For most of the past 15 years, listed property was the best performing local asset class. To the end of 2017, investors in leading property unit trusts had enjoyed annualised returns of over 15% for a decade.
The price-to-book-value multiple at which the sector is trading has also reversed substantially. In 2013, domestic Reits were commanding a multiple of as high as 2 times. That fell to around 1.1 times for most of 2015, 2016 and 2017, but has since fallen to 0.8 times.Cheap, but nasty? However, that doesn’t mean that local property is a screaming buy. It just means that there is some margin of safety for investors at these prices.Firstly, even though local Reits are trading at a 20% discount to their book value, he believes this is justifiable as direct property is overvalued. The market is therefore simply pricing in the fact that asset valuations are probably too high.
Robbins also believes that some earnings growth and therefore distribution growth has been due to non-sustainable drivers. In particular, many companies have bought international assets that have given them once-off improvements. “We have had a few disasters offshore already, although it has been among the smaller companies,” Robbins points out. “The larger companies have been more responsible. However they are buying in hot markets, where prices are high already, so disasters could happen.”
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