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Property trusts struggle to get out of trouble

Discussion in 'Real Estate Investment Trusts (A-REIT / LPT)' started by Tropo, 9th Jul, 2008.

  1. Tropo

    Tropo Well-Known Member

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    09/07/08
    Property trusts struggle to get out of trouble

    The listed property trust sector is struggling to sell assets as values fall in the wake of the credit crisis.
    Allco is on its fourth extension for senior debt facilities of up to $1.15 billion with a $250 million bridging facility and review period falling on July 31.
    Allco's Record Realty fund is having most of its portfolio revalued and said yesterday that values would be below December levels, possibly breaching loan covenants.
    Allco Commercial REIT will be renamed Frasers Commercial Trust.

    Source: The Australian
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Both Property and Financials have been hit particularly hard (see attached charts).

    If you had invested $10,000 in May 2002 in the CFS FC Property Securities fund and had reinvested all distributions, your money would now be worth only $13,682 (as of last Friday) - over 6 years later.

    If you had taken the cash and not reinvested, your units would be worth only $6,245 now.

    The XPJ has been falling for 17 months now. I'd suggest it will take years for it to recover back to the levels seen in Feb 2007.
     

    Attached Files:

  3. austing

    austing Well-Known Member

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    Down, down, down, down .....

    Have taken a few more nibbles at SLF on the way down. Listed property is only a tiny part of our overall portfolio and then confined only to the SMSF as a very long term holding. If I stayed true to my personal view I wouldn't have any Listed property as the long term performance relative to industrials (my favoured investment) is very poor. But I'm not the only member of the SMSF and so we have a very small allocation of listed property for some asset class diversification.

    However I can't help but feel for those who purchased these beasts prior to their recent collapse. I'm glad I avoided the sector during those lofty highs.

    Cheers - Gordon
     
  4. voigtstr

    voigtstr Well-Known Member

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    Do you reckon we can see the bottom from here?

    (from the 18/5/07 to now, colonial first state WS Prop sec fund (in my super) is down 82.61%)
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yeah, I can see all the way to zero :p

    Seriously though ... if you look at the news coming out of the sector, with debt facilities being constantly re-evaluated, and with some trusts being forced to sell assets (which nobody can afford to buy, since they can't get finance either), and with many other trusts facing asset write-downs as properties get re-valued (most likely downwards - and possibly forcing debt re-evaluation too) ... there's not a lot of good news coming out of the sector.

    If you are in the market to buy large commercial property right now, and have a lot of cash behind you ... I think there are probably bargains to be had (provided you have good tenants that won't be affected too much by the upcoming economic slowdown).

    It is not just "negative sentiment" coming out of the property sector - it is a rout ... the stack of cards is collapsing and only those players with the deepest of pockets (and the most cautious of borrowing practices) are going to come out of this at all ... in my opinion.

    If it were just negative sentiment and most of the trusts had been oversold based on honest valuations of their assets, then it might be a good time to look for bargains in the sector ... but I honestly don't think that some of these trusts have been "over" sold ... the income and returns coming out of them may well disappear altogether - and that's a good reason to sell in my opinion.

    But this is of course dependent on the individual trust in question - and it is not necessarily fair to tarnish the entire sector with the same accusations.

    Now, if you can pick those good trusts with a sound strategy and access to decent finance and quality assets who also don't play funny games with their property valuations ... then I think there is possibly buying potential there. But I wouldn't know where to start, and I wouldn't know who to trust in that sector any more.

    I'm sure there are some bargains there ... somewhere.
     
  6. voigtstr

    voigtstr Well-Known Member

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    When it comes to funds investing in this sector, do you think that CFS will be able to profit again, once the smoke clears?
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm sure they will - the question is how long will it take and what opportunities will you lose in the meantime?

    Can they make more money than you can make elsewhere over the same period with the same (or better) risk?

    My general feeling on the matter is simple - follow the money.

    You give your money to the trust. They leverage it with money borrowed from the banks and buy real estate. Most of the income gets paid to the bank by way of loan repayments. The bank has a mortgage and various other mechanisms protecting its investment, including the right to force the sale of the asset if things go badly. What protection does the trust have? Not a lot beyond the fees than can continue taking from you, even when they are losing you money! What protection do you have? None!

    Who is going to recover the best when this is all over? The banks, or the property trusts who have only conservatively valued assets left?

    When things start to recover, will the trusts still need the banks? Yes!

    Will the banks go back to lending on questionable property valuations? Probably - but hopefully most of them have learned and will be much more cautious for now. The banks will make their money no matter what.

    So I'd be buying banks (the good ones) rather than property trusts myself.

    ... but I'm not an expert and this is just personal opinion - so please don't act without a lot more research and perhaps some professional advice!
     
  8. Tropo

    Tropo Well-Known Member

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    I would say that bottom is not as important as how long it will take to get your money back....
    If you lose 50%, you need to make 100% just to recover. ...
    :cool: