Property & Infrastructure Funds LPTs for yield & growth & leverage?

Hi, wondering if I could outline a strategy using LPTs please and see what people think? Seems that the LPT (A-REIT) sector has been sold down a lot since late last year (sub-prime), and value now exists in terms of dividend yield and potential growth (rebounding back to 2007 levels).

To put in context, usually I've gone for direct property (buy+hold) or normal company shares (buy+sell)... but now looking at LPTs as a middle ground to give another string to bow.

Generally, was thinking, could try to get a spread of LPTs yielding (say) 15% pa with potential of strong growth rebound back to levels of late last year. If stick to LPTs that allow margin loans, can then leverage the growth and buy extra shares.

Just theory at this stage - don't place too much emphasis on the exact numbers, but in general terms...

1. Buy $100,000 of LPTs yielding 15% dividends (rent?)
2. Over time, the $100,000 might rebound/grow to $150,000
3. Borrow $150,000 against the increased LPT values and buy trading shares
4. Now have $300,000 working in market
5. Summary - original $100k has grown/leveraged to $300k - on cashflow side have 15% from original $100k and dividends/growth (when crystalised) from $150k of trading shares

As far as companies to put in the original LPT list, possibilities include:
GPT, mkt cap=$6 billion, div yield=9.5%, comsec LVR=70%
MCW, mkt cap=$1.6 billion, div yield=12.9%, comsec LVR=70%
MOF, mkt cap=$1.9 billion, div yield=11.7%, comsec LVR=70%
AEU, mkt cap=$132 million, div yield=15.0%, comsec LVR=60%
IEF, mkt cap=$114 million, div yield=14.3%, comsec LVR=50%
ILF, mkt cap=$293 million, div yield=16.9%, comsec LVR=60%
MDT, mkt cap=$483 million, div yield=19.2%, comsec LVR=70%
PBD, mkt cap=$107 million, div yield=37.6%, comsec LVR=40%
RNY, mkt cap=$89 million, div yield=22.6%, comsec LVR=60%

Could play with % allocations, so for example, might put 30% in ILF and 30% in MDT and spread rest across others for mix of yield and size/stability. Personal choice as to how allocate the money to the spread.

Idea of including ComSec LVR is that ensures ability to borrow and also assuming its a quality filter (passed their analysis).

The list could change, example, need to check things like borrowings, if they own property directly and receive rent income directly and other factors (eg PBD mainly around Perth, RNY mainly around New York/Tri-State area).

Could/would include more analysis such as long term trend stability, % recovery back to Oct 2007 levels, type and location of property, lease lengths, stapled management etc. etc.

Just wondering what people think of the general idea outlined above? (Again, please don't place too much emphasis on exact numbers, they change every trading day and I may have made a mistake here or there).

Any suggestions - good or bad greatly appreciated.

Thanks very much,
Ilori

 

Thanks for your reply Sim,

Indeed, the level of gearing and ability to refinance seems to be a big one... even when looking for it, can be hard to know :-( Not sure if it's my lack of accounting expertise or the details are too vague.

Thanks for the suggestion to look at other sectors, indeed, do seem to be opportunities in other sectors. I suppose I had a leaning toward LPTs because was trying to invest in something I could understand a little.

LPTs were main focus at moment... this is because I have property equity can access but cashflow is tight, so was looking at ways of generating cashflow from equity. Ignoring the leverage and growth for the moment, the initial step was to get some cashflow, eg. borrow at 9%, earn 15%, have 6% cashflow.

I suppose the yield I was after had to be relatively high to give margin over borrowed funds - might exclude a lot of the common recommendations.

Do you know of particular sectors or companies that would be worth checking?

Thanks again,
Ilori