Colonial trust ahead of prospectus, until revaluations counted
Colonial First State Property Trust has performed above prospectus expectations (excluding the impact of revaluations), has not suffered the volatility affecting technology stocks, but remains a discounted stock.
The trust was listed on 3 June 1999. In its first 10 months, earnings before tax were $10.431 million ($13.483 million forecast in the prospectus) and after tax $8.549 million ($11.331 million). Before revaluations, the trust’s profit was $12.251 million, giving the edge over the prospectus figure.
Unitholders will receive a 2.7316c final distribution, including a 0.3316c imputation credit. That equates to an annualised gross yield of 10.45%, (the prospectus forecast was 10.3%).
Colonial’s writedown of 1.73% takes the portfolio from $199.72 million (at the time of the float, with expectations on two Auckland buildings not then completed) to $196.26 million at the March 2000 balance date.
Less cbd exposure
The trust’s general manager, Lloyd Cundy, compared the writedown favourably with those of listed property stocks with heavier cbd concentration and in an environment where rising interest rates tend to disadvantage property investment.
” The trust is fortunate that it is not highly exposed to cbd office markets, which have been marked down on the back of weakening yields and vacancy concerns,” Mr Cundy said today.
The trust has no vacancy and Mr Cundy said refurbishment of two major assets, the South City shopping centre on Colombo St, Christchurch, and Aurora (now Unisys) House in Wellington had been successful. “Turnover in the centre has increased over 60% since the refurbishment was completed,” he said.
But the trust continues to trade at a discount to asset value. The $1 units opened last June at 93c, compared to asset value of 96.65c. Now they’re at 86c, after dropping in April to 79c, compared to asset value of 95.96c. That’s a 10% discount on asset price, and 14% on float price.
Mr Cundy said the discounted price was not a true reflection of the trust’s performance. “Investors’ preoccupation with seeking high growth from shares, and an environment of rising interest rates, has seen the listed property market remain out of favour with many investors.”
But he said the unit price was largely unaffected by recent global sharemarket volatility, reflecting quality underlying rental income. That turbulence in global technology stocks “has highlighted the benefits of a reliable income-producing stock as part of a diversified investment portfolio.”
Head office, new buildings’ values drop
Colonial’s Wellington head office was on the market in 1998 with a $27.5 million price tag but went into the trust at $20.8 million, with an independent (CB Richard Ellis) valuation of $21.5 million. Now the valuation is down to $19.5 million.
The three buildings acquired from Symphony, all on strong yields below 10%, have all been dropped slightly in value — $23.65 million ($24.5 million in the prospectus) for the IBM Centre, $18.3 million ($18.8 million) for Passport United House on Carlton Gore Rd, Newmarket, and $16.8 million ($17.1 million) for its neighbour, Public Trust House.
Unisys House and Chambers in Wellington have had $1.5 million knocked off their valuation to $39.3 million, but the South City shopping centre’s valuation has been raised $1.56 million to $24.66 million.
Despite the reasonable return, Colonial must again suffer some uncertainty because of the takeover of parent company Colonial by Australia’s Commonwealth Bank.
The trust was the outcome of institutional takeovers in the first place, packaging buildings acquired through NZI Life and Prudential after other parts of their portfolios were disposed of, with Colonial’s Wellington head office and the three new buildings acquired on completion from Symphony Group.
Colonial insisted at the time of the float last year that it was not a convenient exit strategy, planning to hold 31%. It ended up taking more through a subscription shortfall to hold 63%, which it has retained. It is reasonable to expect that stake to be cut if Colonial can exit without a loss, but now the aspirations of Commonwealth also need to be assessed.
Commonwealth’s New Zealand subsidiary, ASB Bank, has not been a property investor but has invested well through managed funds for its customers.