Property Stocks

[Basil]

Property stocks benefit in quite a number of ways from lower interest rates and quite obviously we're now only just past the point of inflection where the cycle has turned.

Benefits include but are not limited too:-
1. Lower funding costs going forward, (ARG have just over a two year weighted average term to run on their loans so will benefit nicely when those are refixed
2. The economy improving enabling a stronger leasing market and better outcomes on rent review negotiations leading to more income
3. Lower future capitalization rates of lease income such that NTA increases when assessed by the valuers
4. Better outcomes for new builds and new tenant enquiry

Additionally, Investors value their tax free PIE income distributions more highly as by comparison to what they can get elsewhere in the market, the dividends look highly attractive.

I expect ARG to rerate gradually to circa $1.60 over the next few years.  The initial bounce from $1.02 where I initially took a large stake, is just a bounce off a very heavily oversold position, i.e. low hanging fruit.

It's clear the economy is very weak so I expect a lot more cuts to come from the RBNZ, sooner rather than later.  Even at $1.18 for ARG, 6.65 cps annual dividends gives 5.64% tax free income = 8.42% gross for 33% taxpayers.  That plus capital gains are highly attractive as we swiftly head into a lower interest environment.  ARG also have a track record of on average, slowly growing dividends over time, unlike KPG who have a truly shocking track record of shrinking them over time.

Surprised how some of the property stocks have got hammered this month given imminent rate cut expectations of RBNZ, noting the Fed's 50 basis point cut this week and hoping RBNZ follow suit, (our economy is in far worse shape than theirs's in my opinion).
Very heavy selling in ARG this week, down to $1.045 at close on Friday.
Forecasting 6.65 cps dividends for FY25 and noting a very stable and consistent track record of dividend payments in previous years with some modest growth in same, and being a fully tax paid PIE fund that makes the effective gross yield for 33% taxpayers of 9.5% (6.65 / 104.5/ 0.67 x 100), which I think is quite an extraordinary opportunity given the direction of interest rate travel and its effects as noted in my post above.  Opportunity knocks ?
Disc: Good sized position in ARG.

[BlackPeter]

Surprised how some of the property stocks have got hammered this month given imminent rate cut expectations of RBNZ, noting the Fed's 50 basis point cut this week and hoping RBNZ follow suit, (our economy is in far worse shape than theirs's in my opinion).
Very heavy selling in ARG this week, down to $1.045 at close on Friday.
Forecasting 6.65 cps dividends for FY25 and noting a very stable and consistent track record of dividend payments in previous years with some modest growth in same, and being a fully tax paid PIE fund that makes the effective gross yield for 33% taxpayers of 9.5% (6.65 / 104.5/ 0.67 x 100), which I think is quite an extraordinary opportunity given the direction of interest rate travel and its effects as noted in my post above.  Opportunity knocks ?
Disc: Good sized position in ARG.

Yes, I was wondering this as well. Probably all these fund managers and heavy hitters selling their property stocks to be able to fund with the proceedings their AIA capital rise and load up on Spark? Anyway - I never understood the term "smart money".

Sometimes markets are confusing (or should I say confused?), but I am pretty sure ARG will keep paying its dividends (other than with Spark I see no issue with them keep earning the money they distribute).

Anyway - holding a reasonable amount of ARG as well, and not worried. They are earmarked for many happy dividend payments and maybe a rebalance when the interest rates are scratching along the bottom. Not now.

[Basil]

I think the AIA capital raise sucked the wind out of the sails of the whole N.Z. market this week with some stocks getting hit harder than others.  It's been reported the NZX was down, (from memory), 2.8% this week.

[LaserEyeKiwi]

Update.

Big fund rebalancing last week combined with the AIA cap raise sure threw a curveball into the NZX.

(Edit: updated divi %)

[Basil]

The yield shown for ARG is incorrect.  Rather than taking the NZX yields at face value people need to do their own calculations to see what its worth to them.

I calculated the effective gross yield of ARG for 33% taxpayers in post #210 above with workings shown as 9.5% @ a share price of $1.045

Maybe other yields shown in that table with yields being taken from the NZX are also incorrect ?

[KW]

Surprised how some of the property stocks have got hammered this month given imminent rate cut expectations of RBNZ, noting the Fed's 50 basis point cut this week and hoping RBNZ follow suit, (our economy is in far worse shape than theirs's in my opinion).
Very heavy selling in ARG this week, down to $1.045 at close on Friday.
Forecasting 6.65 cps dividends for FY25 and noting a very stable and consistent track record of dividend payments in previous years with some modest growth in same, and being a fully tax paid PIE fund that makes the effective gross yield for 33% taxpayers of 9.5% (6.65 / 104.5/ 0.67 x 100), which I think is quite an extraordinary opportunity given the direction of interest rate travel and its effects as noted in my post above.  Opportunity knocks ?
Disc: Good sized position in ARG.

VCX got whacked as well - I think its more the index rebalancing and triple witching that occurred last Friday that has distorted prices.  We'll see this week if they bounce back. 

[LaserEyeKiwi]

The yield shown for ARG is incorrect.  Rather than taking the NZX yields at face value people need to do their own calculations to see what its worth to them.

I calculated the effective gross yield of ARG for 33% taxpayers in post #210 above with workings shown as 9.5% @ a share price of $1.045

Maybe other yields shown in that table with yields being taken from the NZX are also incorrect ?

Fair comment - not sure how NZX calculates it.

Perhaps I'll just add the trailing twelve dividends + imputation credits myself - and add a separate forward TTM guidance yield metric for those companies that have given them. But then it still wouldn't accurately represent the different yields for different tax payers.

[Basil]

Fair comment - not sure how NZX calculates it.

Perhaps I'll just add the trailing twelve dividends + imputation credits myself - and add a separate forward TTM guidance yield metric for those companies that have given them. But then it still wouldn't accurately represent the different yields for different tax payers.

I think if you assume most but not all investors on here are on a 33% marginal tax rate, that would be a fair assumption.  If others are on a different rate they will have to do their own calculations or ask on here and we can help them work it out.

Yeap KW, a lot of index rebalancing last week.  For most, last Friday was not a good day to revalue one's portfolio.

[KW]

I think if you assume most but not all investors on here are on a 33% marginal tax rate, that would be a fair assumption.  If others are on a different rate they will have to do their own calculations or ask on here and we can help them work it out.

Yeap KW, a lot of index rebalancing last week.  For most, last Friday was not a good day to revalue one's portfolio.

Fortunately for fund managers, that's why they do it on the third Friday not the last lol

[Waltzing]

COMP prop back to the pre OCR start line....


builders look to be on small jobs....

https://www.interest.co.nz/property/130005/tough-times-are-getting-tougher-building-industry-fewer-and-fewer-new-homes-are

hard landing ...

[Waltzing]

they are just such a trade... back to the dollar rounded zones....

https://businessdesk.co.nz/sponsored/signs-of-growth-emerging-across-the-commercial-property-sector#no_universal_links

mean really they might show some gains about 2030 ... when the country has a surplus...

[777]

The yield shown for ARG is incorrect.  Rather than taking the NZX yields at face value people need to do their own calculations to see what its worth to them.

I calculated the effective gross yield of ARG for 33% taxpayers in post #210 above with workings shown as 9.5% @ a share price of $1.045

Maybe other yields shown in that table with yields being taken from the NZX are also incorrect ?

I think they total the dividends in the last 12 months and use that to calculate the div yield. It just that there are 5 divs in the past 12 months. It should show correctly after 20/12/24.

ARG   03 Dec 2024   Interim   1.663c   0.112c   0.246c   18 Dec 2024   NZD
ARG   10 Sep 2024   Interim   1.663c   0.142c   0.314c   25 Sep 2024   NZD
ARG   11 Jun 2024   Interim   1.663c   0.074c   0.163c   26 Jun 2024   NZD
ARG   12 Mar 2024   Interim   1.663c   0.084c   0.186c   27 Mar 2024   NZD
ARG   05 Dec 2023   Interim   1.663c   0.079c   0.173c   20 Dec 2023    NZD

[Basil]

https://www.nzherald.co.nz/business/economy/gdp/massive-gdp-fall-nz-in-deep-recession-worst-since-1991/CG5ZWBO6GFGCHAT5OT6EMK3UTQ/

Crickey.  That's a shocker, economy in virtual free-fall.  Surely this has major implications for the speed and extent of RBNZ interest rate cuts next year?  I think an emergency meeting of the RBNZ and a 100 bps cut should be done immediately but the ivory tower boffins at RBNZ are probably already long gone on holiday and we have to wait until mid-February.  Surely such apparently desperately needed, deep prospective cuts from RBNZ next year helps the commercial property sector recover from its malaise?  Disc; Small position in ARG and slightly underwater.

[Waltzing]

A german lady who settled in NZ and was working as a trade secretary in auckland for the germans brought an old stuff and things shop... she said it was her worst ever year here... she though 2009 was bad...

she nearly packed up this year and went home except she got married to a local commercial property developer a few year ago ....

well...its what you do in NZ right?

now shes wondering which country is worst off... germany or nz..

does anyone even remember 1991? did first auckland ironman in 93...just a young tacker..

anyone resigning at the RBNZ? no wonder the government doesnt not want to CUT CUT CUT....they are scared as..

[winner (n)]

https://www.nzherald.co.nz/business/economy/gdp/massive-gdp-fall-nz-in-deep-recession-worst-since-1991/CG5ZWBO6GFGCHAT5OT6EMK3UTQ/

Crickey.  That's a shocker, economy in virtual free-fall.  Surely this has major implications for the speed and extent of RBNZ interest rate cuts next year?  I think an emergency meeting of the RBNZ and a 100 bps cut should be done immediately but the ivory tower boffins at RBNZ are probably already long gone on holiday and we have to wait until mid-February.  Surely such apparently desperately needed, deep prospective cuts from RBNZ next year helps the commercial property sector recover from its malaise?  Disc; Small position in ARG and slightly underwater.

Sep Qtr numbers all history now Basil ....no need to panic ...things on the up


Hope Orr doesn't panic as well .....cutting to fast and deep will only cause greater pain down the track

Waltz ..I remember 1991 .... A mate who had a business heard there were was a deep recession and asked me what's a recession and after I explained he replied 'ah, so recessions don't impact everybody' and he continued on being happy and making heaps of money