Managed Funds LPT's (Fund management)

Thanks Trogdor you've made me feel much better. I'll put the knife back in the draw for now. I agree with you, but let's hope the market sees it that way as well

 

I've sent off an application for the fund listed above today. Hold a few other LPT funds too (long term). UBS has been the worst (for the reasons outlined above). The Aus Unity Geared Property Income Fund (Wholesale) has done exceptionally well throughout this whole saga! I think its down less than 10% since August 2007, and has also paid out a 4%+ in income during this time too. Have been a bit angry with UBS to be honest, but it re-inforces the need to diversify amongst managers too and to .

 

I've sent off an application for the fund listed above today. Hold a few other LPT funds too (long term). UBS has been the worst (for the reasons outlined above). The Aus Unity Geared Property Income Fund (Wholesale) has done exceptionally well throughout this whole saga! I think its down less than 10% since August 2007, and has also paid out a 4%+ in income during this time too. Have been a bit angry with UBS to be honest, but it re-inforces the need to diversify amongst managers too and to buy at appropriate valuations.

 

I aggree with the points above.. LPT's now offering large 10% yeild... so why not buy them? Long term now is a great entry point.. they still are quality assets, australian business is doing well, so rents will continue to be paid..

no point selling at the worst time!! NOW..

 

Lets hope we are at the bottom - for the time been.

http://www.invested.com.au/newreply.php?do=newreply&noquote=1&p=50550

Now they are saying that recession calls are premature, we IBM showed large profit gains due to the low US dollar.. hence other companies may be in the same situation.

Plus there is a good chance for a 50 point interest rate reduction possibility which should see the market run as well..

 

Percentages can be informative, however this is a case where they are very missleading and distorting the real situation. It can be much more informative to consider the actual unit price, eg; a stock unit price 100 cents, which then drops 40 cents (40%) to 60 cents.

Market sentiment changes again and it regains 40 cents back to 100 cents value. Merely gained by the actual value it lost regardless of the percentage difference quoted above caused by the moving base value used in the percentage calculations.

When playing with percentages it might make more sense to maintain a constant base; ie, the original stock unit price when calculating percentage fluctuations.

I realise percentages are usually based on current prices, but you should be aware of the nonsense in the above percentage senario often quoted.

 

Well I'm going to use percentages to my advantage in the current situation.
Once my funds are down 100%, that's it, I can't possibly lose anymore, yipee!

 

Example:

A stock that declines say..50% must increase 100% to break even!
Think about it in dollar terms:
a stock that drops 50% from $100 to $50 ($50/$100 = 50%) must rise by $50, or 100% ($50/$50 = 100%), just to return to the original $10 purchase price.
Many people forget about simple mathematics and take in losses that are greater than they realize.
They falsely believe that if a stock drops 20%, it will simply have to rise by that same percentage to break even.

Have a nice day...

 

If a stock rose 5% yesterday did i make 5%?

No, it depends when you bought it. If you bought CBA shares in the float, yesterdays loss was much more than 5% (on your purchase price).

If you calculate that you lost 5% on your purchase price, then the share only needs to rebound 5% (of your purchase price) again to break even...

 

“Is it more difficult for a stock to increase in value by $X than it is for it to fall $X ?”

Yes – and takes approx. 4-5 times longer to go up than down.

“Assuming nothing else has changed (eg fundamentals), then I would suggest not - just because a stock went down $1, doesn't mean it can't go back up $1 (and vice versa) !!!”


Nobody said that if stock went down $1 can’t go up $1.
Example is telling you (above case) that you must make 100% more to break even.
Sometimes playing with numbers gives you a different picture. But if you prefer simplistic view, that’s fine.

 

That was a completely reasonable post by Trogdor, but I think a lot of the yields being quoted these days are erroneous.

We are seeing yields between 6% and 20%, but there is a reason for this spread. Generally, yields are being dictated by overseas exposure. That is, if the LPT has property only in the US, yields are at least 12%. If props are solely in the UK, yields are at least 10%... etc.

The theme here is exposure to economic issues, which are more prominent in particular regions. The lowest yielding LPTs are those with quality assets, all in Australia, low gearing, late debt maturities, and a long legacy of stable performance. The highest (excl CNP, CER, RRT, etc) are those with retail or office properties in the US, with high debt and near-term debt maturities.

The market is being relatively definitive in its pricing.

So if you see a yield of 12%, question it. Why is it so high? What are the additional risks.

There's nothing too wrong with extrapolation for LPT yields because most have fixed contracts, but adjustments should be made.

Firstly, consider the economy in the regions where the properties are held. Bankruptcies and mass layoffs of IBank staff in the states are going to lead to high vacancy of premium office space. To reduce vacancies, prices will need to drop. Vacancy and reduced income both affect yield (a lot).

Secondly, if demand dries up, asset values will decrease. It's not so much an issue for solvent tenants and long leases. But new leases will be based on lower rents, which means lower asset values, which are amplified by expanding cap rates. So take quoted NTAs wth caution.

Thirdly, a lot of LPTs have previously inflated distributions as a result of increased asset values. They wanted to impress the market not only with inflated NTAs, but with more real cash. The NTAs are totally questionable because cap rates were squeezed ridiculously low, but the distributions are the worry. Often they were paid partly from asset sales, derivative gains, or maybe even capital. So if you're extrapolating previous years' distributions, you may be doing so from numbers that were totally unsustainable.

Make sure you check how much is really sustainable. Ignore asset sales, ignore derivative gains, etc. Look at revenue from rental income and in cases were an LPT runs a legit business, also check that revenue (WDC for example). Extrapolate from only the sustainable items to be conservative.

If you're keen to take advantage of LPT falls, I think it's about finding the quality trusts that have unfairly been dumped. Just a few comments on a few:

IEF - defensive property (pubs, etc), all Aust property, run by the largest property manager in the world, a bit of debt, my yield about 9%

VPG - still able to raise cash, mostly Euro property, somewhat of a black box, high quoted yield of 11%, but maybe really a 9% considering the UK

BWP - good in theory, but i think its a puppet of WES, low yields on its property, low cap rates for apparently industrial property (i don't buy the whole industrial thing), trading at a low yield too

IIF - industrial in Aust, Canada, Euro, a bit exposed to overseas issues, but quality property, high yield for what it is, 8% or so from my calcs


I'd be interested in others' thoughts

 

Very interesting post Allison, and well thought out... Agree generally - a few things not too sure on (let me know what you think)...

I agree. The market does perceive "pure aussie" LPTs as lowest risk, followed by EU/UK and then US. However, thinking a bit more about the US and Europe point - many LPTs as you correctly identify now do have more of a "black box" structure.. Ie.. buying direct property at yields < their distribution yield on their quoted NTA, and using leverage - i.e. financing via CMBS and bank syndicate facilities at low(er) rates to boost yield. Leaving aside Centro style issues of debt maturity timing mis-matches, a 75 basis point fed cut, follower by the 50 basis point cut (keeping in mind that many of these borrowings for US assets are in the US) will only boost profits (or take pressure off if as you mention rents do slip). The EU/UK are likely to at least hold rates steady, or cut rates in the short to medium term. I dont think the market has fully appreciated this fact.

I dont think that the majority of US exposed LPTs are purely exposed to A-grade office property. Many are in retail (ok, sometimes regional sub-A grade) and other areas. Most i-bank and fin services offices will be in a cluster in NY and other (to a lesser extent) cities. In any event what I find surprising is that irrespective of if we are talking office, retail, etc... the risk of falling rents / increased vacancies is hitting LPT valuations much harder than the risk of falling corporate profits. Many LPTs have long leases in place (have a look at the avg lease life profile of a few LPTs) - and are arguably much less exposed to economic conditions that their corporate tenants. I'd suggest that corporates will keep office / retail / industrial space until they have suffered big falls in their profits.

The share market hasnt fallen as far as LPTs (though I also see these falls as opportunity to buy in the broader share market).
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I agree with you on the NTA issue - and lower underlying asset values - though for a different reason. I would agree LPTs "fighting" over assets to buy in expansion mode as previously occured is over. In fact, Centro, and others, may even look to sell to pay down debt (though I think this is over stated). Also - it seems to be the case that the listed sector (i.e. LPTs) leads the direct sector by 6 mths, 1 year, etc.. (i.e. medium term). I would not be surprised if direct values did fall in the medium term. However, many LPTs are on deep discounts to last reported NTA and can wear this (and yields on buying now shouldnt be affected).

Yes, this is a real concern. Also seems to be the case with some infrastructre funds too. I have been trying to look over reports over the last few weeks in order to reveal how much of distributions in the sector as a whole do come from rental income, and how much from "extraordinary items" (asset sales, deriv mark-to-market gains, etc..).

To be honest, I just added to my holdings into various managed LPT funds last week (and plan to add as long as yields dont compress again over the course of the year). Some funds also have exposure to unlisted property (reduces volatility).

If you are looking at direct LPTs, I agree VPG (which shot up 15% on friday), MOF, AEZ.

Also have just started looking at BBI, and other infra funds (though wont buy unless these drop down to levels from 2 weeks ago and need to do more research on these). Not LPTs at all but see them as similiar business model (and taking the same place in the portfolio as LPTs/unlisted prop funds).

Also keen to hear others' thoughts!