How to select a good Listed Property Trust???

[JIT]

Hi,

How do you select a good Listed Property Trust? I've had a look at a few PDS of some LPT's. I feel the biggest downside of this sort of managed investment (like many others) is your complete lack of control on the future performance of the LPT.

You really have no say in future asset selection or asset allocation, or the future strategic directions of the fund. The fund you bought into at the start, could completely change in nature in a few years time.

Everything is left to the whim of the fund manager.

I would guess then that the main thing is trying to pick a good fund manager. But, again, how do you do this???? Maybe see who is this years 'Fund Manager of the Year'? - but then also consider that 'past performance is no guarantee of future performance'...?

It all seems such a random and speculative process to me, especially compared to selecting an investment property?

Does anyone have a system?

Any thoughts?

GSJ

 

[FrankGrimes]

GSJ

My selection has been based on

- Low MER
- Good performance history over the long term ie 5 years + (use tradingroom.com.au)
- Reputation

There are plenty of funds which fit this criteria. However, you are right in saying that you have no control over their assets, but thats life. Most of the funds have alot of diversification.

Most fund managers have an 'objective' and they will change their holdings accordingly. You need to make sure the fund matches what YOU want to acheive.

Ie..

High income
Low volatility
High CG

List goes on...

 

[The Y-man]

If you are looking at particulart property trusts (as opposed to Property Funds), then the disclosure statements should give you an indication of some key pointers:

1. type of property - industrial (heavy/light), office, retail, etc
2. land banking
3. tenant selection criteria (eg. listed orgs, government depts)
4. lease types / lengths
5. current rental returns

For example, if the majority of tenants are government dept's with 15 year leases, in buildings specifically designed for them - now that's a good thing

Cheers,

The Y-man

 

[JIT]

Thanks for the replies.

A very interesting topic.

Have read a few more PDS, and am trying to get some sort of criteria/system happening.

GSJ

 

[Dazz]

Does anyone have a system?

Hi GSJ...we've chatted before about this subject and you just know what I'm going to say don't you.

If you are concerned about the lack of control of an LPT investment, then my suggestion is to jump into the driving seat and be your own fund manager....the pay is great !!!

Of course, most people will jump up and say "but you lose all of your diversification".....exactly, and it's great for building wealth by doing so. The lessons you learn negotiating sales contracts / leasing contracts and closing deals for 10 to 15 years is invaluable, and sets you up for bigger and better things later on.

As time passes and you grow in both confidence and equity, one gets to diversify into other properties - smearing out the risks. The best thing is you are 100% in control of the investment.....similar to all of the folk owning their own IP's.

I know it's a big step, and if your burning ambition is to own a shopping centre in the heart of Sydney....it may be a while....but having your name (or a trust) all over the title deed feels soooo much better than owning a few LPT's.

Like Noel Whittaker once said, "looks like a share, smells like a share and feels like a share.....it's a share".

 

[Jase H]

Are you talking about listed property trusts? or unlisted property funds?

I much prefer the former and the best of the best is Westfield Holdings due mainly to its wonderful owner/manager Frank Lowy, high Return on Equity and its US growth strategy. But it will rarely be considered cheap or out of favour on a valuiation basis.

Also Australand appears quite cheap on a dividend yield basis at the moment about 9% yield 57% franked. It has been out of favour due to leverage to NSW property market but the -VE sentiment appears to be over due. It also pays 1/4ly distrubutions.

My opinions only


Cheers

Jase H

 

[JIT]

...feels soooo much better than owning a few LPT's.

Like Noel Whittaker once said, "looks like a share, smells like a share and feels like a share.....it's a share".

Yes, LPT's have a positive correlation to the sharemarket and are thus subject to similar rises and falls or volatilities (maybe not as severe though). Their performance is essentially tied to the sharemarket and not solely the result of the underlying direct property asset holdings. This, along with the fact that I don't really understand the sharemarket, and yes...the lack of control...makes me uncomfortable with LPT's. At present, I am leaning more towards unlisted property trusts or property syndicates, that invest directly in commercial property, and not in other trusts or other funds, with some form of limited liquidity facility. Still, you don't have full control, but at least you know exactly where your money is going and what the fund manager is doing with it, and the investment performance is less volatile and more predictable. Going solo as Dazzling has, is the next step, but that could be a while...

GSJ

 

[meat_tray]

Of course, the 'loss of control' that you get with LPTs is also a good thing. It means it's a hands-off investment, leaving you free to do other things.

IMHO, you can waste a lot of time worrying about LPT selection (do I buy Westfield, Mirvac, Valad, or...). The 'expert' fund managers can even get it right, their performance is no better than the market average, so I've just bought a few (including Westfield and Australand, as recommended by JH) and am holding long-term.

I have the same opinion on monitoring their performance. Mirvac announced the other day a $250M joint venture on the Gold Coast. It's a 10 year project. Nobody can forecast the performance of something like that, and what it should mean for the share price. So, I just ignored it.

This might all sound a bit pessimistic, but the long-term performance of LPTs has been very strong, and I think it's pretty safe to just buy a diversified selection and hold through thick and thin.

It's not an LPT, but I've also bought some AV Jennings recently. They have a big exposure to the NSW property market, so it might be a bit rocky over the short/medium-term, but that's already factored into the share price, and I think it has very good prospects over the longer term. The 6.8% fully-franked (ie almost 10% gross) dividend also helps. Does anyone know if they make good houses?
Cheers,
MT

 

[meat_tray]

Oops, I meant to say, "The expert fund managers CAN'T even get it right.

 

[Jase H]

I agree with meat tray re. his assessment of the sharemarket. Don't get too worried by short term price fluctuation re. buying LPT's or any other listed shares for that matter.

Remember a quote by the original value investor himself Benjamin Graham

"In the short term the stock market is a voting machine but in the long term the stock market is a weighing machine"

In other words short term price movement is caused by how popular a stock/LPT is, but long term price movement is caused by how much a company/LPT increases its Earnings Per Share.

Use the short/mid term price volatility to help you purchase when undervalued and sell when overvalued.

Another great quote to remember is

"Price is what you pay and value is what you get"


Cheers

Jase H

 

[Jase H]

GSJ,

Another thought just occured to me re. your issue in trying to pick a good Listed Property Trust. Vanguard Investments have a Listed Property Trust which is an index tracker of all LPTs within either the ASX 200 or ASX 300, I can't exactly recall, but it basically tracks the average return of all the LPTs on the ASX.

This gets rid of Company specific risk (due to diversification) but obviously still has overall market risk. Another advantage of using this type of fund is its low fees MER or 0.9% from memory, compared to average of around 2%. ALso no entry or exit fees just a buy/sell spread to cover their transaction costs.

Most Margin Lenders will allow an LVR of 70% with these type of invretments and an extra margin call buffer of another 10%.

FYI and for full disclosure I currently hold about 20k in the above mentioned Vanguard Property Securities Fund. It has done very well for my since starting it around Feb '06 and pay distrubutions 1/2 yearly.


Cheers


Jase H

 

[Simon]

Hi,

How do you select a good Listed Property Trust? I've had a look at a few PDS of some LPT's. I feel the biggest downside of this sort of managed investment (like many others) is your complete lack of control on the future performance of the LPT.

You really have no say in future asset selection or asset allocation, or the future strategic directions of the fund. The fund you bought into at the start, could completely change in nature in a few years time.

Everything is left to the whim of the fund manager.

I would guess then that the main thing is trying to pick a good fund manager. But, again, how do you do this???? Maybe see who is this years 'Fund Manager of the Year'? - but then also consider that 'past performance is no guarantee of future performance'...?

It all seems such a random and speculative process to me, especially compared to selecting an investment property?

Does anyone have a system?

Any thoughts?

GSJ

You make it sound like the fund managers are a bunch of dart armed monkeys.

If you have the time, inclination and skills to run it yourself then go for it.

if you are deficent in any are then consider using an expert fund manager to help you reach your goals.

Of course we are all experts after this last boom - the proof of the pudding lies in the next few years I suspect!

Cheers,

 

[JIT]

You make it sound like the fund managers are a bunch of dart armed monkeys.

If you have the time, inclination and skills to run it yourself then go for it.

if you are deficent in any are then consider using an expert fund manager to help you reach your goals.

Of course we are all experts after this last boom - the proof of the pudding lies in the next few years I suspect!

Cheers,

Ummm....no, my point is that most small retail investors are a 'bunch of dart armed monkeys' trying to pick a good LPT/good fund manager to entrust their hard earned savings and make them some money.

I think I posed a valid question. If you don't have any criteria or system to pick one that, firstly, suits you, and secondly, has a chance of doing well, then you may as well go to the TAB, pokies, or casino and try your luck there.

What's your approach Simon?

GSJ

 

[Trogdor]

Ummm....no, my point is that most small retail investors are a 'bunch of dart armed monkeys' trying to pick a good LPT/good fund manager to entrust their hard earned savings and make them some money.

I think I posed a valid question. If you don't have any criteria or system to pick one that, firstly, suits you, and secondly, has a chance of doing well, then you may as well go to the TAB, pokies, or casino and try your luck there.

What's your approach Simon?

GSJ

If one sticks with a few wholesale LPT funds, with low MER, and a track record of at least matching the XPJ index (not hard to do) then you would get the benefits of the LPT asset class quite easily.

As an aside I think this sector is starting to look quite expensive and much harder to justify new investment into.

I've been very happy with performance recently, though.

 

[JIT]

Thanks for the comments,

Jase H, meat_tray, Trogdor - for me picking a good LPT/good fund manager still seems akin to gambling. In a booming market it may not be so hard, but if the investing climate changes I think it will be much more difficult. Many LPT's appear to have done well in the last 5 years, but the next 5 years may not be so good.

You have all mentioned or alluded to the use of index funds, and I think Frank also mentioned this in another thread - I agree, I think investing this way makes a lot more sense then taking a punt on a specific LPT. This is certainly something I would consider. Lower fees, and perhaps more stability and more predictability, as well as diversification - and all the benefits of the LPT asset class, as Trogdor said, excluding market specific risk.

Furthermore, if I had a lot of money to invest, say 1, 2 or 3 million, rather than 20k-200k, for example, and were to put this money into LPT's to generate a reliable and secure inflation-hedged income stream, I would want to have some pretty convincing reasons or criteria/system to put this hard earned money/equity into a specific LPT. If not, I would index or consider other alternatives.

I would not simply trust an 'expert fund manager' with all this money, that I may have generated/created through years and years of investing in residential property, for instance.

Any thoughts?

GSJ

 

[Trogdor]

Thanks for the comments,

Jase H, meat_tray, Trogdor - for me picking a good LPT/good fund manager still seems akin to gambling. In a booming market it may not be so hard, but if the investing climate changes I think it will be much more difficult. Many LPT's appear to have done well in the last 5 years, but the next 5 years may not be so good.

You have all mentioned or alluded to the use of index funds, and I think Frank also mentioned this in another thread - I agree, I think investing this way makes a lot more sense then taking a punt on a specific LPT. This is certainly something I would consider. Lower fees, and perhaps more stability and more predictability, as well as diversification - and all the benefits of the LPT asset class, as Trogdor said, excluding market specific risk.

Furthermore, if I had a lot of money to invest, say 1, 2 or 3 million, rather than 20k-200k, for example, and were to put this money into LPT's to generate a reliable and secure inflation-hedged income stream, I would want to have some pretty convincing reasons or criteria/system to put this hard earned money/equity into a specific LPT. If not, I would index or consider other alternatives.

I would not simply trust an 'expert fund manager' with all this money, that I may have generated/created through years and years of investing in residential property, for instance.

Any thoughts?

GSJ

Your logic makes sense.

However, one point I could add as to why an index fund may not be a good choice in all circumstances for the LPT sector, especially if you seek a high yield "reliable and secure inflation-hedged income stream", is that Westfield (and other names with high levels of non-rent earnings) make up a big chunk of the XPJ index.

By using a fund manager (wholesale, low MER, etc) you may be able to be better exposed to the LPT sector as it traditionally existed (say 5+ years ago) before the rounds of mergers, consolidations, and growth of corporate style and overseas earnings.

For an example of this style of fund look at APN Funds management (ie Property for Income fund #1 and #2) which specifically advertise this point - but many others are significantly underweight with Westfield and the like.

 

[The Y-man]

If you see a great commercial property that you would love to own, find out if it is owned by a trust, and see if they are open to retail investors

Cheers,

The Y-man

 

[JIT]

Your logic makes sense.
However, one point I could add as to why an index fund may not be a good choice in all circumstances for the LPT sector, especially if you seek a high yield "reliable and secure inflation-hedged income stream", is that Westfield (and other names with high levels of non-rent earnings) make up a big chunk of the XPJ index.

By using a fund manager (wholesale, low MER, etc) you may be able to be better exposed to the LPT sector as it traditionally existed (say 5+ years ago) before the rounds of mergers, consolidations, and growth of corporate style and overseas earnings.

For an example of this style of fund look at APN Funds management (ie Property for Income fund #1 and #2) which specifically advertise this point - but many others are significantly underweight with Westfield and the like.

Trogdor,

Yes, I was just reading about this in an article called 'the relevance of the index'. Apparently in 2003 and 2004 there were a lot of mergers and consolidations amongst exisiting LPT's - there used to be smaller sized and more sector specific trusts, but now there are more bigger sized and diversified trusts.
In addition many on the LPT's are becoming 'stapled securities', meaning they are associated with a listed company, and hence part of their earnings comes from business income and has the associated risk/volatility of business, like Westfield, as you have mentioned. This aspect of LPT's is again unnattractive to me as I don't understand business much, or the various creative (non-rental) ways these LPT's are now using to generate income.

I really don't like to invest in anything I don't fully understand.

These bigger LPT's are, as you suggest, unlike what they may have been in the past - perhaps a lot simpler, straightforward, easier to understand, and basically predominantly making their money from the income/capital growth of direct property investments.

Due to their sheer size, these LPT's are essentially changing the nature of this LPT index. There is more and more of a 'sharemarket effect' on the LPT index. The reliability, security, risk and volatility profiles of LPT's may be very different in coming years.

Thanks for the tip - I will have a look at the PDS of APN Funds Management, and some of the index funds currently available...

GSJ

 

[JIT]

I had a look at the LPT index funds, there aren't many variations amongst them, they just track the big LPT's, no sector specific index funds etc...

Also looked at APN Funds, which is good in that it avoids LPT's that make substantial returns from business/development related income and has some investments in unlisted property trusts, thus reducing risk/volatility.

These types of LPT funds, or property securities funds, I think are good. They offer high income, moderate CG, lower risk/volatility, and high liquidity. Again, however, the dilemma of selection exists! - as there are many of these funds around. But I feel a lot clearer about my potential investing options now.

I will try and find a simple way to narrow these selections down.

GSJ

 

[kissfan]

Again, however, the dilemma of selection exists! - as there are many of these funds around. But I feel a lot clearer about my potential investing options now.

I will try and find a simple way to narrow these selections down.

Hi GSJ.

Please keep us informed of your quest, it's informative reading.

Regards
Marty