Principal still keen on local LPTs

The structural change experienced by the local listed property trust (LPT) market has not dulled the attractiveness of the asset class and has enhanced the importance of active management skills in the sector according to Principal Global Investors (PGI).

Structural change in the LPT sector was brought about by the merger of the Westfield Group of companies in 2004 and allowed new participants to enter the market, a move that added diversity.

“Now that the majority of the sector is internally managed there is a greater focus on return on equity and cost of capital. This has been a structural shift in the sector which has led to new business units such as development, funds management, and property services being added to the more traditional property trust structure,” PGI portfolio manager Chris Lepherd said.

“We see the current diversity in the sector as playing into the hands of active managers who can demonstrate a strong properties and equities skills base,” he added.

Lonsec senior property and infrastructure analyst Peter Morrissey feels the restructure of the LPT sector has on the whole helped the domestic market.

“The efficiency of the sector has improved because what’s left from all of the consolidation is only the best managers. Australia’s lucky that some of the managers in our index are as good as the best in the world,” he said.

Still, he believes the best opportunities in the sector are from the global markets.

“It’s very competitive for property here and there doesn’t seem to be much left that property trusts don’t own, and because they are at the scale that they are now, what the majority of them can acquire is not going to make too much difference to their bottom line. They have to go offshore to look for anything that will have a meaningful impact on their earnings,” Morrissey said.