Property organisations disagree on future levels of profitability

Friday 4th May 2001

By Peter V O'Brien

Prices for shares and units in most property companies and trusts have improved since The National Business Review examined the sector on November 24.

The table shows at the end of last week seven organisations' prices rose since November and four's fell. They were relatively small movements in terms of cents either way but the percentage changes were large in some cases, due to the comparatively low base from which they were struck.

Capital Properties, for example, went from 85c to 96c, a gain of 12.9% in five months.

Colonial First State Property Trust moved up 11%, going from 91c to $1.01 and National Property Trust's increase from 76c to 90c was a gain of 13.4%.

Those changes were dwarfed by Trans Tasman Properties, where a lift from 18.9c to 25c was a gain of 32.2%.

There were consequent effects on the gross dividend yields, also shown in the table.

Property companies tend to distribute most of their profits in dividends and/or distributions on units, so the dividend yield is a large factor in investors' assessment of the sector and particular groups within it.

While market conditions vary, depending on location of properties, whether they are industrial, commercial or development projects, some comments from recent reports are a useful guide to the sector's prospects.

AMP NZ Office Trust's interim report for the six months ended December 31 said in February while positive economic indicators provided encouragement they had not yet had a material impact on New Zealand office markets.

The office markets in Wellington and Auckland continued to be more responsive to "sector specific supply and demand dynamics."

Generally, conditions in the Auckland CBD market remained unchanged in the six months ended December.

The secondary quality office market remained demanding as tenants continued to upgrade to prime quality accommodation. Vacancy in the secondary category was 17.1% in February.

The Wellington office market still showed increasing strength. The latest vacancy statistics showed the prime-quality CBD vacancy rate reduced in the past six months from 10.2% to 6.3% or only 12,1000sq m.

It was AMP NZ Office Trust's perception that the CBD's office market's prospects were healthier now than six months ago as a result of a stronger than expected economic turnaround.

The economic improvement was still export-focused but its "increasing diffusion through the domestic economy augurs well for property over the coming year."

AMP NZ Office Trust's profit increased 3% in the latest half-year, reaching $16.86 million.

CDL Investments concentrates on development activities, mainly in the residential area, although it also owns Knight Frank (NZ), a property management company.

The group report for the year ended December referred to last year as challenging for the New Zealand property market, which saw business confidence falling to a level not experienced since the 1987 sharemarket crash.

Residential property sales and values continued to decline for most of the year and finished at 20% behind those of the previous year.

CDL Investments' net profit fell 20% on 1999's. The report said the future outlook in respect to profitability was challenging, considering the uncertainty of the market and prevailing economic conditions.

Good profit gains came from Colonial First State Property Trust and Capital Properties, although the latter's 31.6% gain for the six months ended September 30 compared with the first half of the previous year reflected the takeover of Shortland Properties.

Capital Properties 11.9% gross dividend yield was toward the upper end of the range for the larger groups in the table.

Results from other organisations in the sector varied depending on their activities and the effect of general economic conditions on them.

It is a truism that good quality property portfolios have a two-fold effect on profitability. Well-sited quality property tends to increase in value over time, subject to occasional dips, and that factor leads to regular movements in rentals, thus increasing profitability and the capacity to lift distributions to shareholders and unitholders.

Listed property companies and trusts
Company/trust	Price (c) 27.4.01	Price (c) 2000/01 high	Price (c) 2000/01 low	Gross div yld (%)

AMP NZ Office Trust	83	97	79	8.7
CDL Investments	20	24	19	11.9
Capital Prop	96	99	82	11.9
Colonial First State Prop	101	105	79	10.6
Kiwi Income Prop Trust	86	99	80	12.1
National Prop Trust	90	90	65	10.1
Newmarket Prop Trust	49	63	45	17.2
Property for Industry	80	85	69	8.5
Property Leader NZ	79	86	65	7.7
Southern Capital	77	110	45	NA
Trans Tasman Prop	25	28	16.5	NA

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