Why most of the large LPTs are owned by Pension Funds

[Glebe]

Thanks for your assistance Keith. I certainly want to get to know this sector better

 

[austini]

Hi Gang,

You can of course pay for research information on the property trust sector:

http://pir.com.au/
http://pir.com.au/?mp=product&sp=mon

I think PIR will quite happily send you a sample issue of their report.

As for LIC's the ASX website has plenty of good research information available with the following being quite a useful quarterly research report:

http://www.asx.com.au/investor/pdf/AegisResearch.pdf

Cheers - Gordon

 

[The Y-man]

Just a few nitty gritty details....

[*] They have diversified blue chip tenants – eg Telstra, BHP, Big Banks, Woolies, Coles etc

...although the most desirable is often Government departments.

[*] They have staggered lease expiry dates – low vacancy risk

...at least you hope they do! Check out the actual trust to see whether they are managing ther expiry dates.

[*]You can buy any amount of shares from $1 up
.

I think the minimum ASX trade is $500 but I could be wrong (could be broker).

Anyway, enough nitty grittys.....

The other creatures I have alluded to before are Unlisted Property Trusts.

Here is my *very* limited knowledge of them.....

Unlisted trusts have very similar features to the listed trusts (as you would expect!) EXCEPT: being unlisted, they generally have lower liquidity. i.e. you may not be able to sell out and cash in when you want to. It is in fact similar to having joint ownership of the property in question, and (depending on the structure) may require the majority of unit holders to decide to sell the actual building and distribute the money.

On the other hand, the returns (yield) on unlisted trusts are often higher than listed trusts (I mean heck, you are taking a liquidity risk, so there must be some upside? ). I imagine one of the reasons would be the manager does not need to meet various listing compliance rules of the ASX.

Unlisted trusts are often created for single buildings, and may be created/managed by companies that already have LPT's - eg investa, ING, etc. Often times, if you hold units in an LPT, you'll recieve "special offers" from the manager about a "new (unlisted) trust".

Minimum entry for unlited trusts also tend to be higher - typically $10k.

Cheers,

The Y-man

 

[oracle]

Hi Glebe,

In the past I've held MOF,MCW,DRT,WDC,ABP,MLE,MGQ,GPT,MGR,SGP IPG,MXG,AVJ.

ATM I particularly like ABP,MLE,WDC.
I think WDC will perform for the foreseeable future. Obviously they're into retail, so have some dependancy on that cycle.
MLE has grown well & its forecast to continue. (You get a free pass to Dreamworld too!)
ABP is a bit higher risk as they do development, relatively small, management is proactive (& approachable), also diversified, into funds management, with slightly higher yield.

Hi Keith,

Was just checking out the performance of ABP, WDC and MLE from 2006 to 2013. I didn't like what I saw.

WDC

Share price 2006 = $18
Share price 2013 = $11.30

Dividend per share 2006 = 106.5 cents
Dividend per share 2012 = 49.5 cents

ABP

Share price 2006 = High $7
Share price 2013 = $2.22

Dividend per share 2006 = 11.8 cents
Dividend per share 2012 = 16.5 cents (Although in 2009 paid only 7.8cents and in 2010 3.2 cents)

MLE

Unfortunately, doesn't seem to be listed anymore.

[PS: I looked up all my data using E-Trade]

Some forumites have mentioned they are investigating LPTs, here's my take on them,
...

Advantages

• LPTs are relatively high yielding – currently about 7.0%-8.0%pa nett
• Rents (& therefore distributions) are linked to CPI – the income (& capital) grows with inflation
• Some of the biggest holders of LPT shares are Industry Retirement Funds
• They have a well diversified tenants base – often 100’s of tenants
• They have diversified blue chip tenants – eg Telstra, BHP, Big Banks, Woolies, Coles etc
• They have staggered lease expiry dates – low vacancy risk
• They have long term leases - often 10yr+
• They are low risk – the big companies will always need somewhere to work from
• They have low volatility – rent are consistent every month
• They distribute either quarterly or half yearly – you get a cheque/direct credit 2 or 4 times a year
• They are often partially tax deferred – which means you don’t pay tax on some of the income NOW, however if you do ever sell you pay (often 50% discounted) CGT in the future
• IP investors should be comfortable investing in commercial property – it’s just different class of tenant!
• The shares are liquid – you can sell them all by lunchtime & receive the cash 3 days later - try that with Res or Comm IP!
• They can be borrowed against using margin lending (usually a max of 65-70% LVR) – you don’t lose leverage
• Banks recognise the income for serviceability purposes -
• They reduce the volatility of a diversified portfolio – you can keep some of your IPs
• You can buy any amount of shares from $1 up
• Entry & Exit costs or v. low usually less than 0.2%. Compare this with 3% stamp duty plus 3% agents fees plus legal costs, plus….
• There are no holding costs – no land tax, property management fees
• Low maintenance – no blocked toilets to fix on Sundays
• Large asset base of several buildings usually worth > $1B
• Diversification – sector, state, or global

Disadvantages

• They only grow at roughly the same rate as inflation, not at above the rate of inflation as share or IPs asset may do. The upside of this is most people want consistent income each & every year that grows with inflation, so LPTs fulfil this need perfectly.
• You aren’t in complete control – but if you’re retired that’s a good thing
• Their price is based on their yield. As a v. rough guide they yield around 1.5% above the ‘risk free’ rate, this means that when interest rates go up, their 1.5% yield premium is maintained so their price goes down. And vice versa.
• Some LPTs are diversifying into property development thereby increasing their risk profile.
• Some LPTs are diversifying overseas with higher associated risks – exchange rates, low local knowledge

I’m not a financial advisor and this is my opinion only.

Would you consider updating any advantages/disadvantages?

Cheers,
Oracle.

 

[topcropper]

MLE

Unfortunately, doesn't seem to be listed anymore.

.

MLE is now Ardent Leisure Group, AAD.

Same thing, just a name change and no longer run by Macquarie.


See ya's.

 

[oracle]

MLE is now Ardent Leisure Group, AAD.

Same thing, just a name change and no longer run by Macquarie.


See ya's.

Thanks Topcropper.

AAD (previously known as MLE)

Share price 2006 = $2.50
Share price 2013 = $1.76

Dividend per share 2006 = 14.5 cents
Dividend per share 2012 = 11.7 cents

Again, data obtained from E-Trade

Cheers,
Oracle.

 

[greedy2000]

Listed Property Trusts were some of the worst hit stocks during the GFC, Highly leveraged with illiquid assets, not a good mix.

Would I buy in now? hmmmmm probably not. I think there are other stocks I'd buy first before getting into LPTs.

 

[redwing]

I'm with Greedy I know some semi-retirees who took a huge hit in the GFC with LPT's

According to the rating company, Chant West, for the 2013 financial year:

• Australian shares jumped 21.9% for the 2012/2013 year
• Hedged international shares jumped 21.3%
• Unhedged international shares delivered a massive 33.1% due to the fall in the Australian dollar
• Listed property also delivered huge returns with Australian REITs gaining 24% for the year
• International REITs delivered 17.2%
• Unlisted infrastructure rose 11.1%
• Unlisted property rose 8.4%
• Alternative assets delivered reasonable returns with private equity gaining 5.6% and hedge funds gaining 9.2% for the 2012/2013 financial year
• International bonds gained 4.6%
• Australian bonds rose 2.8%
• Cash delivered 3.3% for the year

 

[topcropper]

What about a slightly different perspective then? A lot of stocks and almost every LPT is going to look bad looking at those figures from 2006 compared to now.

But what about this then? Just using AAD, or MLE as it used to be. OK, it's had a huge drop in share price since 2006. Dividends have dropped too. However it payed 19.6 cents per share dividend in the year to June 2008. I bought for 60 cents per share or so in about 2001 when it was paying 6 cents per share. So 7 years later I was getting 30% yield.

I've now received twice the amount of dividends over 12 years as the total purchase price.

To me AAD is a never sell, as it owes me nothing. At it's current price of $1.75 it's paying 13 cents per share so a 7.5% yield. Or if taken on purchase price 12 years ago, it's got a huge yield. Why would I sell it?


See ya's.

 

[Intrinsic_Value]

What about a slightly different perspective then? A lot of stocks and almost every LPT is going to look bad looking at those figures from 2006 compared to now.

But what about this then? Just using AAD, or MLE as it used to be. OK, it's had a huge drop in share price since 2006. Dividends have dropped too. However it payed 19.6 cents per share dividend in the year to June 2008. I bought for 60 cents per share or so in about 2001 when it was paying 6 cents per share. So 7 years later I was getting 30% yield.

I've now received twice the amount of dividends over 12 years as the total purchase price.

To me AAD is a never sell, as it owes me nothing. At it's current price of $1.75 it's paying 13 cents per share so a 7.5% yield. Or if taken on purchase price 12 years ago, it's got a huge yield. Why would I sell it?


See ya's.

i don't know about a never sell it would depend on price vs IV.

But its one of my 5% positions (rare, most positions much less) and I am happy to hold at this level.

Also benefits from falling AU$ as one of its divisions: main even is in the US.

In regards to many of the other listed trusts mentioned, without doing any homework, I would speculate that they did large capital raisings at low prices during the GFC to pay down debt. This would seriously harm there ability to recover to 2006 levels as it would have been very dilutionary

 

[marty998]

Hi Keith,

Was just checking out the performance of ABP, WDC and MLE from 2006 to 2013. I didn't like what I saw.

WDC

Share price 2006 = $18
Share price 2013 = $11.30

Dividend per share 2006 = 106.5 cents
Dividend per share 2012 = 49.5 cents

ABP

Share price 2006 = High $7
Share price 2013 = $2.22

Dividend per share 2006 = 11.8 cents
Dividend per share 2012 = 16.5 cents (Although in 2009 paid only 7.8cents and in 2010 3.2 cents)

MLE

Unfortunately, doesn't seem to be listed anymore.

[PS: I looked up all my data using E-Trade]



Would you consider updating any advantages/disadvantages?

Cheers,
Oracle.

For WDC you need to add in the effects of the Westfield Retail Trust spin-off.

All asset classes go through cycles. If you went back and analysed those stocks for 1999-2006 you will probably get a totally different result

 

[keithj]

Hi Oracle,

LPTs have changed significantly since that was written well before the GFC. Their yields are a fair bit lower, though still roughly similar on an interest rate relative basis. Their debt levels caused major price drops during the GFC & they don't look like recovering in the short or medium term. LPTs are not alone - many cpys share prices & dividends still haven't recovered to pre-GFC levels.

Their current headwind is the falling A$ - US funds are selling down as our $ falls. I see this as an opportunity when the A$ stabilises.

Cheers,

Keith

Hi Keith,

Was just checking out the performance of ABP, WDC and MLE from 2006 to 2013. I didn't like what I saw.

 

[topcropper]

For WDC you need to add in the effects of the Westfield Retail Trust spin-off.

Well picked up.

I missed that one.

All asset classes go through cycles. If you went back and analysed those stocks for 1999-2006 you will probably get a totally different result

True. LPTs would have a spectacular result over that time frame.


See ya's.

 

[oracle]

Hi Oracle,

LPTs have changed significantly since that was written well before the GFC. Their yields are a fair bit lower, though still roughly similar on an interest rate relative basis. Their debt levels caused major price drops during the GFC & they don't look like recovering in the short or medium term. LPTs are not alone - many cpys share prices & dividends still haven't recovered to pre-GFC levels.

Their current headwind is the falling A$ - US funds are selling down as our $ falls. I see this as an opportunity when the A$ stabilises.

Cheers,

Keith

Interesting..thanks Keith.

In your famous post about retiring you decided use your equity from property to buy bunch of shares which looked diversified. Do you still hold similar diversified portfolio? If you had to make a similar move today into the stockmarket would you have done anything different?

Reason I ask is I might be doing something similar to what you have done but am thinking of just buying ASX300 ETFs rather than bunch of stocks. I understand all I can expect is market returns by doing this but am satisfied with it as I am more interested in having something as passive as it can get but still make a satisfactory return over the long term.

Cheers,
Oracle.