THE AUSTRALIAN, TUESDAY, SEPTEMBER 23, 2014 25V1 - AUSE01Z01MA

SHOPPING Centres Australasia (SCA Property Group) is the REIT spun out of Woolworths back in 2012. It effectively became Woolworths’ landlord.

SCA units had a strong year,rising to $1.90. But in the recent correction they have fallen back to $1.70, which has given yield investors a good opportunity to lock in a 6.6 per cent unfranked yield and gain exposure to relatively stable non-discretionary retail.

SCA owns 75 shopping centres around Australia and New Zealand, worth $1.65 billion. The properties have Woolies, Masters, Big W or Dan Murphy as anchor tenants on long-term leases. Most are focused on “convenience” retailing in neighbourhood and subregional shopping centres. That type of property provides resilience because people need to buy food.

With a slowing China and the end of the resources boom the Australian economy is entering tough times and exposure to stocks and revenue streams that aren’t exposed to fluctuations in GDP is smart. Woolworths is one consumer staple stock that should perform relatively well in this environment. SCP, of course, is exposed to Woolies.

SCA’s properties have beenperforming well with 8.4 per cent average sales growth, which is better than peers and helped it generated a solid full-year profit of $111.6 million.

But the company has received a boost from Woolies which ends soon. When SCA was spun out, Woolies provided a two-year rental guarantee to cover higher vacancy rates at the shopping centres’ “specialty” stores — things like takeaways, fashion and chemists — which now make up 37 per cent of tenants.

That rental guarantee endsfor most properties in December. SCA will wear all the costs then, so ongoing performance is linked to SCA’s ability to rent out its specialty space. Fortunately, it has been generating more specialty rental income, with vacancy falling from 14 per cent to 8.6 per cent. It’s on track to cut that vacancy to less than 5 per cent by the end of the year.

SCA has also been activelymanaging its portfolio through purchases, sales and new developments buys. Despite acquisitions, it has modest gearing of around 35 per cent.

Darren Katz is head of distribution at Clime Asset Management.

Woolies property spin-off in good shape

DIVIDEND DETECTIVE

SHOPPING CENTRES AUSTRAL-ASIAASX CODE: SCPSECURITY PRICE: $1.695INDUSTRY: Property FORECAST DISTRIBUTION: 11.3cper unit

DARREN KATZ

LAST week I pointed out that investment presentations in Australia generally focus too much on what’s happening locally — to spending, business confidence, inflation, monetary policy and the budget — and underplay the extent to which large parts of our investment markets follow US leads.

That column looked mainlyat the sharemarket but it’s important to note that interest rates on long-dated bonds in Australia and the US are also highly correlated. Indeed, the main reason our long-dated bond yield is currently so low (3.6 per cent at time of writing) is the influence of the US rate (which was 2.6 per cent).

But why might investors giveup the ultimate scarce resource — time — to be watching what’s happening to interest rates on long-dated government bonds? After all, very few Australians own those securities directly. Most are held by overseas central banks, foreign sovereign funds and our big superannuation funds.

The yield on long-dated government bonds is important in the pricing of financial assets because it signifies the risk-free rate of return.

(However, investors shouldbe aware: conventional government bonds can lose value from inflation; market values, particularly of long-dated bonds, move inversely with yields; and Australians holding government bonds took a haircut from the Premiers’ Plan during the great depression).

When the yield on long-datedbonds moves significantly, many professional investors reconsider the prices they’re prepared to pay for shares. For example, when bond yields fall to exceptionally low, as at present, the impact on shares is decidedly bullish.

Over the decades, the key influences on the Australian long-term bond yield have changed. From the deregulation of our bond market in the early 1980s until the mid-1990s, the long-term bond yield was largely determined by domestic influences — in particular, inflation and real growth.

In 1989, another influence dominated: our exceptionally high cash rate (of 17 per cent) pushed the yield on ten- year bonds up to 14 per cent, or six percentage points higher than the yield on US ten-year bonds.

In 1994, Australian investors feared the return of rapid inflation; their fears weren’t realised, but the long-term yield jumped by four percentage points from six to above 10 per cent.

These days, our long-dated bond yield is mainly determined by US (and at times European) influences. There’s some slippage. When the global financial crisis first hit, Australian yield rose modestly relative to the US yields, with the spread moving up to around two percentage points, even though the US was the epicentre of the crisis.

With our economy doing relatively well, that wider spread through to 2012. More recently, with our economy losing its growth momentum — and with European yields declining to record lows — the spread over the US yield has fallen to a paltry one percentage point.

Prospects are the long-termbond yield in the US will remain the main influence on the Australian bond yield over the next year or two. My guess is we’ll see both bonds and shares sell off for a time as the US moves further to normalise its monetary policy and as strong data on that economy are released. But if the US economy maintains a strong growth momentum, shares could rebound usefully even if bond markets stay gloomy.

Investors need to bear in mind just how far interest rates have declined relative to levels that used to be seen as “normal”. Citing research from Bank of America Merrill Lynch, Barron’s, a US investment magazine, recently noted: “1.4 billion people around the globe are experiencing negative real (inflation-adjusted) interest rates; 81 per cent of the global equity market capitalisation is supported by zero-interest rate monetary policies; and 45 per cent of all government bonds yield less than 1 per cent”.

don.stammer@bigpond.com

Don Stammer chairs QVE Limited, is a director of IPE Limited and is an adviser to the Third Link Growth Fund, Altius Asset Management, Philo Capital and Centric Wealth. The views are his alone.

Follow the leader: our long-term bond yield tracks the US closely

DON STAMMER

Source: Altius, Bloomberg

Since the mid-1990s, our 10-year bond yield has largely tracked that of the US

Australian 10-year bond

1987 92 97 2002 07 12

16$

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US 10-year bond

US bonds lead the way

Great news: the very rich are growing even richer

AUSTRALIA has 32 US dollarbillionaires, according to a newUBS study, of whom no fewerthan 14 are based in Sydney.

They are clearly adherents ofPaul Keating’s politically incor-rect but lapidary line that “in Aus-tralia, if you’re not living inSydney, you’re camping out’’.

And before the vast army ofsub-billionaires in Sydney startsto get nervous about missing out,it’s worth noting that UBS’sWealth-X census of 2014 saysthere are only two of them in NewZealand and 40 in the whole ofAfrica, which has two fewer thanin 2013.

(Incidentally, there are for thefirst time more in Nigeria, at 11,than the 10 in South Africa.)

And Sydney’s billionaires arecomparatively just bumpingalong, by global standards: theyare worth an average $US2.1 bil-lion ($2.35bn) compared with theglobal average of $US3.1bn.

And what’s more, they are amite creakier than most of usbecause their average age is 69,versus the global average of 63.

Australia comes out in 18thspot in the survey’s Top 40 ofcollective billionaire wealth with$US90bn owned by our 32billionaires, ahead for instance ofSingapore with 32 billionairesholding $US65bn, South Koreawith 21 billionaires and $US50bn,and Indonesia that has 19 billion-aires holding $45bn.

Looking out more widely, al-most half of the world’s billion-aires are over 65 and it isreassuring to see they are almostas keen on cash as Australia’snotoriously cash loving SelfManaged Super Fund trustees.

“On average, 19 per cent of bill-ionaires’ wealth is held in cash,which tends to yield lower re-turns,’’ says UBS. Our SMSFshold close to 30 per cent in cash,by comparison.

The reason given is that theywant to move fast to take advan-tage of opportunities as they arise,which is what our SMSF trustees

tend to say they do, except thatthey don’t often follow through.

There’s always an element ofvoyeurism in such a study butthat’s what makes it so interest-ing: these people go from beingmystical figures to people whosefinancial concerns are the same aseveryone else’s but just on agrander scale.

But what they very much arenot, is an endangered species.

The overall figures are that thenumber of billionaires in theworld is moving up a lot fasterthan inflation, at 7 per cent, to2325 in the 12 months before thestudy was completed.

And their collective wealth ismoving up even faster at 12 percent to a startling $US7.3 trillion,which is more than the total capi-talisation of all the companiesthat make up the Dow Jones In-dustrial average.

Talking of the Dow, you won’tbe surprised to hear that the USremains the home of more billion-aires than anywhere else, with 571,followed by China on 190 andBritain with 130.

Nor will you be surprised thatAsia is catching up fast, withChina having 21 per cent morebillionaires this year than last (at190 versus 157, putting it in secondplace), despite a growth rate intheir collective wealth of a moreconsidered 14.5 per cent.

Among the quirky details in

the survey is the note that thenumber of people becoming bill-ionaires by inheritance is actuallydropping and between 2013 and2014 it dropped below 20 per cent.Some 81 per cent of this year’s bill-ionaires did it all by themselves.

And what area of business isminting the most of them?

It’s banking, finance and in-vestment that is the backgroundto 20 per cent of current billion-

aires, well ahead of industrial con-glomerates on 12.4 per cent, realestate on 7.6 per cent and manu-facturing on 5.2 per cent.

And not necessarily via listedcompanies, either. Some 63 percent of billionaires’ primary busi-ness is in private companieswhich is more than twice the per-centage using listed companies.Given that listing’s primary pur-pose is to attract capital and these

people are not exactly short inthat area, it does not surprise.

The distortions in the numbersare interesting. Remember howEurope is an economic basketcase at the moment?

If you lump European coun-tries together, there are more bill-ionaires there than in any otherregion, including North America,at 775 versus 609. And while thenumber in Europe only grew by1.2 per cent in the year, only justabove inflation, their collectivenet worth jumped by 12 per centagainst North America’s 9.9 percent.

Bear in mind that locations arechosen by the billionaires’ pri-mary business address, and manyRussian billionaires, for instance,base themselves in London.

And if you want to actually tripover one, your best bet is Liech-tenstein where there are five, or125 billionaires per million people.Bermuda, Luxembourg, HongKong, Switzerland and Singaporeare in descending order the mostlikely places for a collision. Not, ofcourse, that most of the billion-aires were ever born there: thosejurisdictions just happen to havethe most benevolent tax laws.

Given that billionaires worrymore about keeping their moneythan actually making any more,you can see the roaring corre-lation between domicile and networth in those countries.

Vaduz Royal Castle in Liechtenstein which, proportionately, has the highest density of billionaires in the world

The number of billionaires is increasing rapidly

ANDREW MAIN

Confusion reigns over two-year bring-forward rule for SMSFs

THE limit on non-concessionalcontributions has increased to$180,000 per year or $540,000using the two year bring forwardrule. Many Self Managed Super-annuation Fund members areconfused as to how to use the twoyear rule. It works this way.

The rule is triggered when youmake non-concessional contribu-tions of more than $180,000 inone financial year. You can onlyuse the bring forward rule if youare under 65 years old at any timein the first year of contribution. So

if your birthday falls on July 2 andyou turned 65 on that date, youqualify because you were under65 years of age on July 1. It doesn’tmatter that you are no longerunder 65 the rest of that or thefollowing two financial years.

If you are aged 65 to 74, youwill need to be working at least 40hours in a period of not more than30 consecutive days in a financialyear to be able to make contribu-tions into your SMSF. So if youdid trigger the two year bring for-ward rule when you were under65 and are planning to contributeafter turning 65, then you need tomeet the work test to be able to

contribute. The work test only hasto be met once in a financial year.You do not need to be workingevery month to make further con-tributions.

Once you trigger the bring for-ward rule, your maximum limit is$540,000 over the three consecu-tive years. You cannot makefurther non-concessional contri-butions until after the third finan-cial year. If you trigger the bringforward rule in the 2014-15 finan-cial year, you cannot make anymore non-concessional contribu-tions until July 1, 2017.

This is because you have usedup your annual limits for three fi-

nancial years, being 2014-15,2015-16, and 2016-17.

For those who have alreadytriggered the two year bring for-ward rule in the last financial year(i.e. 2013-14), you are stuck withthe old $450,000 limit and cannotuse the increased limit of$540,000 until your bring for-ward period is over. You cannotcontribute a further $90,000 totake advantage of the new limit.Your three year limit is still$450,000 because you triggered itprior to the change in the limittaking effect. Making a contri-bution in excess of your limit willbe considered an excess contri-

bution and you will be penalised.A lot of people have missed a goodopportunity to make larger con-tributions into their SMSF simplybecause they have not stayed in-formed of the changes to govern-ment policy. It pays to understandthe law and have a good under-standing of how the limits apply toyour personal circumstances.

Monica Rule is the author of The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English.

www.monicarule.com.au

MONICA RULE

If the US economymaintains a stronggrowth momentum, sharescould rebound usefully even if bond markets staygloomy

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Top 20 billionaire countries/territories

Rank ChangeCountry/territory Number

Wealth$USbn Number

Wealth$USbn

Source: UBS

2014 2013

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+3

+2

+2

+6

+2

-1

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www.theaustralian.com.au WEALTH 25

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