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Investors nervous but property (LPTs) stays calm

Discussion in 'Real Estate Investment Trusts (A-REIT / LPT)' started by austing, 15th Jun, 2008.

  1. austing

    austing Well-Known Member

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  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Here's a chart of the XPJ (ASX200 Property Trusts index) from July 2002 ... the current lows are lower than the highs in mid-2003.

    The index had nearly doubled in 5 years, and has since given away nearly all of those gains.

    The big question is - WHEN will the local property market start to recover and does it have futher to fall yet?

    Is it worth sitting on the sidelines another year or two for everything to sort itself out - or is now a good time to be buying back in?
     

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  3. austing

    austing Well-Known Member

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    Hi Sim,

    I was a technical trader years ago. Based on the current weekly chart, back in my trading days I wouldn't even consider entering the market. If it manages to break through the 2002 - 2003 lows again on strength then god knows how much further the downtrend could continue.

    However nowadays I'm a long term, income oriented investor and given that I purchased SLF in the SMSF and won't be accessing it for a number of years I'm was willing to take the trade. However if it was outside of Super and I wanted to get the best bang for buck in the shorter term I would wait until a turnaround was clearly established. At this stage it is still very, very much in a downtrend at least according to how I see the charts.

    Just my opinion of course and probably the wrong one:rolleyes:

    Cheers - Gordon
     

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  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think your approach has merit Gordon.

    One thing I haven't looked at are the yields (both actual and projected) for some of these LPTs. If the price has dropped more than the income such that yields are actually improving (and sustainable), then there is value in holding these purely from the income point of view - which I believe has always been the point of property trusts (well, until recent years anyway :rolleyes: ).
     
  5. austing

    austing Well-Known Member

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    Hi again Sim,

    Another way of looking at it of course is as long as one doesn't think the stock will go bust and it is costing you nothing to own in that the income covers the interest then when it's all said and done there is limited downside for the income oriented investor. Just like res property over the long term property is pretty forgiving.

    Outside of Super I'm tending to favour the major banks at the moment. Again it is costing next to nothing to hold them. Of course going forward earnings could be under pressure and interest rates could rise but there is certainly less downside at their current levels. Whatever happens I sleep well at night and never overcommit.

    Back to LPTs the yields are very high on some at the moment. I know of a few people who have invested in Macquarie Office Trust lately with a yield of about 12% from memory.

    http://www.macquarie.com.au/au/property/acrobat/may_2008_newsletter.pdf

    Macquarie Office Trust

    Cheers - Gordon
     
    Last edited by a moderator: 15th Jun, 2008
  6. Tropo

    Tropo Well-Known Member

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    "Just my opinion of course and probably the wrong one"

    No....You are NOT wrong !!!:p
    I like your chart = another view to a kill.:D
    Current market volatility is good for short sellers and for ..... heroes.
    Most of the time heroes end up 6 feet under the dirt...;)
     
  7. austing

    austing Well-Known Member

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    Hey Tropo,

    Being 6'7" tall I might just be able to keep my head about the dirt:eek:

    I do love the popularity of short selling nowadays. It often drives down price much more than warranted by fundamentals allowing long term investors to pick up fantastic future income streams at bargain prices.

    Cheers - Gordon
     
    Last edited by a moderator: 15th Jun, 2008
  8. Tropo

    Tropo Well-Known Member

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    Hahaha....Lucky you – 6’7” may keep your head just about the dirt – but do not push your luck too far.:p
    Today’s “cheap” price may become a bargain next week.
    Happy hunting...:D
     
  9. austing

    austing Well-Known Member

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    Hey Tropo,

    No worries mate - I don't want to lose my last 7":D

    It's definately a bear market at the moment. So although I like to pick up cheap income streams when opportunities present themselves I'm not silly enought to punt everything all at once. I always take an incremental approach. I got enough of what I was after last week. But now I've returned to the sidelines still well cashed up waiting to see what happens before taking another bite of the cherry;)

    Cheers - Gordon
     
  10. Tropo

    Tropo Well-Known Member

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    "No worries mate - I don't want to lose my last 7""


    hahahahaa.... - good one !!! :D:;)

    Just in case = standing aside IS a position !;)
     
  11. ilori

    ilori Well-Known Member

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    Hi, good to see this thread... I've been looking at LPTs and their cashflow for a while now, but feel a bit like the Lone Ranger :)

    There's a lot of gloom and doom... but also seems to me that there is inordinate value coming into some sectors of the ASX market, such as the solid LPTs and a few banks (WBC, ANZ, CBA). This is for long-term buy+hold (cap. gain + dividend stream).

    Certainly there is potential for further decline... I'm well aware of this as an associate bombards me with articles claiming the current situation is the first step in the collapse of the world 'money' system and a depression more severe than the 1930s. Too much detail to go into here... but essentially relating to the oversupply of money eventually causing inflation, loss of confidence in money, disconnect from underlying fundamental value (Gold, manual labor etc.) - throw in food issues; oil issues; water issues and the associated unemployment, social changes, deaths and wars - we have the collapse of life as we know it. Sooooooooo... I have some (ample?) input on the negatives... however, with a little faith in human kind, we may just survive.

    The above are not my ideas, just paraphrasing those of others... trying to highlight the negatives that are out there.

    Seriously, there are some smart people who hold these terrifying views and can base them on plausible arguments... however, I don't see much point in dwelling on it or being scared into inaction.

    Anyway, back to the point :) ... good to see this discussion... LPTs (and banks) may drop more... but as long as fundamentally sound companies are selected that will remain in business... then seems a strong chance that could ride out any volatility and come out well ahead in time (maybe some years). In meantime, should have solid dividend stream.

    Seems to me that the LPTs are now brutally aware of debt ratios and refinance horizons, and any that are not OK are moving quickly to adjust. Also, at the end of the day, the nature of LPTs is that they are backed by real property, with (hopefully) long term leases in place, CPI increases, solid tenants... and the properties they hold are usually substantial pieces of property that support people's daily lives (shops, offices, retirement homes, hotels, child-care facilities).

    Sure there are issues of financing, maybe reduction in dividend streams for a while, issues of upcoming property valuations, some property becoming vacant as a tenant or two may go out of business... but, the portfolio as a whole should remain and in time recover.

    All the above just my thoughts :) If there is a flaw in it all would love to hear... as it's a strategy that's of much interest to me, and would like to hear other's thoughts on it, good or bad.

    Regards, Ilori :)
     
  12. crc_error

    crc_error The Rule of 72

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    its funny how people look at sectors which are doing well! using your reasoning, you would have been pumping all your money into LPT's up until the end of last year.. then bang, you lost all your profits and more.. now that LPT's have come back into value, and are trading at a great discount, people don't want to invest into them!!!

    I would feel much more comfortable getting into a out of flavor sector, than one over priced one going gang busters.. booms are always followed by a bust.. however busts are always followed by a boom.

    All we need is a big gas explosion, and todays booming sector is tomorrows gloom.

    I can see a 50% drop in the mining sector, but it would be very unlikely LPT sector would fall another 50%..

    Coal was another example.. it was in the dumps 12 months ago, and today its going gang busters.. so getting into coal companies when they were out of vogue would have been a great investment.

    So a properly diversified portfolio would certainly consider LPT's in their holdings.
     
  13. ilori

    ilori Well-Known Member

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    My post was saying some sectors appear to be oversold and look like good value for longish term. A few conditions apply to this of course - need to take some care what buying and be able to weather the storm short-term. This is opportunistic, taking advantage of market crash and negative sentiment.

    I wouldn't pump money into a booming sector with above strategy... would need to use a stop-loss strategy because boom would eventually end. It's a form of trend trading.

    To me the two stategies are very different... different entry/exit conditions and after different things.

    Ultimately, the two strategies might merge... example... the buy& hold stocks might eventually become part of a boom sector and it could be sensible at that point to monitor them with a stop-loss. Eg. for now, LPTs & Banks may be a long-term prospect... after several years.. they might be booming... at that point, prudent to use stop-loss to follow boom-trend and lock in the gains. (Holding during excessive downturns may prevent crystalising losses, but it costs 'time'... most valuable commodity of all.)

    Regards,
    Ilori
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Here's another issue to consider - asset value write downs:

    Property investors face wild ride | businessday.com.au

     
  15. austing

    austing Well-Known Member

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    Hey Sim,

    Yep probably plenty more bad news to come:)

    Although for me it is of little concern. I just stick to my pre-determined asset allocation and top up whatever asset class is needed to rebalance accordingly. I do this roughly quarterly. Mostly it's LICs (and now also index funds) to remove stock specific risk and then its just forget about it until the next quarter comes around to top up and rebalance again.

    By following the above approach it eliminates procrastination, fear and all those other emotions. As a long term, buy and hold investor whatever happens in the short to medium term is of little consequence. It's just a simple matter to sticking to the plan, then getting on with the more important things in life like spending time with family and friends etc.

    As for market excitement I'll leave that to Tropo:D Maybe that's why I'm so tall as "shorting" just doesn't do it for me:eek:

    Cheers - Gordon
     
  16. Tropo

    Tropo Well-Known Member

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    "As for market excitement I'll leave that to Tropo "

    Market is not as exiting place to be as you may think. As a matter of fact it’s a boring place.:rolleyes:

    "Maybe that's why I'm so tall as "shorting" just doesn't do it for me
    Cheers - Gordon"


    Only you can decide either to stay tall :D or to make money.:p;)
     
  17. austing

    austing Well-Known Member

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    Hey Tropo,

    I'll leave it to the wife to make money. I just like to invest and spend it. Unfortunately the one area I have trouble rebalancing is my beer, wine and spirit allocatiion:eek: I'm usually overweight in that department:D

    Cheers - Gordon