Hi guys, OCTAIN posted this on the MDT threads, but it does...

Hi guys, OCTAIN posted this on the MDT threads, but it does apply to AEZ as Orbis is the major shareholder. Interesting seeing how Orbis is thinking.

"in the australian today excellent article.

lorence Chong | October 29, 2009

Article from: The Australian
BARGAIN hunting Orbis Holdings has emerged as the largest shareholder in at least five of the worst-performing property trusts listed on the ASX.

Orbis chief executive Simon Marais, a true contrarian investor, sees only upside in these trusts.

This week the fund manager increased its stake in Macquarie DDR Trust (MDT) to 11.87 per cent.

Orbis is on the registers of Valad Property Group (11.31 per cent), Australian Education Trust (16.52 per cent), APN European Retail (17.84 per cent) and two ING trusts -- it has 19.01 per cent of one and almost 15 per cent of the other.

"All these trusts have been through the wringer. There is only one way to go -- up," he said.

MDT, which owns shopping centres in the US, was in a position similar to that of sister trust Macquarie Countrywide six to 10 months ago, Mr Marais said.

MCW at the time was at 10c a unit. The securities have since hit a high of 71c, and Orbis has reduced its stake.

Mr Marais said the two trusts were similar in many ways. Both owned shopping centres in the US, but MCW had less debt.

"The problems of MDT have been well publicised," Mr Marais said, adding the US economy had started to recover and demand for space would rise.

The trust had positive cashflow and a high occupancy rate, he said.

MDT is continuing to sell properties to keep its lenders at bay. Its financiers recently agreed to extend the maturity date of its $US95million ($103.4m) non-recourse commercial mortgage-backed securities debt for a further 60 days, to December 1.

It is working with the lenders to finalise documentation for an extension to the middle of next year.

Mr Marais said it was likely the banks would be easier to deal with next year. Indeed, had the lenders wanted to pull the plug, they would have done so three months ago. Banks had been squeezing property companies and charging high margins for funds, he said. However, the pendulum would swing, and the banks would want to lend to property groups as the economy improved.

Shares in MDT have risen strongly in price, from 3.7c to as high as 11.5c.

Orbis, the largest shareholder in Valad Property Group, owns almost three times as many units as Challenger Financial, which has a 4.14 per cent stake.

Mr Marais said the worst was over for Valad, which recently undertook a $50m capital raising to pay off British investor Kevin McCabe.

Mr McCabe was owed the equivalent of $56.5m and had sought to convert the outstanding debt into equity at 10c a share. "But we think a better deal for unitholders was a capital raising. We supported it," Mr Marais said.

"There are two parts of Valad's business. One is in Australia and Asia, and this part of the business is not highly geared at all. It has gearing on its European business."

Whatever happened, that business was "worth something", he said.

Most importantly, Valad's Australian business had not given a guarantee for the debt of the European business.

Mr Marais said MDT and Valad were companies whose securities had at one time traded as high as $2 a unit.

"I don't expect them to return to that level, but they could move up to 50c or 60c," he said.

He said he had bought into his current portfolio of companies when share prices were low a few months ago.

At the time, Valad was trading at 2.4c a unit, Australian Education Trust at 27.5c and APN European Trust at 3.9c.

The ING Real Estate Community Living Group (ILF) had fallen to 1.6c but was now trading at 13c, and ING Real Estate Entertainment Fund (IEF) had fallen to 12.5c but had since recovered to 28c. As the stock market bottomed, Orbis bought stakes in 15 listed trusts, including the likes of GPT and Goodman Group. Orbis sold its stake in GPT, saying the trust had acquired assets at the peak of the market and was selling them at the bottom of the cycle.

Mr Marais said it did not make sense for property companies to reduce gearing at a time when interest rates were low and the capitalisation rate had risen to 8-9per cent.

"When the economy picks up, vacancies will shrink and rents will rise. It is inevitable," he said. "It takes two to three years to build a new office block. No one is building now because it is cheaper to buy than to build in today's market."

Mr Marais has faith in the residential sector in particular. He said the industry was underbuilding at a time when there was demand from the influx of migrants.

Orbis is a major investor in Australand and AV Jennings, both large residential developers with big land banks. "Property goes through cycles," he said.

In a few months' time, investors would have forgotten about the horror of this year and would be returning to listed property, he said.