Property sector dull despite talk of an upturn

By Peter V O'Brien, Finance writer

Friday 2nd November 2001

The property sector of the sharemarket has been dull, dull and dull for the past six months, irrespective of the efforts of some people involved in listed companies and trusts to talk it up.

Listed property companies and trusts prices (c)

Company/trust	Price 26/10/01	Price 27/4/01	% change Apr/Oct	2001 High	2001 Low	Gross Div div yld

AMP NZ OfficeTrust	83	83	Nil	97	78	8.5
CDL Investments	17.5	20	-12.5	24	14.8	14.1
Capital Prop	92	96	-4.2	97	84	12.1
Colonial First State	107	101	+1.9	110	92	10.0
Kiwi Income Prop Trust	95	86	+10.4	96	84	11.1
National Prop Trust	88	90	-2.2	97	75	10.8
Newmarket Prop Trust	48	49	-2.0	56	45	14.0
Property for Ind	87	80	+8.7	88	78	8.1
Southern Capital	80	77	+3.9	97	65	NA
Trans Tasman Prop	19	25	-24	28	16.7	NA

The table shows prices as at last Friday for 10 organisations involved in the sector and compares them with the situation in April, the last time The National Business Review examined the sector from a private investor viewpoint.

Percentage price changes over the past six months were basically minor, given the relatively low cents' basis from which they were struck.

Property companies and trusts pay out a high proportion of net profit as dividends/distributions, because, apart from retaining some earnings for ongoing requirements, they do not need substantial revenue reserves.

Rental income is constant unless there is a sudden increase in vacancies and regular rent reviews ensure continuing income, although the supply/demand relationship of available space and consequently the rents chargeable, can vary in the short term

Latest reports and comments from listed companies and trusts were issued before the events of September 11 (a date which is rapidly becoming a media cliche to describe the terrorist attacks).

The reporting round for financial periods ended September 30 will update the situation in relation to any adverse reaction from international investors in the New Zealand property market.

Recent reports emphasised the competitive aspect of CBD property investment but attempts to assess a "global" conclusion have to be tempered with the fact that no two properties are the same, even when located in the same area (including next door to each other).

Starting from the alphabetical top of listed organisations, AMP NZ Office Trust seemed to retreat to jargon when assessing the outlook after reporting a net surplus of $20.9 million for the year ended June 30.

The trust's executive manager Robert Lang was quoted in the release to the Stock Exchange thus: "The trust's asset-management strategy remains focused on crystallising value-adding opportunities by capturing market opportunities as they arise and proactively managing the portfolio to maximise cash flows and improve capital values."

Why not say "we concentrate on buying properties that will produce high yields and consequent good rents while choosing properties likely to appreciate in value ahead of the market average?"

Either Mr Lang wrote the trust's release or approved the PR effusion from some high-priced outside company or internal spin doctors.

(He can have The National Business Review's plain-language rewrite at no cost, although the writer, wearing another hat, is willing to assist him in future - at cost).

CDL Investments' preliminary report for the six months ended June 30 provided the best summary of what happens in the property market and did it in plain language.

"The property market is cyclic and has been at the bottom of the current cyclical for a prolonged period. During the first half of this year, CDL experienced a small upward swing. However, by mid-year this trend appeared to be levelling out."

"Given the continued uncertainty in the market, it is very difficult to predict a likely full year result."

Evidence that there is no common "property market" came from the Kiwi Income Property Trust's report for the year ended March 31 (the interim 2002 report is due soon).

The company said the second half showed an upturn after a severe slump in business confidence in the first six months.

"Provincial New Zealand, buoyed by rising agricultural incomes, began to experience growth for the first time in years.

"Business confidence rebounded strongly at the end of 2000, bond yields dropped, interest rate declined and unemployment fell to its lowest level in many years."

The company said correctly and with an eye to the property market, that Christchurch, Wellington and the provincial cities experienced much of the benefit of that upturn and Auckland also benefited, although to a lesser degree.

Investors remain unconvinced about the sector's prospects, preferring to rate the stocks according to their gross dividend yields, or income factors.

Spokespeople for the sector's operators regularly moan about market prices being at substantial discounts to net asset backing, a situation which led the Property New Zealand (and other titles) group into voluntary liquidation.

There is no reason to consider the next six months will be much different from the past six in terms of share/unit price movements.

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