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Listed New Zealand property stocks will be affected by problems in Australia and particularly at one of the largest real estate businesses there, according to an Auckland investment expert.
Shane Solly of Mint Asset Management said the wider fallout from troubles with Australia's listed Centro Properties Group could be serious after that business struck problems refinancing its maturing debt.
Centro's shares dived since it revealed it was having difficulties refinancing A$1.3 billion ($1.47 billion) in debt maturing next month because of the global credit squeeze. The group's difficulties have sparked talk of a number of predators looking to take a stake.
Solly said Centro's problems were no big surprise.
"The perfect storm that has been brewing at Centro over the last few years finally blew up, unfortunately creating collateral damage for the broader property securities sector," he said.
Centro had high gearing of 70 per cent, a dependence on short-term funding and a high portion of developments, Solly said.
Given the distress that debt/credit investors were in when the business came to roll its funding, it was exposed to the full wrath of pressured debt investors.
Other Australian listed property entities might have one or two elements similar to Centro but none had the full set of issues, Solly said.
Many investors had now decided on a broad sell-off of their exposure to property trusts in Australia and New Zealand and unit and share prices of real estate vehicles here had fallen.
"While some sell-off is appropriate to reflect increases in borrowing costs, the sell-off of pure property exposures such as we have seen with New Zealand property trust may be a little overdone," he said.
New Zealand listed property trusts' borrowing-to-assets ratios were relatively conservative at an average of 30 per cent and ranging from 20 per cent to 40 per cent. Development risk profiles of the trusts here were modest.
"No listed property trusts in New Zealand depend on funds management activities, international investments or significant development to deliver dividends as is the case for some Australian property securities," Solly said.
Most New Zealand property securities were trading at a discount to asset value meaning that the equity market had anticipated slower activity levels and a decline in property values.
"The dust has not settled and not all property securities are the same. Some will continue to be impacted by the recent events but others may actually benefit."
The re-pricing of the listed property asset class was attractive for investors who had a medium-term focus and needed a mix of income and capital growth, he said.
Centro has malls in Auckland, Wellington and Christchurch, including Kelston and Meadowlands.
