Property funds changing their ways and selling assets
LISTED PROPERTY funds are changing their ways, selling more assets and moving away from speculation, analysts say.
Jeremy Simpson, a senior equity analyst at Forsyth Barr, said a significant number of assets have been put on the market by property funds, which have previously preferred to be longterm landlords.
‘‘They rarely sell . . . the level of divesting we’ve seen in the last few months and also what’s potentially on the market is unusual.’’
Simpson said funds sometimes sold assets to reduce their debt or their exposure to quake-vulnerable Wellington, but he had rarely seen so much ‘‘asset recycling’’.
Some of it was to fund new acquisitions or developments, others were simply taking advantage of a strong investment market.
There also appeared to be a movement among property funds towards better governance.
Five out of the six big listed funds had moved to internal management and cleverness with capital was being prized over size.
‘‘They seem to be genuinely trying to manage their portfolios better and perhaps deliver a bit more earnings growth than they have in the past, rather than just get bigger,’’ Simpson said.
Institutional investors were also ‘‘a bit more demanding in the sense they’re not going to let them raise new equity easily, so they’ve got to be smarter at managing their capital,’’ he said.
Property fund share prices did not ‘‘look like bargains but they’re well positioned to continue to deliver a good attractive dividend yield, which is what investors are after’’.
Harbour Asset Management analyst Shane Solly has also detected a sea-change in the industry.
Funds had a ‘‘much more rational’’ approach to capital structures and towards selling assets in buoyant conditions, ‘‘rather than continuing to grow their portfolios by raising new capital’’.
Conditions for development were also very good, he said. ‘‘We’ve got a reasonably strong economy and we’ve got reasonably low interest rates. It’s almost a perfect environment’’.
But the days of speculative tower blocks were gone, replaced by an emphasis on quality assets with low vacancy rates.
Speculative developers still existed in the suburban office market but in general ‘‘the preleasing, the focus on risk management, the financial structures are much more measured and conservative’’. ‘‘The model has changed.’’ It was normal, cyclical property market stuff, ‘‘but it’s a change to where we’ve been in the last three years’’, Solly said.
Chris Gudgeon, chief executive of the manager of Kiwi Income Property Trust (KIP), which holds $2.2 billion in assets, said it was business as usual as far as he could see.
‘‘All property trusts recycle capital out of existing assets to maintain balance sheet flexibility. It’s just part of what we do.’’