10 September 2012
TSUNAMI OF CASH BOOSTING NZ LISTED PROPERTY STOCKS
Falling interest rates and growing concerns about the earnings forecasts of growth assets is driving
cash into the New Zealand’s listed property sector.
Mint Asset Management portfolio manager Shane Solly says there is “tsunami” of cash
indiscriminately chasing anything with a vaguely sustainable yield.
New Zealand listed property stocks have increased 14.8 per cent in the past year, while Australian
listed property stocks have risen an astonishing 29.7 per cent.
Solly says property fundamentals in New Zealand and Australia are stable and still have room to firm
substantially. ”While is some near term concern that the granny rally, or buying anything with a high
return, has pushed listed property securities beyond their fair value, we continue to see medium term
upside in listed property market returns.”
Property valuations are at cyclical lows due to the global financial crisis while below average new
property supply levels are pushing the economic power into the hands of landlords.
“In our view investors remain underexposed to listed property vehicles and while the ‘yieldilocks’
scenario may have pushed liquid listed property stocks up, they still have a solid place in most
investment portfolios.”
Solly says banks are desperate to increase their lending to higher quality borrowers. “As property
market conditions improve, better capitalised listed property vehicles are benefiting and are no longer
considered financial lepers by banks seeking to boost soggy lending book growth.”
Many listed property stocks have also negotiated less expensive and more flexible banking facilities –
both of which will support future LPV earnings and provide an offset against slower levels of economic
activity.
LPVs continue to offer valuation protection for investors with a 6 per cent cash yield over the coming
year. A conservative stress test would reduce this yield to 5 per cent. “With average portfolio
occupancy of 99.5 per cent and a weighted average lease term of 5.5 years, it would take a major
economic catastrophe to knock New Zealand listed property stock dividends lower,” Solly says.
“The return to risk prospects lie to the upside for high quality, leased commercial real estate in New
Zealand. Our analysis supports a return of between 5 to 10 per cent in the next 12 months. The 5 per
cent estimate is composed of a conservative dividend-only based return, while the upside of 10 per
cent reflects the potential for a further gradual improvement in physical property fundamentals”.
Mint sees the potential for a gradual improvement in direct property valuations in keeping with modest
overall levels of economic activity.
ENDS
For further information please contact:
Shane Solly
Portfolio Manager
Mint Asset Management
Ph: 09 300 8484