Listed Property Trusts – help

Overview

LPT managers invest in a portfolio of investment grade commercial real estate to generate high yielding returns for investors,
and along with buying and selling properties in line with their investment strategy.

LPTs are viewed as a substitute for direct property investing, with enhanced liquidity. They are the only property funds publicly traded on the ASX, with the first trusts listing in the early 1970s.

Australia’s model for LPTs is a recognised world leader. From less than $5 billion in the early 1990s, the sector reached a market capitalisation of $43.8 billion in August 2002, invested in property assets of $62.6 billion (refer to Chart 3.1 Growth in Property Trusts). The LPT Index is the sixth largest sector on the ASX, accounting for 7.2 percent of the S&P 300 Index. Real estate (LPTs and Developers) is the third largest sector.

In the year to August 2002, LPT’s strongly outperformed the All Ordinaries achieving a total return of 9.9% compared to the All Ordinaries returning -1.2%. This highlights the defensive nature of property as an investment class in what many have considered a volatile year for the sharemarket.

The largest LPT managers are Westfield, Lend Lease, AMP Henderson Global Investors, Macquarie Bank and ING. A leading Australian stockbroker, UBS Warburg, estimates that 50 percent of Australia’s investment-grade real estate is in the hands of LPTs. The quality of these assets is high, with 65 percent of the nation’s regional shopping centres and many of the prime commercial office buildings held in LPTs.

Sector Specific
The LPT sector has become increasingly specialised. For the first two decades LPTs were usually diversified portfolios, both geographically and by property type.

Since 1992, all new trust listings have been sector specific, that is, a trust that concentrates on a particular sector of the property market. In December 2001 the sector specific trusts represented 68 percent of the total assets in LPTs.

The rise of the sector specific trusts has been primarily driven by the demand from investors who prefer to choose which sectors they want to invest in. LPTs are represented by retail with $22 billion in assets, followed by commercial office with $11 billion in assets, industrial with $3 billion in assets and hotels with $1 billion in assets.

In the past few years the LPT sector has expanded to include more innovative sector trusts such as the MTM Entertainment Property Trust, Macquarie Leisure Trust and Homemaker Retail Property Trust.

Residential property has yet to appear as a stand alone asset class in Australian property trusts as the yields are lower than commercial property. In North America, however, where the yields are higher, apartment property trusts are more common.

Larger LPTs
In the past few years there has been a trend towards larger LPTs through mergers and acquisitions, which has seen the number of LPTs and the number of fund managers decline.

In September 2002, of the 32 LPTs in the ASX 300, 15 had total market capitalisation of more than $1 billion.

Recent examples of mergers include Stockland Group’s takeover of the Advance Property Fund and Armstrong Jones Office and Industrial Funds merging with the Prime Office and Industrial Property Trusts. Both Mirvac and Colonial have merged their sector specific trusts into single diversified trusts.

Reaction to these mergers has usually been positive as there are a number of benefits including improved liquidity, increased management expertise and generally a reduced cost of capital for larger LPTs.

The Outlook
Overall the outlook is for the LPT sector to continue to grow, potentially reaching $60 billion of assets in the next decade. There may also be increased opportunities to invest in funds with some offshore commercial real estate.

In the past few years, the global expansion by Australian property managers has included the listing of Westfield America on the ASX in July 1996 and later on the New York Stock Exchange, and the listing in December 1999 of the Lend Lease US Office Trust on the ASX. Macquarie Bank has announced a strategic alliance with a US property company to develop systems and study the US market. Its Macquarie CountryWide Trust currently has investments in both Australia and New Zealand.

Performance
LPTs will distribute at least all of their taxable income to investors annually to meet taxation law requirements, and will typically make distributions to investors quarterly. Managers of LPTs focus on generating returns to maximise distributions to their investors. This means that they will look for investments with a superior income return rather than investing purely for capital growth.

According to UBS Warburg, retail has been the strongest performing LPT sector in the last five years – generating total returns of 15.8 percent per annum.

In the year to August 2002, yields from LPTs averaged 7.7 percent – as a result of a diversified sector yield of 7.4 percent, a retail sector yield of 7.6 percent, a commercial office sector yield of 8.3 percent, an industrial sector yield of 8.7 percent and a hotel sector yield of 9.8 percent.

Current listed property trust performance (by individual trust and sector) can be found at:

ASX Leaders
Diversified Trusts
Office Trusts
Retail Trusts
Industrial Trusts
Hotel Trusts

Gearing
LPTs may use loans from banks and other finance providers to increase the funds they can invest in commercial properties. Borrowing or gearing, as it is commonly known, means that part of the investment is relying on debt.

Gearing is usually calculated as the ratio of debt to total assets. On average, LPTs have a gearing of between 20 and 30 percent of total assets and are restricted to a total of 60 percent.

Gearing levels have risen over the past 10 years, reflecting declining inflation in Australia and falls in the yield on 10 year bonds from 12.1 percent to around 5.5 percent. This declining interest rate environment has added to the attraction of debt funding because of the increasing positive gap between the cost of debt and the yields on debt funded property investments.

One consequence of the increased gearing levels is that capital management expertise has become a critical characteristic of good management in the LPT sector, and therefore the majority of LPTs now “hedge” around 50 percent of their debt against changes in interest rates.

How to invest in LPTs
You can buy into LPTs from as little as $1000. In addition, some LPTs may allow you to reinvest distributions via a Dividend Reinvestment Plan (DRP).

LPTs can only be bought and sold through a stockbroker once they are listed on the ASX. If it is a new listing of a property trust, you will need to obtain a prospectus from the fund manager.

If you have not used a stockbroker before, your experience is not unusual. The ASX regularly runs information sessions and courses on investing in the share market. It has also produced a guide, Getting Started, that sets out the steps you will follow.

When you buy and sell LPTs you will pay fees to the stockbroker and stamp duty at the rate set in each state for financial transactions. These transaction costs are lower than similar costs incurred by individual investors in direct property.

Annual management fees are payable to the LPT fund manager, where there is an external manager, and can be expressed as a percentage of assets under management.

On average, annual fees are likely to be in the range of 0.3 percent to one percent of assets under management.

Some managers may set a lower base fee with a performance fee payable only if the trust outperforms a specified market benchmark.

Individual Trusts
All Listed Property Trusts (LPTs) that are included in the ASX300 as at end August 2002 have been listed below.

Get a stock quote by clicking on the ASX Code!

Listed Property Trust
ASX Code
Fund Type
Fund Size ($M)

AMP Diversified Property Trust ADP Diversified $1,234
AMP Office Trust
AOF Office $1,032
AMP Shopping Centre Trust ART Retail $951
AMP Industrial Trust
AIP Industrial $395
Australian Growth Properties
AGH Office $214
BT Office Trust
BTO Office $1,343
Bunnings Warehouse Property Trust
BWP Industrial $320
Centro Properties
CEP Retail $1,471
Colonial First State Property Trust
CFT Diversified $1,350
Commonwealth Office Property Fund
CPA Office $721
Deutsche Diversified Trust
DDF Diversified $1,072
Deutsche Industrial Trust
DIT Industrial $469
Deutsche Office Trust
DOT Office $1,366
Gandel Retail Trust
GAN Retail $1,709
General Property Trust
GPT Diversified $5,228
Grand Hotel Group
GHG Hotel/Tourism $155
ING Industrial Fund
IIF Industrial $941
ING Office Fund
IOF Office $946
Investa Property Group
IPG Office $1,473
IPOH Limited
IPH
Retail $231
Lend Lease US Office Trust
LUO US Office $662
Macquarie CountryWide Trust
MCW Retail $627
Macquarie Goodman Industrial Trust
MGI Industrial $1,073
Macquarie Leisure Trust
MLE Hotel/Tourism $97
Macquarie Office Trust
MOF Office $988
Mirvac Group
MGR
Diversified $2,554
Prime Retail Group
PRX
Diversified $117
Stockland Trust Group
SGP Diversified $3,657
Tyndall Meridian Trust
TMT Diversified $377
Thakral Holdings Group THG Hotel/Tourism $195
Westfield America Trust
WFA US Retail $5,206
Westfield Trust
WFT Retail $6,583

Cheers Richard

[email protected]
http://www.yourstatefinance.com

Specialising in US & IP finance.

And you pick of the bunch Richard ;o)

They usually seem to take it in turns being market leaders..maybe go contrarian??

REDWING

“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator