Precinct Properties New Zealand Limited (NZSE:PCT), a NZD$1.54B small-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. Real estate investment trust, or a REIT, is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year, and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the real estate sector right now. Today, I will analyse the industry outlook, as well as evaluate whether PCT is lagging or leading its competitors in the industry. Check out our latest analysis for Precinct Properties New Zealand
What’s the catalyst for PCT's sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. In the past year, the industry delivered growth in the teens, beating the Australian market growth of 6 percent. PCT lags the pack with its lower growth rate of 17 percent over the past year, which indicates the company has been growing at a slower pace than its REIT peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with PCT poised to deliver a -45 percent growth compared to the industry average growth rate of -31 percent. As an industry laggard, PCT may be a cheaper stock relative to its peers.
Is PCT and the sector relatively cheap?
REIT companies are typically trading at a PE of 14 times, below the broader Australian stock market PE of 22 times. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 14 percent on equities compared to the market’s 16 percent. On the stock-level, PCT is trading at a PE ratio of 9 times, which is relatively in-line with the average REIT stock. In terms of returns, PCT generated 11 percent in the past year, which is 3 percent below the REIT sector.
What this means for you:
Are you a shareholder? PCT is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of PCT, there are other REIT companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how PCT fits into your wider portfolio and the opportunity cost of holding onto the stock.