New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2><a target="_blank">Real Estate Reflections: The180th Ed</a></h2>
December 2019 — Property Pitch Firm Underfoot
The listed property sector had a flat month on the back of limited surprises in the reporting season, and the digesting of recent capital raises from KPG and IPL. We suspect the prospect of more raises is likely as the sector continues to trade at a large premium to NTA. While growth remains limited, NTA’s continue to strengthen and dividends remain defensive given the quality of the portfolios, cashflows and lease expiry outlooks. We continue to like defensive qualities with VHP and IPL preferred exposures whilst KPG remains our preferred large cap.
1H20 property reporting season — Steady dividends intact
Most results were close to expectations, and more prominently existing FY20 dividend guidance was reiterated by all seven LPVs, hence, we did not change forecasts. The themes of recent reporting seasons continued, with earnings growth challenging and impacted by the dilution of asset sales despite strong underlying rental growth for Auckland industrial and office assets. Encouragingly, cashflows, balance sheets and key portfolio metrics remain very robust. There were rare interim revaluations for GMT, ARG and SPG reflecting the strong performance of Auckland industrial properties and to a lesser extent, Auckland office assets.
Strategically, the most interesting aspect of the reporting season was KPG’s ongoing subtle but determined move from a retail REIT to mixed use. It is signalling that it is looking at a range of options such as residential build to own and hotels as it leverages location and scale at key sites. Its scale, expertise and willingness to take on the retail element of a mixed use project could create some interesting new opportunities.
Funds management more of a feature
AUG continues to progress major new funds while SPG continues to grow IPL, constantly looking at opportunities to create funds to compliment IPL and its unlisted industrial fund. We also expect KPG to leverage its scale and expertise into the funds management space.
Flat return in November underperforms strong NZX50
The LPV sector had a flat November on the back of a ‘no surprises’ reporting season and the digesting of recent capital raises from KPG and IPL. There has also been a swing back to growth from yield in the broader market with a very strong month for the retirement sector, including large cap RYM and strong months from ATM and FPH, which drove the S&amp;P/NZX50 gross up +5%.
Figure 1. NZ listed property sector summary
<table class="table table-striped">
<thead>
<tr>
<td style="width: 70.9pt;">
LPV
</td>
<td style="width: 1cm;">
Code
</td>
<td style="width: 63.8pt;">
Rating
</td>
<td style="width: 27.7pt;">
Price
</td>
<td style="width: 27.7pt;">
Target
</td>
<td style="width: 36.7pt;">
Gross div
</td>
<td style="width: 21.3pt;">
AFFO
</td>
<td style="width: 1cm;">
P/NAV
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
&nbsp;
</td>
<td style="width: 1cm;">
&nbsp;
</td>
<td style="width: 63.8pt;">
&nbsp;
</td>
<td style="width: 27.7pt;">
1-Dec
</td>
<td style="width: 27.7pt;">
price
</td>
<td style="width: 36.7pt;">
yield
</td>
<td style="width: 21.3pt;">
yield
</td>
<td style="width: 1cm;">
&nbsp;
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 70.9pt;">
Asset Plus
</td>
<td style="width: 1cm;">
APL
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$0.64
</td>
<td style="width: 27.7pt;">
$0.65
</td>
<td style="width: 36.7pt;">
8.1%
</td>
<td style="width: 21.3pt;">
5.0%
</td>
<td style="width: 1cm;">
97%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Argosy Property
</td>
<td style="width: 1cm;">
ARG
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$1.41
</td>
<td style="width: 27.7pt;">
$1.38
</td>
<td style="width: 36.7pt;">
6.4%
</td>
<td style="width: 21.3pt;">
4.4%
</td>
<td style="width: 1cm;">
107%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Augusta Capital
</td>
<td style="width: 1cm;">
AUG
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$1.45
</td>
<td style="width: 27.7pt;">
$1.38
</td>
<td style="width: 36.7pt;">
6.2%
</td>
<td style="width: 21.3pt;">
4.9%
</td>
<td style="width: 1cm;">
104%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Goodman Property
</td>
<td style="width: 1cm;">
GMT
</td>
<td style="width: 63.8pt;">
UNDERPERFORM
</td>
<td style="width: 27.7pt;">
$2.14
</td>
<td style="width: 27.7pt;">
$1.92
</td>
<td style="width: 36.7pt;">
4.4%
</td>
<td style="width: 21.3pt;">
2.9%
</td>
<td style="width: 1cm;">
112%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Investore
</td>
<td style="width: 1cm;">
IPL
</td>
<td style="width: 63.8pt;">
OUTPERFORM
</td>
<td style="width: 27.7pt;">
$1.80
</td>
<td style="width: 27.7pt;">
$1.85
</td>
<td style="width: 36.7pt;">
6.1%
</td>
<td style="width: 21.3pt;">
4.1%
</td>
<td style="width: 1cm;">
108%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Kiwi Property Group
</td>
<td style="width: 1cm;">
KPG
</td>
<td style="width: 63.8pt;">
OUTPERFORM
</td>
<td style="width: 27.7pt;">
$1.58
</td>
<td style="width: 27.7pt;">
$1.62
</td>
<td style="width: 36.7pt;">
6.4%
</td>
<td style="width: 21.3pt;">
4.1%
</td>
<td style="width: 1cm;">
102%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Precinct Properties
</td>
<td style="width: 1cm;">
PCT
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$1.82
</td>
<td style="width: 27.7pt;">
$1.60
</td>
<td style="width: 36.7pt;">
5.0%
</td>
<td style="width: 21.3pt;">
3.3%
</td>
<td style="width: 1cm;">
116%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Property for Industry
</td>
<td style="width: 1cm;">
PFI
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$2.35
</td>
<td style="width: 27.7pt;">
$2.00
</td>
<td style="width: 36.7pt;">
4.7%
</td>
<td style="width: 21.3pt;">
3.3%
</td>
<td style="width: 1cm;">
120%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Stride Property
</td>
<td style="width: 1cm;">
SPG
</td>
<td style="width: 63.8pt;">
NEUTRAL
</td>
<td style="width: 27.7pt;">
$2.23
</td>
<td style="width: 27.7pt;">
$2.18
</td>
<td style="width: 36.7pt;">
6.3%
</td>
<td style="width: 21.3pt;">
4.2%
</td>
<td style="width: 1cm;">
109%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Vital Healthcare
</td>
<td style="width: 1cm;">
VHP
</td>
<td style="width: 63.8pt;">
OUTPERFORM
</td>
<td style="width: 27.7pt;">
$2.68
</td>
<td style="width: 27.7pt;">
$2.69
</td>
<td style="width: 36.7pt;">
4.8%
</td>
<td style="width: 21.3pt;">
3.1%
</td>
<td style="width: 1cm;">
116%
</td>
</tr>
<tr>
<td style="width: 70.9pt;">
Core simple average
</td>
<td style="width: 1cm;">
&nbsp;
</td>
<td style="width: 63.8pt;">
&nbsp;
</td>
<td style="width: 27.7pt;">
&nbsp;
</td>
<td style="width: 27.7pt;">
&nbsp;
</td>
<td style="width: 36.7pt;">
5.5%
</td>
<td style="width: 21.3pt;">
3.7%
</td>
<td style="width: 1cm;">
111%
</td>
</tr>
</tbody>
</table>
1: Core average excludes APL and AUG. Source: Forsyth Barr analysis, company reports.&nbsp;
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Real Estate Reflections: The180th Ed
December 2019 — Property Pitch Firm Underfoot
The listed property sector had a flat month on the back of limited surprises in the reporting season, and the digesting of recent capital raises from KPG and IPL. We suspect the prospect of more raises is likely as the sector continues to trade at a large premium to NTA. While growth remains limited, NTA’s continue to strengthen and dividends remain defensive given the quality of the portfolios, cashflows and lease expiry outlooks. We continue to like defensive qualities with VHP and IPL preferred exposures whilst KPG remains our preferred large cap.
1H20 property reporting season — Steady dividends intact
Most results were close to expectations, and more prominently existing FY20 dividend guidance was reiterated by all seven LPVs, hence, we did not change forecasts. The themes of recent reporting seasons continued, with earnings growth challenging and impacted by the dilution of asset sales despite strong underlying rental growth for Auckland industrial and office assets. Encouragingly, cashflows, balance sheets and key portfolio metrics remain very robust. There were rare interim revaluations for GMT, ARG and SPG reflecting the strong performance of Auckland industrial properties and to a lesser extent, Auckland office assets.
Strategically, the most interesting aspect of the reporting season was KPG’s ongoing subtle but determined move from a retail REIT to mixed use. It is signalling that it is looking at a range of options such as residential build to own and hotels as it leverages location and scale at key sites. Its scale, expertise and willingness to take on the retail element of a mixed use project could create some interesting new opportunities.
Funds management more of a feature
AUG continues to progress major new funds while SPG continues to grow IPL, constantly looking at opportunities to create funds to compliment IPL and its unlisted industrial fund. We also expect KPG to leverage its scale and expertise into the funds management space.
Flat return in November underperforms strong NZX50
The LPV sector had a flat November on the back of a ‘no surprises’ reporting season and the digesting of recent capital raises from KPG and IPL. There has also been a swing back to growth from yield in the broader market with a very strong month for the retirement sector, including large cap RYM and strong months from ATM and FPH, which drove the S&amp;P/NZX50 gross up +5%.
Figure 1. NZ listed property sector summary




LPV


Code


Rating


Price


Target


Gross div


AFFO


P/NAV




&nbsp;


&nbsp;


&nbsp;


1-Dec


price


yield


yield


&nbsp;






Asset Plus


APL


NEUTRAL


$0.64


$0.65


8.1%


5.0%


97%




Argosy Property


ARG


NEUTRAL


$1.41


$1.38


6.4%


4.4%


107%




Augusta Capital


AUG


NEUTRAL


$1.45


$1.38


6.2%


4.9%


104%




Goodman Property


GMT


UNDERPERFORM


$2.14


$1.92


4.4%


2.9%


112%




Investore


IPL


OUTPERFORM


$1.80


$1.85


6.1%


4.1%


108%




Kiwi Property Group


KPG


OUTPERFORM


$1.58


$1.62


6.4%


4.1%


102%




Precinct Properties


PCT


NEUTRAL


$1.82


$1.60


5.0%


3.3%


116%




Property for Industry


PFI


NEUTRAL


$2.35


$2.00


4.7%


3.3%


120%




Stride Property


SPG


NEUTRAL


$2.23


$2.18


6.3%


4.2%


109%




Vital Healthcare


VHP


OUTPERFORM


$2.68


$2.69


4.8%


3.1%


116%




Core simple average


&nbsp;


&nbsp;


&nbsp;


&nbsp;


5.5%


3.7%


111%




1: Core average excludes APL and AUG. Source: Forsyth Barr analysis, company reports.&nbsp;
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Real Estate Reflections: The180th Ed: December 2019 — Property Pitch Firm Underfoot

<h2>Asset Plus</h2>
1H20 — Basic Arithmetic
Asset Plus Limited (APL) delivered a 1H20 result evident of a company still in the transitory phases of executing on its long term strategy. Underlying profit of NZ$2.8m was broadly in line with our forecasts and flat on the prior year, with the dilutionary effect of asset sales offset by the acquisition of 35 Graham Street. APL’s portfolio metrics remain steady, and its relatively defensive lease expiry profile provides complementary upside. APL declared a 2Q20 dividend of 0.90cps, in line with forecasts and the prior year. No changes to our forecasts have been made. NEUTRAL.
35 Graham Street remains the Crown Jewel
APL highlighted the increased attention shown toward its recently acquired 35 Graham Street property which presents an attractive redevelopment opportunity. At acquisition price, the property possesses an initial yield of 6.85% with 100% occupancy for the next 1.75 years, providing flexibility in the design process whilst underpinning cashflows and APL’s dividend. Development feasibility work suggests that the redevelopment could create ~20,000 sqm of Net Lettable Area. We estimate an annual net rental contribution of NZ$10.3–10.6m p.a. on completion (depending on construction duration). This represents an estimated yield on construction cost (guided as NZ$90–100m) of ~11%. Initial works are anticipated to begin by FY22.
Portfolio performance improving holistically
1H20 portfolio occupancy and WALT are 98% and 4.2 years respectively. Although Eastgate (Christchurch), continues to be characterized as the “problem child” of the portfolio, in light of further work undertaken to develop a new masterplan for the centre alongside securing a significant lease renewal with key tenant, Countdown, we believe there is a strong probability the property will be able to reverse the drag on earnings it has historically created.
APL’s 1H20 dividend of 1.8cps was in line with forecasts and guidance, whilst no FY20 guidance was provided, in line with its policy to review the dividend on a quarterly basis. The 2Q20 dividend of 0.9cps has a record date of 11 December 2019 and payment date of 18 December 2019.
Focus on building out the portfolio through strategic M&amp;A
APL noted its continuous motivation to identify fairly priced, value add acquisition opportunities. In kind, NZ$0.8m was spent on due diligence costs related to two substantial investment opportunities which did not eventuate. Although the quantum of such due diligence costs are not expected to be mirrored in future periods, management signalled that these expenditures will likely become a recurring feature of its financial results. Gearing is relatively full at ~26% on an adjusted basis, even when taking into account APL’s recent divestment of its Heinz Watties distribution centre. Consequently, we expect any further acquisitions would likely be accompanied by a capital raising.
<div class="content-highlight">
Investment View
APL has announced its first major acquisition and value add opportunity to follow its management externalisation. There is upside for APL over the medium-term if it can execute on its ‘value-add’ strategy, which AUG has done successfully on other funds. While APL trades at a discount to peers, this is justified in our view. Our rating is NEUTRAL.&nbsp;&nbsp;
</div>
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Asset Plus
1H20 — Basic Arithmetic
Asset Plus Limited (APL) delivered a 1H20 result evident of a company still in the transitory phases of executing on its long term strategy. Underlying profit of NZ$2.8m was broadly in line with our forecasts and flat on the prior year, with the dilutionary effect of asset sales offset by the acquisition of 35 Graham Street. APL’s portfolio metrics remain steady, and its relatively defensive lease expiry profile provides complementary upside. APL declared a 2Q20 dividend of 0.90cps, in line with forecasts and the prior year. No changes to our forecasts have been made. NEUTRAL.
35 Graham Street remains the Crown Jewel
APL highlighted the increased attention shown toward its recently acquired 35 Graham Street property which presents an attractive redevelopment opportunity. At acquisition price, the property possesses an initial yield of 6.85% with 100% occupancy for the next 1.75 years, providing flexibility in the design process whilst underpinning cashflows and APL’s dividend. Development feasibility work suggests that the redevelopment could create ~20,000 sqm of Net Lettable Area. We estimate an annual net rental contribution of NZ$10.3–10.6m p.a. on completion (depending on construction duration). This represents an estimated yield on construction cost (guided as NZ$90–100m) of ~11%. Initial works are anticipated to begin by FY22.
Portfolio performance improving holistically
1H20 portfolio occupancy and WALT are 98% and 4.2 years respectively. Although Eastgate (Christchurch), continues to be characterized as the “problem child” of the portfolio, in light of further work undertaken to develop a new masterplan for the centre alongside securing a significant lease renewal with key tenant, Countdown, we believe there is a strong probability the property will be able to reverse the drag on earnings it has historically created.
APL’s 1H20 dividend of 1.8cps was in line with forecasts and guidance, whilst no FY20 guidance was provided, in line with its policy to review the dividend on a quarterly basis. The 2Q20 dividend of 0.9cps has a record date of 11 December 2019 and payment date of 18 December 2019.
Focus on building out the portfolio through strategic M&amp;A
APL noted its continuous motivation to identify fairly priced, value add acquisition opportunities. In kind, NZ$0.8m was spent on due diligence costs related to two substantial investment opportunities which did not eventuate. Although the quantum of such due diligence costs are not expected to be mirrored in future periods, management signalled that these expenditures will likely become a recurring feature of its financial results. Gearing is relatively full at ~26% on an adjusted basis, even when taking into account APL’s recent divestment of its Heinz Watties distribution centre. Consequently, we expect any further acquisitions would likely be accompanied by a capital raising.

Investment View
APL has announced its first major acquisition and value add opportunity to follow its management externalisation. There is upside for APL over the medium-term if it can execute on its ‘value-add’ strategy, which AUG has done successfully on other funds. While APL trades at a discount to peers, this is justified in our view. Our rating is NEUTRAL.&nbsp;&nbsp;

Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

New Zealand

Asset Plus Limited carries on the business of a property company that invests in and manages commercial, industrial and retail properties. The Company's investment property portfolio consists of retail, commercial, and industrial properties located in New Zealand.

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Asset Plus (APL NZ)

Real Estate Reflections: The180th Ed: December 2019 — Property Pitch Firm Underfoot

Real Estate Reflections: The180th Ed December 2019 — Property Pitch Firm Underfoot The listed property sector had a flat month on the back of...

Forsyth Barr

Asset Plus: 1H20 — Basic Arithmetic

Asset Plus 1H20 — Basic Arithmetic Asset Plus Limited (APL) delivered a 1H20 result evident of a company still in the transitory phases of...

Forsyth Barr

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