Is this a good time to invest in the listed property market?
It seems that the darkest days are finally over for the Listed Property Trust (LPT) market and the sector has demonstrated signs of resilience.
What were the main reasons for the downfall in the LPT sector?
- Falling asset prices meant that a number of LPTs were at risk of breaching debt covenants or were not able to roll debt
- LPT managers could not sell assets fast enough – even at discounts – to reduce debt
- Funding costs blew out, impacting interest cover and earnings
- The capital intensive nature of the LPT sector means that when other sectors were reducing headcount to lower costs, very little could be done in the LPT sector
- Pressure on tenants’ businesses impacted occupancy in office buildings and significantly reduced rental income for the LPTs
Rising from the abyss
Over the past few months, the panic in the market has subsided and confidence is recovering. On one hand, uncertainty can be a curse for markets when diminishing confidence rapidly takes prices along with them. However, once some of the market noise has weakened and investors can gauge a clearer understanding of the risks, appetite for investments starts to rise again.
And that is what's happened over recent months, credit spreads have improved which has direct positive results on the LPT sector. We have now seen many of the stronger LPTs recapitalise with pressure easing on debt covenants.
As illustrated by the chart below, it is clear that the Australian LPT market has been largely recapitalised compared to other major markets.
What this has done, is providing stability to the property market where the majority of large cap LPTs are well positioned for future growth. On this recapitalisation, the LPT sector edged higher in July this year as investors chose to leave the safe haven of cash and seek higher returns. The LPT market has now posted its sixth consecutive positive month and is 74% above its 9 March 2009 lows!!
As at 31 August 2009, The BT Wholesale Property Securities Fund is in the first quartile for its 1, 3 and 5 year returns.
For the latest performance updates and fund commentaries of BTIM's LPT funds, please refer to the factsheets on:
www.btim.com.au/BTWholesalePropertyInvestmentFund or
www.btim.com.au/BTWholesalePropertySecuritiesFund
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