Investor interests are out of alignment with management interests because of short-term behaviour in the listed property trust (LPT) sector, according to a specialist property fund manager.
APN Funds Management head of investments Michael Doble said short term thinking was evident in asset allocation decisions, turnover and performance fees, diverging manager and investor objectives in stapled securities, unsustainable returns and preferred management styles based on short-term results.
Property is a long-term investment because it is all about income, Doble said.
“The length of leases, generally over five years, gives property a long-term focus. The predictability of cash flows creates certainty in the long-term, and certainty of income beats uncertain growth from an investor perspective,” Doble said.
“Short-termism has seen LPTs overweight to NSW office (as a percentage of Australian office holdings), which accounts for 37 per cent of Australian CBD office stock but 57 per cent of LPT office market assets.
“Yet, while Melbourne accounts for 30 per cent of stock, it is only 16 per cent of LPT assets, even though Melbourne’s average rent growth is 5.8 per cent compared with 4.9 per cent in Sydney.”
According to Doble, long-term expectations would expect all markets to rise and fall over time and a more balanced portfolio would better manage the risk.
“The earnings growth profile of the office LPTs of late proves this risk has not been well managed,” he said.
Short term strategies have also meant a high level of turnover in the LPT sector.
“Lonsec has shows that some property securities managers have turnover levels in excess of 90 per cent,” Doble said.
“In 2000 the value of LPT stock traded was just over 40 per cent of the market, but since 2003 it has consistently been over 80 per cent and as high as 100 per cent.”
