More trouble predicted for LPTs
Financial planners have been warned to expect more bad news to come out of the listed property trust sector, with more companies predicted to follow the likes of Centro and Rubicon.
This was the opinion of managing director and head of equities at Integrity Investment Management — a specialist Australian shares manager — Paul Fiani, speaking at a recent Financial Planning Association Sydney Chapter lunch.
Fiani identified five key points contributing to the poor performance of some LPTs. These included:
1. Good portfolio construction has gone out the window with LPTs;
2. Investing in overseas assets that are not properly understood;
3. Non-transparent earnings and dubious accounting practises;
4. LPTs have diversified from low risk to high risk earnings streams; and
5. Some LPTs paying out more than they earn, which is unsustainable.
Fiani cautioned planners to only invest small amounts into LPTs, warning “some will go broke and some won’t”.
He also warned that infrastructure could be the next high risk area to hit the industry.
“Sculptured bonds lead to an understatement of true interest costs,” he said.
He said infrastructure was inherently risky, with many companies having to lease infrastructure, such as aeroplanes and tollways.
“Toll roads are a high risk asset until you reliably know how many cars are going to use them.”
Sydney’s Cross City Tunnel and Lane Cove tollway are good examples of forward estimates of car traffic volume being greatly exaggerated prior to the completion of the projects.
AUTHOR
Mike Taylor
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