have said to me that they are good buys at the moment.

So I have been trying to decide if this is the case. I have a number of questions and would appreciate any help, ta.

1) Why are they all trusts? Why aren't they just companies? What sort of trusts are they?
2) What do people think of the valuations of the properties in these trusts? They look pretty high to me. I have the feeling that if they ever needed to sell, they wouldn't get the prices they have them currently valued at.
3) How do I find out what the management costs are? They often state the rents they are receiving but the costs don't seem to be available.
4) I haven't really seen any information on how much borrowing and on what terms each of these trusts has. Sometimes they state a gearing percentage but I'd like to see a bit more than that. Is this available somewhere?

Cheers

David

[PropertyReturns]

I wouldn't touch one largely for the reasons you have already hinted at. You have no control, will be feed bullshit and selling may be difficult or you may even be forced to sell. You may as well also look at public companies (shares) and bonds. That is the market you are really in. Not property.

[Davo36]

Right, yes I see what you mean. And in fact I am considering a basket of shares. I have been to see a financial advisor at ASB Securities and she has recommended a bunch of things. Some shares, some bonds, some debentures etc.

And ING Property Trust is one of the shares she recommended for income. It has a gross yield of around 16% at the moment. This seems very high, but then the shares may not be worth their trading price of 62cents. If the share price goes down further (they have been sliding for a while - see picture) a 16% return will seem pretty hopeless.



David

[Austrokiwi]

HI Davo36.

How does the PE ratio measure up on her recommendations......... I also use another measure to test the PE ratio, It a quality of earnings ratio. Its simple just subtract cash from operations from the net income and divide that result by average total assets. Any figure greater than .03 - .06 should ring warning bells. If the QE is high you then check the financial statments to work out which account ( usually inventories or recievables) is causing the problem.

This QE Measures for divergence between net income and reported earnings.

[CJ]

You should be able to get the financial statements which will indicate costs and leverage.

Another thing to look at is discount to NTA. They have to revalue each year. So if the share price is at a discount, they expect the value to fall, if at a premium, they expect the value of the property to rise (overly simplistic but you get the drift).

Who knows what they would actually get if they sold but they dont need to. My understanding is they all have very safe leverage and funding lines in place. Some of the Australian ones dont and are having issues.

[tpr2]

Are you looking at listed or unlisted trusts Davo?

[Davo36]

Thanks guys. Terry, I didn't really think about unlisted trusts. By this do you mean the smaller syndicates where they have 1 or more properties and offer a proportional ownership?

I have managed to answer some of my questions by reading online:

I'm still not sure why they are all trusts (as opposed to companies like most others on the NZX), but they are unit trusts as per the Unit Trust Act. This is a legal entity which has been created to handle investments and sell of 'units' to investors. I do remember there used to be heaps of unit trusts around, banks used to sell them a lot. Have they been superseded by mangaged funds/mutual funds or is this just a name change?

Yes, I've now found the online accounts for some of these places. My wife is an accountant so we went through one of them briefly the other night. She explained some of it to me, it's not simple and clear at all. For instance with ING taxable income was shown as $5m but tax to be paid was also $5m i.e. around 100%. You had to look at some notes to see their tax calculation etc.

The online accounts also show the borrowings these companies have which is good. For instance, ING have their properties valued at $1.1 billion and have $593 million borrowed (on a $600 million facility) so their gearing is roughly 52%. Given that their property valuations are high and will probably come down, this seems like quite high gearing.

David

[tpr2]

Hi Davo

As a managed investment they are easier allocate units rather than shares which is what you would have to do if it was a company.

Check this out as well because it has been a while since I covered this bit in my studies but trusts are able to transfer income directly to the unit holders which makes them a little more beneficial to some unit holders, i.e the profits are not taxed before being distributed to the unit holders. For some people this can be advantageous.

There are probably a few other advantages but I can't remember what they all are now.

Unlisted trusts are not always small syndicates, they can often be very large trusts the only difference is that they are not listed on the stock exchange.

[Davo36]

Gee some ING analysts reckon ING Property Trust is a great buy:

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10557265

David

[tpr2]

They have taken a hiding over the last year so would be starting to look good from the current price. They mention that the NTA's are higher than the unit price however I would wonder when the valuations of the properties were last done?

[Davo36]

A 10.6% devaluation for AMP office Trust

$167m wiped from AMP's office values

New Zealand's largest prime office block landlord has had $167 million wiped off the value of its properties, blaming its falling fortunes on the global downturn.
AMP NZ Office Trust's interim nine-month independent revaluation of investment real estate by CB Richard Ellis and Colliers International resulted in a 10.6 per cent devaluation of the properties.

Link: http://www.nzherald.co.nz/business/n...ectid=10562181


That's a fairly big decline isn't it? They have a lot riding on leasing the Queen St property.

[MaureenP]

Still a good buy

Yes there are some more devaluations coming. Many did revaluations last year and had some hefty downward percentages. However when you look at their NTA many are and have been trading at a discount and can be a fairly safe bet especially the larger, more diversified ones. Also consider what you are trying to achieve - income or growth. Prop unit trusts are generally good steady income with reasonable gains over the medium to longer term.

Just be thankfully that you're looking at the NZ market. In the US and Aust some of these trusts have lost 50 to 70 % of their value in the last 12 months. NZ is overall at about 18%. Just the right time to buy.

[Davo36]

Just the right time to buy before they follow the overseas downturns and drop 50 to 70%?

I think there is huge downside risks to these trusts. I think the properties are still over valued and I think we're going to see an increase in vacancies soon.

[tpr2]

$167m wiped from AMP's office values

New Zealand's largest prime office block landlord has had $167 million wiped off the value of its properties, blaming its falling fortunes on the global downturn.
AMP NZ Office Trust's interim nine-month independent revaluation of investment real estate by CB Richard Ellis and Colliers International resulted in a 10.6 per cent devaluation of the properties.

Link: http://www.nzherald.co.nz/business/n...ectid=10562181


That's a fairly big decline isn't it? They have a lot riding on leasing the Queen St property.

Well that answers my earlier posted question.

[fudosan]

I'm with Dave. Take a look at the large increase of vacant offices just in CBD of Auckland.

http://www.trademe.co.nz/browse/categoryattributesearchresults.aspx?search=1&mcat=0350-0100-&sidebar=1&132=LEASE&selected135=7&selected136=89&134=1&135=7&136=89&157=Office&30=0%2C0&153=&x=60&y=17&sort_order=expiry_desc

I'm also seeing more and more A grade offices available, often in large chuck of space. This looks like the new trend. Even the "fully leased" Deloitte Tower has two floors available for lease now.

The rents and prices have to drop much further, IMHO.