Listed property trust
From Wikipedia, the free encyclopedia
In Australia, a listed property trust (LPT) is a unitised portfolio of property assets. They are known internationally as real estate investment trusts (REITs).
An LPT usually owns a portfolio of large properties, which, due to their size and value, cannot be bought by the average private investor. Thus, these large investments are broken up into units of smaller value that can be purchased by private investors, who become unit holders.
LPTs first emerged in the Australian sharemarket in the early 1970s. Around this time they were viewed as a substitute for direct property investing, with enhanced liquidity offered as they were listed. Despite a slow start, the LPT sector has grown rapidly. From less than $5 billion in the early 1990s, the sector reached a market capitalisation of $43.8 billion in August 2002.
Until recently, the largest LPT managers are Westfield, Lend Lease, AMP Henderson Global Investors, Macquarie Bank and ING.
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[edit] LPT indices
Unit holders trade on an open market and the value of the unit price is determined by demand and supply.
LPTs are normally listed on the Australian Stock Exchange (ASX). The Bendigo Stock Exchange, the Newcastle Stock Exchange, and the Australia Pacific Exchange are also capable of hosting trusts.
LPTs are a form of listed investment company (LIC) and are considered as such by the ASX. Any LPT listed on the ASX has to conform to the reporting standards set out by the ASX.
[edit] Income
The income from LPTs comes primarily from rent. Rents are usually quoted on a dollar per square metre basis. In contrast to residential rents, which are well regulated, in commercial leases there are differing types of rentals or leases.
Most buildings are purchased as going concerns and come ready-stocked with tenants. Accumulated rents are the gross income of an IPT. From this there are a number of expenses that reduce the gross income to a net income such as management and maintenance expenses, interest, land tax etc.
Other sources of income include naming or signage rights, roof space for telecommunication companies, and car parking rental.
Property trusts must distribute at least 90 percent of their income back to the unit holders. The balance of any monies that are not distributed are held as retained earnings, which are then used to smooth earnings and distributions in future years.
[edit] Assets
LPTs can hold either domestic or international property assets. Outside of Australia, the main countries in which Australian LPTs hold assets are the United States, New Zealand, and the United Kingdom.
Net tangible assets (NTA) is the balance sheet value of the underlying properties in an LPT. It has long been regarded as an important measure of the true value of an LPT. LPTs that trade above their NTA were for a long time considered to be overvalued. Conversely, if the LPT traded at a discount to its NTA, it was considered to be trading at a discount to the realisable value of its underlying assets. As a result, in the past most LPTs tended to trade at close to their NTA over the long-term average.
[edit] Diversification
One of the main benefits of an LPT is that it can offer investors a good degree of diversification.
Tenant diversity offers a spread of income risk for an LPT. As rent is the primary source of income for an LPT, the greater the number and type of tenant, the lower the risk to the income of an LPT resulting from tenant default.
Geographic diversification offers LPTs exposure to differing local economies. It means having assets in more than one State and within States, by being diversified between state regions. Geographic diversification is sometimes across national borders as well.
Diversification by property asset class is also of benefit. The asset classes are those covering office, industrial, retail and also hotel and leisure. It helps to spread the risk in a portfolio as the property value cycles are driven by different underlying economic fundamentals in each sector.
[edit] Management
The day-to-day management of the properties owned by an LPT are generally contracted out to professional property managers.
Management of the asset is usually tendered for on a regular basis. This is considerable desirable for LPTs as it helps to keep the property managers diligent if they think that they may lose their management rights.
