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Mixed projections for listed property trusts

LISTED Property Trusts are unlikely to be anyone’s investment darling during 2002, as renewed optimism makes investors less wary.

The fight to safety by investors, particularly following the September 11 terrorist attacks, is already reversing, despite a less-than-certain economic outlook.

But two property trust reports released in the past weeks have indicated varying views on just how strongly the sector will perform this year.

Property Investment Research is tipping that the sector’s performance will be more subdued.

PIR, meanwhile, is forecasting returns or the sector of close to 11 per cent, with the overall Listed Property Trust sector expected to give a capital growth of 3.09 per cent and an income yield of 7.66 per cent.

Office trusts are expected to be the market leader, with a forecast return of between 7.39 and 14.46 per cent, while the industrial LPT sector is expected to return 13.54 per cent, diversified sector 10.35 per cent and the hotel and leisure sector 11.55 per cent.

However, an analysis by fund manager Ausbil Dexia is more pessimistic, with the expectation that the double-digit returns the sector has enjoyed in the past two years may be over.

Ausbil Dexia is expecting property yields to slump back down to around 6 per cent overall for the coming year – more than 8 per cent below the 2001 high.

Last year was a good story for property trust investors. Listed Property Trusts returned 14.6 per cent over the calendar year based on the S&P /ASX accumulation index, well above any other asset class.

This compared with the returns of the general Australian stock market, which returned 10.4 per cent, and international equities, which had enjoyed returns above 20 per cent, but returned a negative 10 per cent as the Nasdaq and the US economy slumped.

The turnaround in the fortunes of Listed Property Trusts was already emerging late last year. In December, LPTs returned 2 per cent, while the Australian equity market returned 2.7 per cent and international stocks rose 2.2 per cent.

With investors looking increasingly for sound investments with strong asset backing and a healthy balance sheet, the fundamentals of the Listed Property Sector also is beginning to look shaky. The sector is trading at a 15 per cent premium to its net asset backing, leading to concerns that a correction is likely sometime in the next year.

Within the retail sector, PIR is still backing Centro Properties and Macquarie CountryWide, while AMP Diversified, Deutsche Diversified and General Property are also trading below PIR’s current valuations.

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