Buildings rise for investors

By ANNE GIBSON

The dozen property companies and trusts listed on the New Zealand Stock Exchange have been among the worst performers for years in terms of price rises, says an investment analyst.

But now many are showing signs of life.

"Prices in the property shares have recovered, coming off their multi-year low, so it tells me people are picking the bottoming out of that market," says David McEwen, a former journalist turned investment analyst who publishes the subscriber-based McEwen Investment Report from Auckland.

Late last month, he headed the report: "Property trusts show life at last", noting that the sector had been "the worst-performing share class on the market for several years".

But most real estate trusts and companies were now showing consistent rises in their share prices, "and some are hitting yearly highs".

Part of the art of skilful investing in any share is picking the bottom of the cycle - buying cheap and then staying in to enjoy the rises, as well as the dividends along the way. (Not all the property companies pay dividends.)

So Mr McEwen - who says that in the past two years he has consistently picked shares whose price rises have beaten the average rises in the NZSE index - has been watching closely. And he thinks he has seen the bottom of the trough.

"Property trusts and companies have been such poor performers because they have been writing off the value of their properties as prices have fallen.

"If commercial property prices hold or firm, the profit performance of trusts and companies will appreciate considerably."

He notes that many people feel comfortable investing in property because of their familiarity with it and its attributes, including tangibility - the concept of rental income is relatively easy to understand and simple to measure.

"Yet a great many New Zealanders come a cropper with property," Mr McEwen says.

"Some of the worst investments have been unlisted property syndicates, which are often based on one key tenant occupying one building in one city.

"This lack of diversification can cost the investor dearly, and when things go wrong, there is nowhere to run because property syndicates are also notoriously illiquid.

"Their units are difficult to trade in the good times and impossible in the bad times."

Whakatane sharebroker Brent Sheather is also interested in listed property vehicles and calculates a gross return (share price rise plus dividends) from listed New Zealand property shares of 12 per cent in the year to October 31.

Much the same picture emerges in Australia, he says.

In the same period, the Australian Stock Exchange property trust index rose 13.2 per cent.

That is well above the rises in the NZSE, which he says is up 9.5 per cent in the year to October 31.

The returns from listed vehicles here and in Australia strengthen Mr Sheather's belief that property has performed well for investors.

But he advises his clients to invest only in the larger stocks such as AMP and Kiwi, directing them away from listed vehicles which do not pay dividends and which he considers too small.

Just as importantly, he says, investors should buy overseas property shares as well as local ones, so he charts the movements in the United States and Europe.

Mr Sheather points to an HSBC report in October that put the spotlight on property shares in Britain and compared their performance with other British equities.

"Property shares were strong relative performers during the year to September 30," said HSBC.

"They achieved total returns some 18.5 per cent higher than the wider UK equity market."

But HSBC also had some bad news for investors.

"This recent performance is in marked contrast to the long-term trend. Over the past 20 years, property shares have underperformed the All-Share Index, on average, by 4.5 per cent per annum.

"No property company with a market cap exceeding £1 billion has shown top quartile total returns within the sector over the past three, five, 10, 15, 20 or 25 years."

An Auckland sharemarket analyst who specialises in property has also noted the upward movement in locally listed stocks, and cites Bloomberg's index of New Zealand property stocks.

But he believes the signs of recovery in property are as much a reaction to low interest rates as confidence in property investment.

"This is just a factor of the cash rates coming back so far," he says.

But, he says, one of the best performers this year has been Kiwi Income Property Trust, "which has a lot of development opportunities, with Sylvia Park in Auckland and a Christchurch shopping centre".

"Everyone expects KIPT to eventually issue more equity because of those opportunities."

David Keys, managing director of Newmarket Property Management, which manages the listed Newmarket Property Trust, has been disappointed with the trust's share price, which has fallen in the year, trading at about 48c.

But the trust pays dividends six-monthly, and Mr Keys says it is returning 14 per cent in dividends, giving a good alternative to cash investments.

He has also noticed share price rises, particularly Colonial First State Trust.

"Since September 11, property has been seen as a safe haven for investors," Mr Keys says, but acknowledges that people buy in as much for the attractive dividends from many of the property companies.

McEwen

HSBC

Newmarket Property Trust