Forget residential property gains…

Monday, 13 December 2021 — Albert Park

[3 min read]

Dear Reader,

And away we go into another week as the year draws to a close.

Let me first say a very warm welcome to The Daily Reckoning Australia if you’re joining us from our sister publication The Rum Rebellion.

I’m going to go with a big belly chant…

Ho ho ho!

Why?

Well, who says Santa only comes for the little kids?

Investors can get presents too!

The market seems to be shrugging off Omicron fears now, and even the big inflation numbers in the US last week didn’t rattle the Dow or the Nasdaq.

That’s the ‘big picture’.

Just ask shareholders of Shopping Cntrs Austrls Prprty Gp Re Ltd [ASX:SCP] (also known as SCA Property Group).

This is a real estate investment trust that focuses on neighbourhood malls with ‘essential’ shopping like supermarkets.

Last week, they released their latest property portfolio update.

Their assets rose nearly 10% in value. They also pay out their next dose of cash in January.

REITs have been a steady winner in 2021. I’ve written about this before.

They might keep winning too.

Right now, the hottest area of the property market is industrial land.

That’s because of the explosion in online shopping and higher storage (inventory) levels across the business world.

The latter is because everyone is — justifiably — worried about stock in a world of fractured supply chains.

One estimate I saw put the industrial vacancy rate at 1%.

This is going to push rents up.

It also means that some properties will be repurposed.

Part of the current appeal of SCA, for example, is that its neighbourhood malls are close to the consumer.

That means they can play a role in ‘last mile’ logistics.

A player as experienced and big as Blackstone Inc [NYSE:BX] sees lots of opportunity here.

The Weekend Australian reported:

‘Private equity giant Blackstone is backing a further shift online — with Christmas just the start — after investing $2.1bn in a Dexus logistics property trust.

‘Blackstone, which is a big believer in both online shopping and a more permanent shift in supply chains as a result of the pandemic, will look to expand the portfolio in league with Dexus and also chase more properties in areas like storage that are benefiting from the shift online.’

They are not alone.

The Australian also reports that:

‘The $2bn Waypoint REIT has been identified as the next likely takeover target in the real estate space amid speculation that Charter Hall is lining up at least one major deal by the end of the year.

‘Sources say that Waypoint’s management and board have sent signals to the market that it is open to an approach.

‘Waypoint owns 469 Australian service stations, worth $2.94bn.’

Hello! I’ll keep banging the same point…

If you’re looking for income with low volatility and relatively low risk, there’s still lots of opportunity in the commercial real estate space.

What alternative do you have? Bonds are in a bubble worldwide. Jim Rogers told me that on my podcast.

The central banks are inflating money supply.

That will push up the price of ‘hard’ assets like real estate. And the yields can still be over 5% on the ASX.

And who knows? Maybe some merger and acquisition activity will come knocking on the door!

I happen to think there is a lot of dividend opportunity on the ASX. I’ve said a few times that the iron ore miners look tasty here.

They’re not quite as tasty as they were. But to give you an idea, check out what Grange Resources Ltd [ASX:GRR] did last week.

This is a less well-known iron ore producer down in Tasmania.

They surprised everyone by announcing a special dividend of 10 cents a share.

The stock traded at 61 cents before the announcement. It rose 20% on the day following the announcement.

That’s even after the big drawdown in iron ore from over US$200 in May to US$100 now.

It’s still a very profitable industry. You don’t get much growth premium on the stocks, but you can still get big cash flow.

I wondered if some of the gold miners might start doing this. The Good Lord knows they have been dud trades lately.

But the basic economics can’t be denied. They are making $700–1,000 margins per ounce.

Some are carrying big cash hoards. I wouldn’t be surprised to see some of them pay that cash out like Grange just did.

One thing I can tell you…I’ll see what my old mate, gold tragic Shae Russell, thinks of that idea.

She and I are doing a podcast today for the Fat Tail Investment Podcast.

Make sure you check it out. There are some great interviews there already…and it’s all free!

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia