Healthy sector marches sturdily but bigger price rises elude it

By Peter V O'Brien

Friday 26th April 2002

It is nice to see that events sometimes justify predictions about likely trends for sharemarket sectors.

A review of the property sector in The National Business Review on November 2 said there was no reason to consider the next six months would be much different from the previous six in terms of price movements for shares and units.

The table shows prices as at last Friday for 10 listed companies and trusts and compares them with the situation on October 26.

Little happened, apart from a 15% fall for Southern Capital and a 36.8% change in Trans Tasman Properties' price.

Even those two apparently substantial movements could be discounted against a 3.9% gain for Southern Capital in the previous six months and Trans Tasman's 24% decline.

Gross dividend yields altered slightly for groups making distributions but were insufficient to cause any stir on the market.

The position admittedly changed in some cases if gross returns from capital appreciation and reinvestment of dividends were put into the calculations.

Property For Industry chairman Allan Lockie referred to that point in his preliminary report for the year ended December: "In 2001, an investment in PFI held throughout the entire year provided shareholders a total return, taking into account reinvestment of dividend distributions and share price appreciation, of 17.93%."

That was better than the 13.27% appreciation in the NZSE40 gross index over the year.

PFI's share price closed 2001 at 88c, a 7c or 8.64% improvement on the 81c ruling at the end of 2000 but an investor's total gain would have to be adjusted for reinvestment of distributions during the year.

Some property companies have noted apparent discrepancies between their prices and net asset backings in the past but few would have much to complain about last week, particularly those with price premiums over net tangible asset (NTA) backing.

Asset backing figures taken from The National Business Review's share tables last week showed the following price-to-nta ratios, with a figure more than one indicating a premium and less than one a discount: AMP Office 0.82; CDL Investments 0.9; Capital Properties 1.1; Colonial 1.1; Kiwi Income 0.8; National Property 0.9; Newmarket 0.7; PFI 1.1; Southern Capital 1.7; Trans Tasman 0.4.

Southern Capital's main operations are property development for sale and the company has other non-property investments. The issue of gross or net dividend yields does not arise with Southern Capital because there were no distributions in the past 12 months.

The other companies, excluding CDL Investments and Trans Tasman, continued to offer attractive gross dividend yields for investors.

They would become higher if there were any significant rises in interest rates but at the cost of counterbalancing decreases in share/unit prices.

Price movements last week after the Reserve Bank raised the official cash rate from 5% to 5.25% were minor, suggesting either that the market had anticipated the bank's action or ignored it.

Recent company and trust reports referred to strong property markets, particularly in the main CBD areas.

Several indicated they were obtaining the benefit of higher demand, rent reviews and consequent improvements in operating cashflows.

The last is important for shareholders in any company but particularly relevant to investors in property operations, given the propensity to distribute most of the surpluses.

Cashflow does not equate to net profit but the latter is usually necessary to achieve a healthy distributable profit.

AMP NZ Office Trust executive manager Robert Lang's comments in the trust's report for the six months ended December indicated the importance of cashflow and referred to apparent satisfaction of investors.

Mr Lang said the benefits of cashflow certainty and sustainability in the challenging market after September 11 were manifest in an increase in the unit holdings of existing investors.

The substantial improvement in Trans Tasman's share price over the past six months seemed to be market recognition that the company was solving its problems.

The preliminary report for the year ended December showed an unusual cost of $20.1 million of losses from sale of properties.

There were also property revaluation writedowns of $61.7 million in New Zealand and $800,000 in Australia. The sector appears healthy from an operational viewpoint but something remarkable needs to happen to get any major share and unit price increases.

LISTED PROPERTY COMPANIES' AND TRUSTS' PRICES

Company	Price (c) 19.4.02	Price (c) 26.10.01	% change Oct-Apr	2001/02 low	2001/02 high	Gross div yld

AMP NZ Office Trust	87	83	+4.8	97	78	8.1
CDL Investments	18	17.5	+2.9	24	14.8	N/A
Capital Properties	94	92	+2.2	98	84	10.9
Colonial First State	105	107	-1.9	110	92	10.1
Kiwi Income Prop Trust	99	95	+4.2	103	84	10.8
National Prop Trust	94	88	+6.8	98	75	9.6
Newmarket Prop Trust	52	48	+8.3	56	45	11.8
Property for Industry	88	87	+1.1	89	78	7.9
Southern Capital	68	80	-15.0	97	65	N/A
Trans Tasman Prop	26	19	+36.8	28	16.7	N/A

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