Listed property returns attractive - for how long?

Forsyth Barr research reveals that listed property trusts remain strong, but questions how long positive returns can last.

Goodman Property Trust NZ, ING Medical Properties and Kiwi Income Property Trust are looking especially attractive to investors.

However, Forsyth Barr senior analyst Jeremy Simpson says that the prospect of declining rentals could impact the sector.

“Listed property offers investors a very attractive yield given the pullback in share prices and the tax benefits of the PIE regime,” Mr Simpson says.

“The downside is that there are risks to dividends for lower payout ratios for listed property trusts, and also increasing vacancy rates across portfolios,” Mr Simpson says.

The listed property sector is already pricing in a fall in property values of 20%, with an average price to net tangible asset ratio of 53%.

“Despite this, it remains without many friends as it battles negative sentiment on a number of fronts,” says Mr Simpson.

“While there is downside risk to the sector average 15% gross yield, the large premium to falling interest rates and the relatively defensive cashflows mean the sector has attractive income attributes, in particular for high tax payers,” says Mr Simpson.

Forsyth Barr continues to have a defensive bias in stock selection towards well diversified large vehicles and less geared vehicles (KIP, GMT) and an exposure to the healthcare sector (IMP), according to the report, titled “NZ Listed Property Sector Dividend Sensitivity: Too Good To Be True?”

“Looking at the downside risks, there are still very attractive dividends from listed property trusts,” says Mr Simpson.

Kiwi Income Property Trust has a yield of 11.7% with an NTA of $1.64, paying out 8c per unit.

ING Medical Properties is trading with a yield of 11.1% with an NTA of $1.30, paying out 8.5c per unit.

Goodman Property Trust has a yield of 15.9%, with an NTA of $1.22, paying out 7.7c per unit.

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