Aussie LPT's – A Rare Breed

So you are looking for that old fashioned LPT investment? You want boring but safe in the form of an externally managed LPT? You want exposure to some externally managed Aussie property?

Well you have your job cut out for you! Gone are the days when LPT’s just had properties and passed on the rental income to investors. That is the old style externally managed LPT where the trust was managed by a separate business! In terms of market capitalisation Externally Managed LPT’s are a rare breed these days.

Nowadays the stapled LPT’s, those LPT’s that are stapled to the management company dominate the LPT300 index by market capitalisation. Many of those stapled LPT’s are not just stapled to the management company but they are stapled to a business that is growing aggressively and often accompanied by attendant business risk. Not what you want if you just want to rely on income from the underlying properties.

There are still quite a few externally managed LPT’s but unfortunately most of them have the majority of their property rental income coming from foreign shores. Whilst externally managed LPT’s are a rare breed, those holding purely Aussie property are an even rarer breed; one that observers could say is on the verge of extinction.

Following is a list of those LPT’s that are externally managed and this list is broken down by property sector and the right hand column shows where the majority of their properties are located.

If you want an externally managed LPT with primarily Aussie property you only have limited choices. Of the five identified above, all but CDP are in the ASXS&P300 Property Trust Index. Those four represent only five and a half percent of the 123 billion dollars of market capitalisation represented by that index!

Mirvac REIT, is the only diversified LPT holding Australian properties, but it is a bit of a hybrid, having investment in property management companies as well as investments in LPT securities as well.

The retail sector is where you have the most chance of picking up LPT’s with only Australian property exposure, however on a whole they are low yielding LPT’s reflective of the underlying asset class which is trading on historic low yields.

Among them are; Bunnings Warehouse; an LPT with limited growth prospects with one tenant (albeit with a decent credit rating); Cairndale Property Trust which has a half interest in one Westfield property in Brisbane and CFS Retail property trust holds some prime Australian retail assets like half of Chadstone shopping centre.

There are no LPT’s that hold purely Australian Industrial Property or hold purely Australian Hotel or Tourism/Leisure properties.

For the office sector if you want purely exposure to Australian property assets you have the Commonwealth Property Trust; this has a mixture of good quality tenants from governments to the CBA bank, but once again this is a low yielding LPT.

A portfolio of these LPT’s is not really a well diversified LPT portfolio but if you want a portfolio of LPT’s with pure Australian exposure it is your only choice. This is symptomatic of the fact that we are in a global market these days.

Be warned that the yields on most of these LPTs are low; especially in comparison to many externally managed LPT’s that hold predominantly foreign properties. The low yields reflect the very tight yields of the underlying properties being experienced here in Australia and investor demand for a shrinking investment category that is the LPT with purely Australian assets.

One saving grace of this rare breed is that basically on the whole, the majority of the properties in these trusts can be considered to be high quality either by virtue of the building or based on the credit quality of the tenant

There are quite a few small cap externally managed LPT’s that are outside of the main indices that invest in Aussie Property but unfortunately they are not really well researched and as such are off the radar of many investors particularly other institutional investors. You could also become an amateur ornithologist and dig around and find a few more to strengthen the bloodstock of that rare breed, if you know what you are looking for.

However if you want to invest in well covered and researched boring but safe externally managed LPT’s with Aussie Property then you have few choices as it is a rare breed indeed!

By John Welch; Armytage Property Funds Management.*