Australia | Apr 21 2008
By Chris Shaw
As the financial markets crisis has played out in recent months listed property plays have been among the worst hit on the Australian market as concerns over debt levels and falling asset prices have encouraged investors to run rather than walk to the sidelines.
This has seen share prices for some in the sector slashed in recent months, with Reckson New York Property Trust ((RNY)) an example given its stock price has slumped from comfortably over $1.00 in August of last year to less than $0.30 last week. The fall has been enough to encourage Credit Suisse to visit with management to assess the group’s potential, the broker leaving well enough convinced to rate the stock as Outperform.
The broker’s conclusion from the meeting is no major issue such as a suspension of dividend payments or a privatisation of the trust is likely to emerge in the near-term, meaning the market’s action in selling down the stock appears to be overdone.
Certainly this seems to be the case with respect to currency risk, as the broker notes the US dollar has depreciated by just 6.5% against the Australian dollar over the past year, meaning the share price fall has more than priced this in.
While around 10% of the group’s leases expire this year management indicated there were interested parties for the space, though the trend is to shorter-term leases as businesses assess the current state of the US economy and their own operations.
Debt is a modest risk as the group had drawn US$39 million from its line of credit as at the end of last year, but here the broker notes five of the trust’s assets are currently unemcumbered and this offers scope for securitisation if needed, so providing some security in this regard.
These factors lead the broker to suggest as long as the company can avoid a major disaster there is significant longer-term upside, particularly as on its estimates the dividend yield of just over 24% for FY08 as at last Friday’s close of $0.29 means those invested in the stock are being paid to wait for times to improve.
While distributions are expected to be relatively flat through to FY10 it still implies a very healthy yield, as assuming a 7c payout annually for the next three years means investors are almost having the total value of their investment repaid while they wait for a turnaround.
Credit Suisse therefore retains its price target of $0.70 on the stock, though it is likely to take some time for this price to be achieved given the current environment. The broker is not alone with its positive rating as the FNArena database also shows UBS rating the stock as a Buy, while Citi has it as a Hold and GSJB Were suggests it is a Sell.
The average price target according to the database is $0.62, while Thomson One Analytics shows a median price target of $0.70. Shares in Reckson New York today are stronger in line with the overall market and as at 10.50am were up 5c or 17% at $0.34.
