Australand ASSETS
Recommendation
After falling deeply out of favour in 2009, hybrid income securities issued during the boom are enjoying a revival. That’s allowed members to bank handsome profits on the Dexus RENTS, Santos FUELS, Southern Cross SKIES and, more recently, the Goodman PLUS securities. So why aren’t we recommending selling the Australand ASSETS, which have produced a 72% total return since the original recommendation in An opportunity in Australand’s ASSETS from 29 Jul 09 (Buy for Yield – $67.00) and a respectable 31% since the upgrade on 21 May 10 (Buy for Yield – $83.00)?
First, the current running yield is an attractive 9.9%, well above current deposit rates. Second, the 4.8% interest margin over the three-month bank bill swap rate helps shield you from a likely cut in official interest rates. Third, Australand’s modern property portfolio has barely had a vacancy in many years, and the average lease is over five years. That said, we would feel more comfortable if Australand’s gearing (measured by debt-to-tangible assets) fell below the current 31%, and the majority of its bank debt matured in more than two years.
That’s why you might consider reducing your stake in the Australand ASSETS if it comprises more than 4% of your portfolio. The security price has barely budged since Listed property sector review – Part 4 (Hold – $89.99) from 15 Sep 10, and we’re sticking with HOLD.
Note: The model Income portfolio owns Australand ASSETS and the ordinary Australand securities. The Growth portfolio owns Australand securities.