Investors in the listed property sector can expect falling returns and are being advised to diversify for tougher times.
ABN-Amro Craigs said returns could drop 15 per cent because of the slowing economy. There was potential for vacancy rates to increase and tenants to downsize or go out of business, and this could result in less rent.
A research paper it issued late last month has examined returns from trusts after an update of portfolio valuations.
In the six months to September, Kiwi Income Property Trust's portfolio value sank from $2.09 billion to $2.05 billion, Goodman Property Trust's from $1.62 billion to $1.60 billion, National Property Trust's from $293.5 million to $280 million, and ING Property Trust's portfolio was down $14.2 million at half-year.
ING's properties were worth $1.1 billion in March, but management declined to say what the value was precisely at the end of September because, they said, acquisitions had also been made in that period.
ABN said the structure of the listed property trust sector meant dividend declines were inevitable.
"As LPTs distribute 100 per cent of their rental income [after interest, management fees and tax], any fall in rental income leads directly to a decrease in dividends," ABN said.
Investors should not hold units in only one vehicle as the entities were sometimes extremely specialised, which brought with it a higher degree of risk exposure, the report said.
The report cited Kiwi's exposure to the retail sector, Goodman's to the development sector via the $1 billion Highbrook in Auckland and AMP NZ Office Trust to the Wellington market, a sector tagged for Government downsizing.
"We believe that investors should hold a diversified portfolio of listed property trusts rather than investing in only one or two preferred exposures. It is possible to pick holes in any of the trusts," said the report.
Shane Solly, of Mint Asset Management, approved of dividend cuts.
"All corporates - whether LPTs or not - should be focusing on protecting their capital bases.
"We believe the dividend cuts are prudent. It means that the management teams are able to manage the weaker conditions without having to make aggressive changes to their portfolios to meet bankers' requirements."
Results from Kiwi and Goodman were never expected to be stunning. The boards or management teams had taken a conservative approach, which was appropriate given the uncertain nature of the economy, Solly said.
"Listed property security prices now reflect a very negative environment, certainly much more negative than the conditions faced when we had the last major property devaluation period. Last time it was about an oversupply of property ... There is not the same over-supply issue that resulted in prolonged property sector declines.
"It's too early to say that we've seen the bottom yet, but certainly property securities are priced for a set of conditions that have not existed in previous, more structurally impaired times.
"Even though dividends have been trimmed, listed property yields are still attractive relative to cash and bond yields."