Property trust builds bulwark against rising rates
|01/07/2018||Posted by admin under 南京夜网||
Ettalong Beach Holiday Village is run by Ingenia Communities.Small cap stocks are often about utilising disruptive technology to achieve above average growth, which is why one of Under the Radar’s favourites is the property company Ingenia Communities.
Under managing director, Simon Owen, it has transformed itself from being an unwieldy property trust to a focused operator and developer of aged care communities utilising manufactured housing. This should produce average annual earnings growth in the region of 30 per cent plus over the next few years.
Because of its use of new technology and an innovative funding scheme for retirees, it is a value proposition almost without peer.
As Mr Owen says, “We sell manufactured homes for as little as $160,000 which gives your retiree (who has sold her house) at least $200,000 to live a more comfortable lifestyle.”
Its securities have been among the property sector’s best performers in the past few years having returned about 150 per cent, yet in the past 12 months its stock price has trod water because of the inherent risk in an innovative strategy.
This is in big contrast to more conventional listed property trusts, or REITS, which may lead some to the conclusion that these represent a safer investment. This could not be further from the truth.
REITS were among the best performers last year, second only to healthcare, returning on average just over 20 per cent. The average yield on offer has fallen from around 7 per cent to years ago to as low as 5 per cent, which is near the level of the banks, but without the franking credits.
The value of these property trusts are being boosted by the decline of the 10 year bond rate, which after the most recent official interest rate cut in Australia, is at a record low of 2.32 per cent.
This cannot continue forever, and at some point the debt within these bonds is likely to trigger panic when interests rates eventually go up. Just think back to the financial crisis where the property trust index fell 80 per cent from its record high in early 2007 to its record low in early 2009.
Ingenia is actually trading about 20 per cent above its NTA valuation, but there is a big difference. Because it is developing its land banks in a low cost and sustainable way, this company is valued based on its earnings. It now trades on a current year’s PE of 10 times and on a dividend yield of just under 5 per cent.
If other property trusts were innovative like Ingenia, they would have nothing to worry about when interest rates eventually rise.
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This story Administrator ready to work first appeared on Nanjing Night Net.