Listed Property: Lazy or Astute?

I'm sure I'm not the only one that finds it hard to spare the large amount of time required to find a good residential rental property.  We all have work and family commitments as well.  The good news is, there are other options so there shouldn't be any excuses.  You could engage the services of a property finder or you could investment in listed property.  For this article, I've had a look into the Kiwi Income Property Trust (KIPT), a property company listed on the NZ stock exchange.

KIPT had a profit before tax to 31 March 2012 of $81,320m which equates to a 8% gross return to investors.  

As 31 March 2012, KIPT had its assets valued at $2,159,704m and its liabilities were $1,087,002m so the value of KIPT net assets was $1,072,702m .  As 31 March 2012, the unit price of KIPT was $1.065 and there total units issued of 981,293,912 meaning the unit value of the KIPT was $1,045,078m. 

As the financial position value is pretty close to the unit value, I believe this means a purchaser of KIPT units would be getting them at a fair price, as opposed to a bargain or paying too much.  I imagine that the increase in the unit price which is currently $1.135, reflects investors beliefs that the properties have experienced capital growth since 31 March 2012.

So, based on the 2012 figures, KIPT is offering an 8% yield (compared to about 5% which is what I commonly see with your standard residential rental).  The 50% leverage is lower than most residential properties (often 80%+) so the capital gains in a rising property market would be lower but its also lower risk. 

So, would investing in a listed property company be lazy or astute?  I think astute if you have a strong cash position and here are my reasons.

The advantages are:

  • Its easy to do and the price is set
  • Good investment yield
  • Completely passive investment
  • Very liquid investment
  • Lower leverage means lower risk

The disadvantages are:

  • No ability to add extra value yourself such as renovations to a residential rental investment
  • It's harder to establish an up to date price as you can only rely on delayed financial information a few times a year
  • Cannot borrow money against shares as banks can't take a mortgage out over shares so this limits the amount you can invest
  • A lot of your own research is still required to identify the best companies to invest in
  • Cannot borrow against unrealised gains so shares must be sold to reinvest the capital gains

Weighing up the pros and cons above, I think listed property is a good investment for someone with cash or excess equity to use. 

I have analysed KIPT simply as it is the largest of the listed property companies.  If you are interested in listed property, then you should consult a broker and do your own research.

Disclaimer: The above article is general in nature and we recommend you seek professional advice tailored to your specific personal situation.