a view of reits in the usa and aussie truths

From a piece published tonight (12 August) in the U.S.: http://www.minyanville.com/articles/C-BX-IYR-mgp-slg/index/a/23986/p/1

"The problems looming over the commercial real estate market have been well advertised, so one might think that being bearish at this point is a stale idea, as bad news is priced in. But my view is the opposite. Because the problems are well known, the valuations now reflect that not only won’t there be any negative surprises, but a rebound is just a matter of time."

And now let's consider that in Australian terms...

Tonight Mr Bernanke will spell out not just the Fed's view on rates in general, but also will probably signal that it's not going to expand upon its $300 billion programme of buying Treasuries to curb interest rates. He's also likely to address what it's going to do to protect the REIT sector from the same fate that befell the mortgage trusts. In all probability, that will be perceived as helpful, and my view is that Wall St will like what he says. I guess that that will be known in about 6 hours time.

When I considered the full article above in the context of the present economic environment in Australia, there were both parallels and also differences. The premise put forward holds water Downunder imho, but here's where the market is different: Recession has not bit here as it has in the States. Our real estate sector is already in recovery, not having suffered the carnage that the U.S. market experienced. VPG's debt arrangements were addressed at the earliest possible juncture in the "crisis" and there will be no nasty surprises as a result of that proactive (and painful) restructuring.

The commercial sector here is not operating in an the 9.5% unemployment rae environment that the States has presently, and that means that companies are not vacating commercial buildings as they have in the U.S..

All told, the situation Downunder is far better than it is Upover, yet the REIT sector has been brutalised to at least the same degree as has the U.S. sector. If VPG's sp reflected fair value given current conditions in Australia, it is still (in my view) far underweight. The intra-day play will be of interest to day traders, and this share is priced at a level where lots of leverage can still be enjoyed. But for those who view this as a medium term investment, there are almost certainly returns possible on the order of two to five times the current level.

It is my belief that we are experiencing a rise in the SP based upon the return of some stability and the removal of some of the fear element. It would not surprise me if the full-yearly report and the asset sales disclosure positions VPG in a place that will be seen by the market to be favourable, and perhaps more favourable than predicted. If the company has raised a large amount of capital, they will be in a position to retire debt and possibly even to acquire new properties at fire-sale prices. Any combination of these factors will see the share get re-rated. If that, in turn, generates "buy" rather than "speculative buy" recommendations from a few brokers, it is also not beyond the realm of possibility that the company could re-enter the ASX200 or even declare a small dividend.

Of course these are only my thoughts, and not intended to steer investors in any direction. I am happy to disclose that I hold many VPG and regret not having bought even more. The share closed at the day's high for the second day running. If patterns prevail, there will be a sell-down to .11 immediately after the bell and then it will rapidly return to the present level and then push upwards. I'm interested in alternative points of view, and also to hear by way of thumbs up or down whether what I've written rings true for other forum members. Thanks for reading all that. Whew. G'night.
ST