Australasia Australia
Property
23 January 2009
Australian Equities
Property 2009 Outlook
Ian Randall
Research Analyst
(+1) 212 250-4621
ian.randall@db.com
Matthew Bertram
Research Analyst
(+61) 2 8258-2607
matthew.bertram@db.com
Robbie Adamiak
Associate Analyst
(+61) 2 8258-3099
robert.adamiak@db.com
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Strategy Update
Top picks
Dexus Property Group (DXS.AX),AUD0.80 Buy
Goodman Group (GMG.AX),AUD0.78 Buy
GPT Group (GPT.AX),AUD0.76 Buy
Stockland Trust Group (SGP.AX),AUD3.75 Buy
Companies featured
Westfield Group (WDC.AX),AUD12.76 Hold
2007A 2008E 2009E
P/E (x) 21.9 12.8 12.6
Div yield (%) 5.1 8.3 7.8
Price/book (x) 1.5 0.9 0.9
Dexus Property Group (DXS.AX),AUD0.80 Buy
2008A 2009E 2010E
P/E (x) 15.1 7.4 7.4
Div yield (%) 6.6 9.4 9.4
Price/book (x) 0.7 0.5 0.4
Goodman Group (GMG.AX),AUD0.78 Buy
2008A 2009E 2010E
P/E (x) 15.6 4.1 4.4
Div yield (%) 6.4 24.3 22.6
Price/book (x) 1.2 0.5 0.4
GPT Group (GPT.AX),AUD0.76 Buy
2007A 2008E 2009E
P/E (x) 16.5 3.9 10.6
Div yield (%) 5.9 23.3 9.4
Price/book (x) 1.0 0.4 0.4
Stockland Trust Group (SGP.AX),AUD3.75 Buy
2008A 2009E 2010E
P/E (x) 16.7 8.4 8.2
Div yield (%) 6.0 9.1 10.9
Price/book (x) 0.9 0.8 0.9
Global Markets Research Company
Buy 2009’s outperformers, not 2008’s
Value-based investing would have cost dearly in 2008. Simply avoiding any stocks
with perceived refinancing risk or substantial exposure to "active" businesses
would have generated significant outperformance. At some point, however, value
will again start to drive performance. In our view, a number of stocks have now
taken steps to reduce refinancing / covenant issues to manageable levels, and yet
their market pricing continues to reflect distress. Whilst it is tempting to simply
highlight the negatives and advocate a continuation of the “safety play” that
generated such meaningful outperformance in 2008, we believe the magnitude of
pricing inconsistency across the sector is such that 2009 will see a number of the
“riskier” stocks outperform.
Stock preferences: GMG; SGP; GPT; DXS. Value with manageable risk.
It’s a fairly simple task to arrive at a price target / valuation for each of these
Groups (and for most stocks in the A-REIT sector) that approximates current
pricing – simply ascribe an onerous discount to book value for assets (in the name
of market uncertainty) and then add on an additional discount for: in the case of
SGP – exposure to residential, and strategic uncertainty; in the case of GMG –
questions re the business model, relatively high degrees of leverage, and UK /
European exposure; and in the case of co-mingled exposures (MOF/IOF) - arguably
the most significant US contraction in the last 60 years. However, each of these
groups now has sufficient liquidity to ensure that refinancing risk is largely put to
bed. SGP also has an extremely valuable landbank, and a strong management
team. For GPT, the question mark is negative JV equity value and/or consolidation
of 100% of JV debt. For DXS, pressing ahead with developments such as Bligh St
is deemed a significant risk. In both cases, we see the risks as quantifiable and
more than discounted in current pricing.
Sector Outlook
In our view, relative stock pricing reflects an inconsistent / unlikely confluence of
macro outcomes. With its refinancing issues largely dealt with, MOF is on our
estimates now pricing in a 58% decline in US asset values. Similarly, post
recapitalization IOF’s pricing implies 55% downside for European/US values, while
for DXS 30% downside for offshore exposures. Prior to a trading halt & equity
issue CPA was pricing in only an 18% decline for Australian assets, and CFX’s
pricing implies a relatively mild retail recession with 13% downside to asset
values. By comparison SGP is pricing in a decline in Australian housing prices not
seen in at least the last 30 years.
Valuation: AREITs fair relative to equities, attractive vs bonds
Our top-down valuation measure suggests the sector is now 35% undervalued,
indicating value vs bonds. Relative to the US REITs, the Australian sector is
screening as expensive on a forward multiple basis (trading on a relative multiple
of 1.28x, vs a 5yr average of 1.05x on our ests). Relative to Australian equities, the
sector now appears fairly valued on our estimates, trading on a PE Rel of 0.98x vs
attracting a premium multiple since early 2004. On average, our FY09 EPS
estimates for the sector are down by 21% since Dec-07. Downside risks to the
sector include a more severe ‘second round’ of recapitalistions driven by an
acceleration of asset de-valuations.