07/04/2016: Are there any good office property stocks within the ASX?

Scott Schuberg:

Good afternoon members and welcome to Rivkin virtual live local for Thursday the 7th of April. I'm Scott Schuberg joined by Shannon Rivkin how are you Shannon?

 

Shannon Rivkin:

Good, thank you Scott. How are you?

 

Scott Schuberg:

Very well thank you.  First questions, got four of them. The AFR had an article recently about the growing office property markets in Sydney. Are there any stocks in this base that you would recommend? It's an extremely small list of … office, real estate investment trusts.

 

Shannon Rivkin:

Listed At least

 

Scott Schuberg:

Yeah.

 

Shannon Rivkin:

Unlisted, different story.

 

Scott Schuberg:

Yeah, so if you wanted to look at managed funds that would be a different story, and a lot of those would be, you know there are a closed pool of capital that you'll lock up for a while a lot of these ones. Relatively illiquid because they are holding physical assets and there's not an open exchange for the buyers and sellers to the extent that there are buyers and sellers that there are on the ASX. So, you could do your own research on that. Really the job of the listed guys is to try and get diversification across capital cities so you won't really find concentration, you can find concentration in a sector such as office versus commercial, warehouse, retail, all that sort of stuff. There are office funds. IOF is obviously a big one, its soon to leave the boards and it will be taken by Dexus which is probably the next one to have a look at. Not particularly exciting because these things, they might look cheap but their earnings growth relies on very sort of steady, predictable rent rises and high occupancy. The occupancy rates have been pretty solid actually.

 

Shannon Rivkin:

Incredibly high.

 

Scott Schuberg:

For many years. So it's not like your getting in a period where they've had a really rough time and they're undervalued, you can buy them up cheap and hope that they can get their occupancy rates up. They're pretty well priced these things. So I don't think, yes, you'll probably see a lot of media commentary about them, but I'm not sure there's a particularly, particular opportunity where the markets inefficient and you can buy them in value.

 

Shannon Rivkin:

I was going to say I think the whole listed property trust sector looks really fully valued to me right now. I think the one area where maybe there's upside is the consolidation is likely to continue. So the IOF being bought by Dexus I think we will probably see more and more of these ones merge. Apart from that I think that they're pretty expensive certainly on a yield basis as well. And NTA even more so, so this IOF deal is getting done at a good premium to NTA

 

Scott Schuberg:

You could always open a Rivkin Super Fund and buy your own office and fold it into that if you want.

 

Shannon Rivkin:

Absolutely.

 

Scott Schuberg:

You can find a lot of inefficiencies in those markets, a lot of esoteric sales and things going on …