KEY POINTS:
As reported in the Business Herald, investors in the listed property sector can expect falling returns and are being advised to diversify for tougher times.
Broker ABN-Amro Craigs said returns could drop 15 per cent because of the slowing economy and detailed declines in the value of various leading listed property portfolios.
But it's not only local property. A commentary released by the Swiss investment bank, UBS, discussed the challenging environment for real estate investment trusts thanks to deteriorating global growth and deleveraging.
UBS tipped increased competition for capital as companies chase additional equity.
It also said bankruptcies were likely to increase "reflecting liquidity issues and interest coverage breaches, as real estate fundamentals (vacancy and rents) deteriorate in line with the economic recession".
The last few months were not a good time to launch a real estate investment fund, which is what Wellington-based boutique funds manager Kinloch did in July with its Emerging Markets Property Securities Fund.
The New Zealand PIE-compliant fund was to have invested in listed property securities throughout the developing world, but mostly in Asia. While the fund attracted interest from advisers and potential investors, Kinloch pulled the pin and sold it to its investment manager, ASX-listed Asian real estate specialist MacarthurCook.
Stock Takes understands the S&P Citigroup Emerging Property Index, against which the fund would be benchmarked, has plunged 40 per cent since the fund was launched.
SHOP TALK Amid the gloom shrouding the listed property and retail sector, Macquarie analysts Stephen Ridgewell and Stephen Hudson visited Kiwi Income Property Trust's Northlands shopping centre in Christchurch and reported signs of life.
Valued at $250 million, the mall is the trust's second biggest retail asset and the city's second largest shopping centre.
Hudson and Ridgewell said rents were holding up and rather than demanding cuts, tenants were reducing staffing levels and making efficiency gains in procurement.
What's more, retail sales were improving after March and April which were the worst months to date.
"Sales over the weekend immediately after the election were strong, suggesting Christmas trading may be more robust than generally expected."
Hudson and Ridgewell said the Northlands' experience may not be typical of other suburban shopping malls.
"First, 20 per cent of Northlands' customers are rural and have enjoyed strong income growth from the boom in commodity prices - which is now reversing.
"Second, Northlands does not have much exposure to big-ticket items, such as furniture and autos, which have suffered the greatest decline in sales nationally."
What they saw at Northlands contributed to Hudson and Ridgewell maintaining Macquarie's Retain Neutral recommendation on KIP which "offers good value at current levels. However we remain cautious about the patchy retail sales outlook."
KIP shares closed 1c higher at $1.05 yesterday.
GONE FISHING
Infrastructure specialist Lloyd Morrison's purchase of a 26 per cent stake in Fisher Funds management was an interesting move, not least because Fisher sold or otherwise transferred any holdings in its own Kingfish, Marlin and Barramundi funds ahead of the transaction.
As a market watcher put it this week: "It looks like Lloyd Morrison likes the management of Kingfish funds but not enough to own any of their listed funds!" But Carmel Fisher dismissed that suggestion. She said the shares belonged to Fisher Funds shareholders and were earned through performance incentives.
"Before the transaction we transferred them from Fisher Funds' ownership, as they're not really a company asset, to the individual Fisher Funds shareholders."
HOLDEN ON
Last week Stock Takes touched on the big changes in the car-dealing business with big players GE Money and General Motors Acceptance Corp withdrawing from the floorplan financing business in New Zealand.
The companies have also withdrawn from the Australian market which, given its relative size and the presence of a domestic car manufacturing industry, has much more to lose than the New Zealand industry.
That's probably why there is talk, hard on the heels of a separate A$6.2 billion ($7.3 billion) car industry assistance plan, of the Australian Government sponsoring an A$2 billion funding guarantee for the car retailing industry.
The plan was produced by David Murray, the chairman of Australia's Future Fund, which is essentially Australia's superannuation fund for public servants. There is no indication Future Fund money will be used in the plan - the cash will come from banks and other credit providers.
Just as well. If Australia was to use super fund money to prop up its car dealers, given the way we followed suit on the deposit guarantee, would we see the new National Government directing the "Cullen" Fund to support local motor vehicle dealers?
PROVERBIAL VESSEL HALF-EMPTY IN SHIPPING INDUSTRY
For an example of how the current financial crisis is spilling into real economies, look no further than the shipping industry.
Overseas commentators have been nervously eyeing a steep fall in the Baltic Dry Index of late. The index tracks the price of shipping bulk cargo, and is a fairly good barometer of the global trade in basic goods like iron ore, coal and grain.
The index is essentially indicating that the cost of shipping has dropped through the floor - around 98 per cent according to a number of reports.
In turn, Bloomberg reported early this month at least 20 per cent of the vessels most commonly hired to haul coal and ore were sitting empty.
Fifty to 100 so-called capesize ships, each bigger than the Trump Building in New York, had been unable to find cargoes, or their owners wouldn't accept rates on offer.
Part of the problem is falling demand for ore and other bulk goods, but another element is a credit crunch-related breakdown in the centuries-old "letter of credit" system of financing shipments of goods.
The letters guarantee the value of a shipment once it is in transit but before it is delivered.
Liquidity problems in the banking sector are affecting the availability of these routine instruments and offshore, cargoes are sitting on docksides because the finance is not available to ship them.
One commentator recently described the issue as "a nuclear bomb in the freight market, and in world trade".
One New Zealand shipping industry figure told Stock Takes recently there are some signs of emerging issues with letters of credit here, but there are alternatives available.
Stock Takes understands export volumes through New Zealand's ports are holding up reasonably well at present, but import volumes are slowing.
Port of Tauranga shares appear to be fairly unaffected by concerns about the shipping business yesterday closing 25c lower at $6.35, compared with a 52-week high of $7.21.
Lyttelton Port Company closed unchanged at $2.25 yesterday, compared with a 52-week high of $2.60.
FALLING FUEL PRICE NO COMFORT TO AIR NEW ZEALAND
The plunging jet fuel price is cold comfort for Air New Zealand.
Oil prices are nearing a third of the the record US$147 a barrel that was reached in July. This means demand for travel, especially in the lucrative premium cabins, has slumped, prompting up to 200 job layoffs at Air NZ.
The kiwi dollar has also plunged, negating many of the oil price gains, and the airline's fuel hedging into the middle of next year didn't help either.
Air NZ had battled hard to avoid job cuts which have swept through the aviation sector this year.
Chief executive Rob Fyfe points out the demand picture was far more scary than the fuel price shock.
"I'm not sure that the cure [falling oil prices] won't be worse than the ailment because demand's come off."
One optimistic view was of a recovery in the latter part of next year or in early 2010. The airline is a big cash business costing about $100 million a week to run. With the demand slump, margins for error are slim - hence the job cuts which offer a saving of $20 million a year.
"If it did recover in 12 to 18 months you can't afford to sit here over-resourced through that period - the costs are too high," Fyfe said.
Air NZ fell 2c to 89c when job cuts were announced on Wednesday, reflecting a trend of investors selling down companies they see as being in worse than expected shape.
Yesterday it closed down another 2c at 87c.
- Grant Bradley
