Property Stocks

[BlackPeter]

have a look at the terms of the Public Interest Journalism Fund, and then consider the typical bent of the editors at these rags

Look, you clearly come with a strongly biased believe system (and maybe to a degree we all do );

I can remember as well left wing as well as right wing publications in NZ media ... though often the only bias of the author appears to be to fill the medium with noise.

It is not unusual that strong supporters of the opposition (whoever this might be at the time) think that the media are biased towards the government of the time. Happened under National as well as under Labour governments, but is just a confirmation of the posters confirmation bias ..., and has nothing to do with facts.

However - none of this means that journalists in NZ are not allowed to write (or say) whatever they think ... as long as they avoid hate speech and plain lies.

[Waltzing]

off topic : but when the 1689 right act is no longer considered by the NZ bench to provide a framework for that free country considering applying to the republic of ireland for political asylum...

[Auto Rower]

I could think of better places than that Waltzing maybe Russia

[winner (n)]

IPL valuations taking a $143m hit or 12% as portfolio revalued

I'm no expert in such matters but an average cap rate of 5.6% still seems a little low.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IPL/408855/391288.pdf

[Shareguy]

Possibly more downside to come.

From Craig's today

AUSTRALIAN REITS – Our JPM Colleague Richard Jones has published an update on the Aussie REIT space overnight looking at transaction markets. Valuations across the REIT's held up surprisingly well in the Dec-22 half with only minor devaluations across the 3 major commercial real estate classes: Office (-2.4%), Retail (-0.4%) and Industrial (+1.2%). The lingering question remains why not deeper cuts to values given the surge in bond yields, and the response from the REIT is that transaction values are yet to show a mark-down in book values is justified. Richard's view is that asset value declines are coming as rising neutral rates have lifted return expectations. He expects a further ~10% decline in assets values to be taken in 2023 based on targeted levered IRR framework which compares to current REIT equity pricing which implies ~20% declines

[Poet]

Possibly more downside to come.

From Craig's today

AUSTRALIAN REITS – Our JPM Colleague Richard Jones has published an update on the Aussie REIT space overnight looking at transaction markets. Valuations across the REIT's held up surprisingly well in the Dec-22 half with only minor devaluations across the 3 major commercial real estate classes: Office (-2.4%), Retail (-0.4%) and Industrial (+1.2%). The lingering question remains why not deeper cuts to values given the surge in bond yields, and the response from the REIT is that transaction values are yet to show a mark-down in book values is justified. Richard's view is that asset value declines are coming as rising neutral rates have lifted return expectations. He expects a further ~10% decline in assets values to be taken in 2023 based on targeted levered IRR framework which compares to current REIT equity pricing which implies ~20% declines

Isn't he saying that the current prices of reits are lower than they should be?

[Basil]

Isn't he saying that the current prices of reits are lower than they should be?

Yes and we've seen some big reductions in long term interest rates in the last few weeks, with potentially more to come so maybe the cap rates the valuers use are about right and generally speaking, REIT's should be trading a lot closer to stated NTA?

[KW]

Isn't he saying that the current prices of reits are lower than they should be?

That's not how I read it.  I think he's saying that if asset values fall 10% then REIT equity prices need to fall 20% because they are currently not reflecting any decline in asset values or the expectation of a higher yield in a higher interest rate environment.

This is consistent with international analysts and media that are saying that commercial real estate is the next shoe to drop.  Zerohedge are already calling it the The Big Short 3.0.  Lots of headlines like this ....
https://www.afr.com/property/commercial/why-super-savers-should-be-worried-about-commercial-real-estate-20230321-p5ctx1

https://www.marketwatch.com/story/there-is-going-to-be-a-real-mess-in-commercial-real-estate-but-maybe-not-a-financial-disaster-economists-says-bc548ab

[Poet]

I think we can agree that the article was poorly worded, although to my mind, not ambiguous.

Anyway - exhibit B for consideration

Same guy (Jones) quoted in AFR yesterday

Jones estimates that across the REIT sector there is $20 billion of liquidity available, equivalent to 35 per cent of drawn debt. He believes the recent sell-off is overdone, but admits that the outlook for the sector is likely to remain volatile.

https://www.afr.com/chanticleer/how-it-might-get-uncomfortable-for-australian-commercial-property-20230329-p5cwe0

[KW]

You've got the likes of Goodman Group currently trading on a dividend yield of 1.6% which is utterly ridiculous.  3 years ago GMG was trading at $11, then it went to $26 during Covid. Even back at $18 its still not reflecting reality.

Its funny how property prices can be revalued upwards quickly (like during Covid) but then they come up with all the excuses as to how they cant revalue them downwards again.  

[Basil]

ARG trading on a tax paid (PIE), yield of 6%, (9% gross for those of us on a 33% tax rate).
Enjoyed getting my $2.5K tax free quarterly divvy yesterday.
Last stated NTA $1.72.  Last traded price $1.12.  60 cent margin of safety (35% discount to NTA).
Quite content with that.

[Mos]

ARG trading on a tax paid (PIE), yield of 6%, (9% gross for those of us on a 33% tax rate).
Enjoyed getting my $2.5K tax free quarterly divvy yesterday.
Last stated NTA $1.72.  Last traded price $1.12.  60 cent margin of safety (35% discount to NTA).
Quite content with that.

Not bad. 51% industrial property portfolio exposure should be fine and do well. 39% second tier office could be a bit more soggy - but decent margin of safety as you say.

[Crackity]

Argosy Property Trust, Goodman Property Trust and Kiwi Property Group report next month.
Kiwi Property Group's most recent valuation update occurred in early March, reporting a 4.1% decline, while Goodman Property Trust's March update saw a 4.7% valuation decline.
The current investment environment - particularly the direction of interest rate movements - is a challenge for the sector.
While most of these property trusts remain sufficiently capitalised to avoid any risk of actual failure, the challenge remains to position themselves going forward and optimise returns for unit holders.
2023 may end up being a year of balance sheet and existing asset management for the sector, as depressed valuations and the rising cost of capital limit progress on long-term strategies.


Not my work - That's Chris Lee today - ffs - call a spade a spade - higher interest rates equal lower prop values

[Basil]

My view is long term interest rates have already peaked (Cap rates peaking too?) and the discounts to NTA for some REIT's are excessive.  As we get past the peak, and interest rates start falling again, earning a PIE tax paid ~ 6% return, (effective rate for 33% taxpayers ~ 9%) is going to look even more attractive than it does now.   Thought for the day...if capital gains are off the table with property for the next few years, maybe it's the yield that really matters now...

[BlackPeter]

My view is long term interest rates have already peaked (Cap rates peaking too?) and the discounts to NTA for some REIT's are excessive.  As we get past the peak, and interest rates start falling again, earning a PIE tax paid ~ 6% return, (effective rate for 33% taxpayers ~ 9%) is going to look even more attractive than it does now.   Thought for the day...if capital gains are off the table with property for the next few years, maybe it's the yield that really matters now...

Agreed - looks like we are close to the interest peak and as soon as interest rates drop again pseudo bonds (like all the REITS) will start rising.

Well, that's my view anyway ... and holding ARG, KPG and various Retirement villages (at the end of the day just another REIT).