High times picked for listed trusts
Article is Supplied Compliments of Richmastery Ltd
The listed property sector is doing well, its buildings are full and those wanting income-focused defensive equities should consider buying.
So says ABN-Amro Craig's analyst Mark Lister who has issued a report-recommending units in most NZX-listed real estate trusts, which he says, are in great shape.
"Strong domestic growth, low unemployment and high inflation are all positive drivers of rents, demand for office space and consequently listed property vehicle earnings. In a high-inflation environment such as New Zealand now, the listed property sector appears to be a relatively safe place to invest given the link between inflation and rental growth.
"Despite a slowing economy and the higher interest rates we have seen for some time, the high-quality vehicles still appear well-placed with full buildings, reasonable fundamentals and elements of under-renting yet to be picked up in many cases."
Returns from the sector had fallen lately but Lister welcomed this.
"The pullback over the past quarter is welcomed as it opens up some potential value in the sector. We believe opportunities for income investors look a little safer than some of the other high-yielding equities around." The new portfolio investment tax regime coming into force on October 1 would be a boost for property stocks, he predicted.
"Post-October, we forecast the sector will deliver a pre-tax equivalent yield of 9.4 per cent for investors on a 33 per cent tax rate and 10.3 per cent for investors on a 39 per cent tax rate.
"Our preferences within the sector are unchanged and we continue to favour Calan Healthcare Properties Trust, Goodman Property Trust, AMP NZ Office Trust and Property for Industry.
"We are also comfortable with Kiwi Income Property Trust despite our hold rating. ING Property Trust and National Property Trust continue to look cheapest although we are less comfortable with their risk profiles and cite that neither has been able to provide our key requirement - sustainable dividend growth.
"We believe landlords such as Kiwi and AMP with very high quality portfolios will fare better should some parts of the economy come under pressure. We expect PFI to continue to grow dividends in a very low risk sustainable manner, and we favour Goodman due to its strong land bank of development opportunities that, in the current environment of high prices, will provide organic growth opportunities.
"We like Calan for its exposure to the defensive healthcare sector supported by an ageing population, dividend growth potential and its low gearing. Our key concern with Calan is growth opportunities, given that since ING has assumed control and with the distraction of merger discussions, the trust has lacked focus.
"We are hopeful that with the full year result due in about six weeks, the market will receive an update on the Calan strategy
