Listed income unaffected by valuation knocks

Friday 23rd February 2001

By Campbell McIlroy

Trans Tasman Properties announced property write- downs in its year-end results this week to the tune of $32.6 million (2.8%), turning a $38.2 million operating surplus before unusual items into a deficit of $9.1 million.

Continuing write-downs highlight the difficulty facing the listed property sector dominated by portfolios of commercial office buildings.

But analysts don't expect other stocks to be hit as hard as Trans Tasman Properties in the year ahead, with most having turned the corner from last year's lack of confidence in the sector.

Salomon Smith Barney analyst Blair Cooper said there was still room for some further portfolio devaluations this year but not to the same magnitude as last year.

"We certainly won't see them going up but I expect capital rates to hold or decline slightly," he said.

Despite more than its fair share of doom and gloom last year listed property stocks have continued to provide solid returns to investors with the NZSE Property Index outperforming the NZSE40.

For the 12 months to December 31, 2000 the NZSE Property Gross Index increased by a respectable 7.34% compared with an 8% drop in the NZSE40.

Last year saw the listed-property sector take a few hits through large portfolio devaluations, especially for CBD office stock, rising interest rates and the promise of high returns from glamorous tech-based stocks reducing investor interest in property.

The property sector also lost its only exclusively retail stock in the form of St Lukes, which delisted on August 10 following a successful, if controversial, takeover bid from Australian-based Westfield.

Analysts said there was a fear that with the sector's best- performing stock delisted, investors would abandon the sector altogether.

But the loss of St Lukes required many of the larger institutional holders to reweight their portfolios and lifted the share price of many of the lesser stocks. Analysts said this went some way to explain the reasonable gross returns last calendar year as indicated in the graph.

The pick among analysts for the year ahead appears to be Property for Industry.

Many said the industrial sector was less susceptible to changes in supply and demand and unlikely to face devaluations.

Mr Cooper said PFI was a stock you could put your grandparents into and be happy they wouldn't get burnt.

AMP NZ Office Trust has been another solid performer with its 100%-let portfolio returning a net after-tax surplus of $16.86 million for the six months to December 31, 2000.

Anzo shareholders received an unimputed net interim return of 3.5c per unit. But the company still has to undertake full property revaluations at its financial year-end of June 30.

However, Anzo has already reduced its total of 3700sq m of lease expiries this year to 1400sq m through early renegotiations and will be looking to maintain its fully let track record.

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