Earnings performance varies for property companies, trusts

By Peter V O'brien

Friday 24th November 2000

An overall improvement recently in the prices of shares and units in property companies and trusts and some increased payouts have lowered gross dividend yields in the sector.

The table shows the situation on November 17 and compares it with that on June 10, the last time The National Business Review examined the organisations.

An apparent massive decline in Capital Properties New Zealand's yield was due mainly to payment of the second instalment of the company's instalment receipts.

Recent earnings performance in the sector seemed to be related to the type of property in which operators (companies and trusts) are involved. For example, Colonial First State Property Trust's interim report for the six months ended September 30 said leasing activity had been strong in the Auckland and Wellington office markets, the trust's operational focus.

General manager Lloyd Cundy said there was a healthy demand for quality assets but the market for secondary product had weakened. Mr Cundy said there was also keen buying interest in the industrial sector as investors picked that area to outperform, given the strong performance of New Zealand's export market.

The trust's unit price was 85c in June and later reached a year's high of $1. The distribution per unit is ahead of the prospectus forecast.

Capital Properties had a net surplus of $7.56 million for the six months ended September 30, compared with $5.75 million in the corresponding period of the previous year but much of the increase reflected the takeover of Shortland Properties last year. Earnings a share for the full year were expected to be less than projected last December, mainly due to not leasing vacant space as quickly as assumed at the time of the Shortland takeover.

The distinction between different types of property was referred to in passing in Kiwi Income Property Trust's report for the six months ended September 30. Chairman Robert Narev said the trust's management was maintaining occupancy levels and enjoying good success in renewing leases as they fell due, in spite of negative commentary about the level of vacancies in the major commercial office markets.

The report noted the trust had recorded a "sound operating result for the period despite the gradual erosion in business and investor confidence" since the beginning of the year. Mr Narev put it another way: "It is the hallmark of a diversified portfolio of quality investment properties that the rental income levels are predictable and not subject to short-term volatility as a result of changing economic conditions."

Some operators are still unhappy about the prices of their shares/units, a point noted in June.

It was summed up in National Property Trust's report for the year ended May 31. The report said the investment market had cycles during which investor appetite for capital growth overrode fundamental investment values. New Zealand had yet to emerge from such a phase.

It added that volatility on the sharemarket over the year to May was attributed to the perception the sector was overvalued and a downward correction was inevitable.

That perception had largely become reality due, to a large extent, to the requirements of the accounting standard whereby properties were to be revalued for reporting purposes based on there being a willing buyer and a willing seller at "an arbitrary time in the market cycle."

Wellington-based Southern Capital is included in the table because it has property activities, although there has been considerable diversification into equity investment in biotechnology and e-commerce, greenfields property development and a mussel farm.

The report for the year ended June 30, had an asset diagram summarising activities into divestment assets (CBD buildings), equity investments, "long-term projects" (property development and the mussel farm) and property trading deals.

CDL Investments' property activities are based on residential developments. The company noted in August the New Zealand residential market had slowed down considerably in the first six months of 2000. House sales had dropped substantially in comparison with the previous year.

Property for Industry has taken a different approach, being involved solely in industrial property. Many investors in the property sector look for income yield based on regular revaluations of the properties and therefore higher rentals and/or sale value of the operators' portfolios.

The table shows they are still getting good gross yields, although a little lower than in June.

Listed property companies and trusts

Company/trust	Price (c) 17.11.00	Price (c) 2000 high	Price (c) 2000 low	Gross div yld % 17.11.00	Gross div yld % 10.6.00
AMP Office	81	94	79	8.4	9.3
CDL Investments	19.5	24	19	18.6	19.1
Capital Props	85	99	82	13.6	41.2
Col First State	91	100	79	11.5	10.2
Kiwi Income	90	99	80	11.6	11.8
Nat Prop Trust	76	90	65	11.3	10.9
Newmarket	50	63	45	18.6	17.5
Prop for Ind	77	82	69	9.5	9.4
Prop Leaders NZ	85	86	65	7.3	10.0
Southern	85	110	45	N/A	N/A
Trans Tasman	18.9	27	16.5	N/A	N/A

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