Hiatus follows heady boom

26/03/2008 - 22:00


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Listed property companies in economic slow point.

Hiatus follows heady boom

If there’s a two-speed economy emerging in Western Australia, then listed companies focused on the property sector are definitely confined to the slow lane.

The developers especially have been hit hard by a double whammy with the slowdown of the WA market and a change in market perception.

“People have been calling them fund managers for the past couple of years,” said one source.

“In this downturn, a couple of things have transpired.

Firstly, people don’t like fund managers.

“In addition, their ‘fund management’ income was based on selling property.” Patersons Securities property analyst Jonathan Kriska said property development was on the nose and warned that those in the middle of the market were most likely to bear the brunt of this tough period.

He said WA stocks had enjoyed strong times since 2004 but property prices had peaked.

“My view on WA (property) stocks as a group is it is yesterday’s news,” Mr Kriska said.

Hardest hit, if not in percentage terms then certainly by market capitalisation, is the sector’s local leader, Peet Ltd.

Some market watchers believe Peet’s share plunge of more than 40 per cent – it was trading on March 19 at $2.40 a share, giving a market capitalisation of about $535 million, compared with $4 a share on December 19, which would value it at about $890 million – may simply be a result of its own success.

Peet CEO Brendan Gore said his company had been around for 100 years and had been through all this before.

“The share price is the share price; there is just a view about certain sectors,” Mr Gore said.

“I don’t think it’s rational.” He said Peet’s diversification strategy meant most new developments would be occurring in the east coast, where sales remained strong despite interest rate rises.

Mr Gore said market views were being formed purely on interest rates, without looking at other mitigating factors like high immigration.

“People need somewhere to live,” he told WA Business News.

Interestingly, one stock that some market watchers believe mimics Peet’s strategy is Cedar Woods Properties Ltd, which has outperformed its larger, more sophisticated peer.

Being smaller than Peet and less developed in its diversification, it could be expected to be more vulnerable to slowdown in WA property, followed by the shocks that have hit the market.

Shedding about 26 per cent in three months, perhaps it had less value to give up.

Cedar Woods was trading at $3.60 per share on March 19, valuing it at about $192 million, compared with $4.85 a share before Christmas.

But it may be one case where being smaller may have helped.

Pundits point to its Williams Landing development at the old Laverton airbase in Victoria as a project coming to well-timed fruition.

For Cedar Woods, one project hitting the mark is expected to produce strong earnings in the immediate future.

Cedar Woods managing director Paul Sadleir said the company was set to benefit from several projects in Victoria, but that it was difficult to get the market to pay close attention during this turmoil, which had already caused the collapse in the share price of Centro Properties Group Ltd.

“It is guilt by association,” Mr Sadleir said.

The next closest WA peer to this pair is Port Bouvard Ltd, which has borne the brunt of investor concerns.

It was trading at 90 cents per share on Wednesday last week, valuing it at a little over $117 million.

Three months earlier it was $1.90 a share.

Observers view it as locked into the WA market and consider it will pay a price for buying too much land too late in the property pricing cycle.

For instance, in late 2006 Port Bouvard paid $92 million for 275 hectares of farmland at Point Grey, a strategic peninsula jutting out into the Peel Inlet.

More recently, Port Bouvard has hit another stumbling block when the poor market conditions prompted it to halt efforts to syndicate its Oceanique Luxury Apartment development.

While that may have been a setback, apartments have yet to suffer in the same way as that particular sector did a few years ago in Sydney and Melbourne when they led the property market down.

One of the surprisingly solid performers among the WA propertylinked stocks is Finbar Group Ltd, which is heavily focused on apartments in East Perth.

Finbar was worth $99 million when it closed at 71 cents a share on Wednesday last week, down from 78 cents three months earlier, admittedly with very thin volumes.

Axiom Properties Ltd is another hard-hit share, halving in value from 44 cents to 22 cents in the three months to March 19, valuing it at about $73 million.

The company’s roots were in the troubled Port Geographe canal development near Busselton, but a rescue by the Laurance family’s Pivot Group has shifted that emphasis significantly to a wide range of commercial property, from Perth high rise office development Century City to bulky goods outlets and green office parks in Adelaide and Victoria.

Axiom director Ben Laurance said the company had been undertaking a strategic review when the market dramas hit, prompting a change in the review.

Results of that are due out in weeks, he said, possibly explaining why the market was holding back on the stock.

“There is still a bit of misunderstanding,” Mr Laurance said.

If there was some positive news for developers it was that listed property trusts had generally been hit harder, with significant gloom surrounding the sector.

The $340 million Aspen Group, one of the stocks resembling a property trust/fund management structure, has slumped more than 40 per cent in three months to $1.30 per stapled security from $2.19 each.

Observers think its conservative gearing (34 per cent at December 31) leaves it well positioned and, like several of the WA stocks, may have been oversold in the general market turmoil.

But, positives aside, they can’t say when sentiment may turn.

“You have to be a brave person to invest in property trusts,” said one market watcher.

Perth-based LPT players have negotiated the event comparatively unscathed.

Dominated by Futuris Corporation Ltd and going through a significant strategic redirection, the $23 million Westralia Property Trust has dropped about 12.5 per cent from 32 cents per unit to 28 cents per unit in the past three months.

Due to its structure, the $566 million Bunnings Warehouse Property Trust has been seen as something of a safe haven in the past three months, largely tracking falls in the S&P 200 to slip less than 20 per cent in the past three months to $1.88 a unit.

The $29 million Esplanade Property Fund has slipped about 23 per cent over the period.


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