careful, page-73

Pviews,

If it is your own comment, just make it clear. It is a bit misleading to quote Orbis as saying something they did not say in their report.

I agree with what you say about some REIT may not go through and the need to diversify. Noboday knows what the global and Australian economy is going to be like this year and the next 2 years. This economic downturn is very severe.

However, property sector is cyclical in its very nature.

Just as if you buy a property yourself and hold it, as long as you could service your debt obligations, or are expected to do so with a bit of debt restructuring, you generally will be allowed to hold your property and wait for the upturn.

This is true for property trusts. What we see in the case of VPG is that its two core businesses - fund management and property ownership and leasing are still reasonably sound.

Debt covenants are not breached so far. they may be breached at the next testing date. However, ICR and LVR will still remain in comfortable range for banks.

Hence, they will renew and restructure the loans with higher margin. In the current environment when they don't have much new business anyway, they might as well hold on to the existing not so lousy ones with more net profit.

Besides, it is obvious that most local banks already have large exposure to the property sector, it would be disastrous if they force VPG to sell into the current market thereby causing further volatility and writedowns to their other REIT clients, and the security protection (mortgage over property) they have from such borrowers.

Hence, I am very positive with a turnaround of VPG, though it may take some time.

I could see them doing the right things since late last year - sell of non-core assets, cost cutting and redundancy, seeking equity/recapitalisation, etc.

Even though they have not breached covenants, they've taken the initiative to talk to the banks for a debt restructuring.

Property writedown from similar player e.g MOF as released to the market lately is not that bad, though MOF has significant exposure to the US market.

Surely VPG has goodwill to writedown, and VCS to writedown, however, most VCS are preference equity and have 1st or 2nd mortgage over projects.

In view of the above, I am positive.