Change property perspectives – APN
Michael Doble
Investors should be looking at property trusts as an income stream and not a growth asset.
APN Funds Management deputy chief investment officer Michael Doble said too many investors regarded property trusts as a growth play and that is why the sector is falling.
“We have always regarded property as an income investment,” he said.
“That is seen as contrary to what the rest of the investment industry is thinking, but GPT was a good example where people just saw the growth and were disappointed when it fell.”
Doble said the income from a five-year lease on a property was more attractive than just looking at what potential growth there was in assets.
“If people can’t look at what the income streams are in property trusts, they are missing the point of investing in the sector,” he said.
But property trusts are not without problems and the global credit crunch has impacted on the sector.
Doble said the forthcoming reporting season should give a clearer picture on how some trusts are tracking, especially with debt.
“Any current liabilities that look problematic in terms of refinancing risk will again be punished, though the market has priced in an expectation of bad news,” he said.
“A worst case scenario has already been assumed by the market in most cases.”
While rising debt and declining valuations could breach some loan covenants in trusts, Doble believes many managers are now controlling their borrowings better.
“We do not expect the same pre-emptive strategy adopted by the banks in the Centro fiasco playing out again for the groups that do experience difficulty,” he said.
“A more consultative strategy would appear most likely.”
But the listed property trust sector is being driven more by fear than fundamentals, as witnessed by the widespread falls in the sector when GPT announced its profit downgrade.
“Fear-driven markets are awash with rumour and misinformation, so investors will be looking hard at the evidence for any signs of recovery this reporting season,” he said.
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