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>Real Estate Reflections — 178th&nbsp;Ed</h2>
October 2019 — Scaling the Summit
The listed property vehicle (LPV) sector’s performance during the month was mildly subdued relative to recent months but still gained +1.9% and generated peak multiples for a number of key metrics. Our preferred LPVs remain the very defensive VHP (OUTPERFORM) and IPL (OUTPERFORM), and the cheapest large cap LPV being KPG (OUTPERFORM).
Peak performance
Over the 25 years we have looked at the sector, this month marks the pinnacle in terms of multiples with new peaks summited for P/NTA of 1.3x (Fig 13), the property sector P/E is at a record premium to the market P/E at 290 bpts (Fig 12) and the sector gross yield is at its smallest premium to the market yield at 80 bpts since pre-GFC (Fig 11). We are also into our eighth year of NTA expansion (Fig 15). What is holding steady and providing a degree of peace of mind is maintenance of the long running 400 bpts spread between gross dividend yields and 10 year bonds (Fig 14), portfolio fundamentals remain strong (Fig 3) and the supply/demand outlook is balanced.
Dividends carried, share prices up again
During September the sector was boosted by the payment of dividends by seven LPVs which drove another strong month of returns, up +1.9%. Standout performances were from VHP and AUG, both up +5% in the month. Year-to-date the sector is up +33% outpacing the broader equity market up +25%.
A capital raise and a new fund
Goodman Property Trust (GMT) undertook a NZ$165m equity raise in an opportunistic move to provide further balance sheet capacity and fund an expanding brownfield development pipeline. GMT’s announcement also featured an interim revaluation gain of ~NZ$170m(+6%) providing further evidence of the favourable supply/demand dynamic at play for industrial property in the Auckland region.&nbsp;Another highlight in the month was&nbsp;Stride Property Group’s (SPG) JV to develop an unlisted industrial property investment fund, Industre Property. Industre is designed to invest strictly in the industrial sector across the NZ property market and will absorb SPG’s entire 11 property industrial portfolio coupled with two properties that will be acquired upon practical completion, presenting an aggregate expected initial value of NZ$362.2m.
Figure 1. NZ listed property sector summary
<table class="table table-striped">
<thead>
<tr>
<td>
LPV
</td>
<td>
Code
</td>
<td>
Rating
</td>
<td>
Price
</td>
<td>
Target
</td>
<td>
Gross
</td>
<td>
AFFO
</td>
<td>
P/NAV
</td>
</tr>
</thead>
<tbody>
<tr>
<td></td>
<td></td>
<td></td>
<td>
1-Oct
</td>
<td>
price
</td>
<td>
yield
</td>
<td>
yield
</td>
<td></td>
</tr>
<tr>
<td>
Asset Plus
</td>
<td>
APL
</td>
<td>
NEUTRAL
</td>
<td>
$0.64
</td>
<td>
$0.65
</td>
<td>
8.0%
</td>
<td>
5.0%
</td>
<td>
98%
</td>
</tr>
<tr>
<td>
Argosy Property
</td>
<td>
ARG
</td>
<td>
NEUTRAL
</td>
<td>
$1.47
</td>
<td>
$1.35
</td>
<td>
6.1%
</td>
<td>
4.2%
</td>
<td>
114%
</td>
</tr>
<tr>
<td>
Augusta Capital
</td>
<td>
AUG
</td>
<td>
NEUTRAL
</td>
<td>
$1.53
</td>
<td>
$1.38
</td>
<td>
5.9%
</td>
<td>
4.7%
</td>
<td>
110%
</td>
</tr>
<tr>
<td>
Goodman Property
</td>
<td>
GMT
</td>
<td>
UNDERPERFORM
</td>
<td>
$2.21
</td>
<td>
$1.83
</td>
<td>
4.3%
</td>
<td>
2.8%
</td>
<td>
126%
</td>
</tr>
<tr>
<td>
Investore
</td>
<td>
IPL
</td>
<td>
OUTPERFORM
</td>
<td>
$1.92
</td>
<td>
$1.85
</td>
<td>
5.7%
</td>
<td>
3.9%
</td>
<td>
116%
</td>
</tr>
<tr>
<td>
Kiwi Property Group
</td>
<td>
KPG
</td>
<td>
OUTPERFORM
</td>
<td>
$1.67
</td>
<td>
$1.62
</td>
<td>
6.0%
</td>
<td>
3.9%
</td>
<td>
108%
</td>
</tr>
<tr>
<td>
Precinct Properties
</td>
<td>
PCT
</td>
<td>
NEUTRAL
</td>
<td>
$1.85
</td>
<td>
$1.60
</td>
<td>
4.9%
</td>
<td>
3.2%
</td>
<td>
119%
</td>
</tr>
<tr>
<td>
Property for Industry
</td>
<td>
PFI
</td>
<td>
NEUTRAL
</td>
<td>
$2.39
</td>
<td>
$2.00
</td>
<td>
4.6%
</td>
<td>
3.2%
</td>
<td>
122%
</td>
</tr>
<tr>
<td>
Stride Property
</td>
<td>
SPG
</td>
<td>
NEUTRAL
</td>
<td>
$2.32
</td>
<td>
$2.18
</td>
<td>
6.1%
</td>
<td>
3.9%
</td>
<td>
113%
</td>
</tr>
<tr>
<td>
Vital Healthcare
</td>
<td>
VHP
</td>
<td>
OUTPERFORM
</td>
<td>
$2.72
</td>
<td>
$2.69
</td>
<td>
4.7%
</td>
<td>
3.0%
</td>
<td>
118%
</td>
</tr>
<tr>
<td>
Core simple average
</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>
5.3%
</td>
<td>
3.5%
</td>
<td>
117%
</td>
</tr>
</tbody>
</table>
&nbsp;Source: Forsyth Barr analysis&nbsp;Note core average excludes APL and AUG&nbsp;
Jeremy Simpson, CFA
<a href="mailto:jeremy.simpson@forsythbarr.co.nz" target="_blank" rel="noopener">jeremy.simpson@forsythbarr.co.nz</a>
+64 9 368 0022

Real Estate Reflections — 178th&nbsp;Ed
October 2019 — Scaling the Summit
The listed property vehicle (LPV) sector’s performance during the month was mildly subdued relative to recent months but still gained +1.9% and generated peak multiples for a number of key metrics. Our preferred LPVs remain the very defensive VHP (OUTPERFORM) and IPL (OUTPERFORM), and the cheapest large cap LPV being KPG (OUTPERFORM).
Peak performance
Over the 25 years we have looked at the sector, this month marks the pinnacle in terms of multiples with new peaks summited for P/NTA of 1.3x (Fig 13), the property sector P/E is at a record premium to the market P/E at 290 bpts (Fig 12) and the sector gross yield is at its smallest premium to the market yield at 80 bpts since pre-GFC (Fig 11). We are also into our eighth year of NTA expansion (Fig 15). What is holding steady and providing a degree of peace of mind is maintenance of the long running 400 bpts spread between gross dividend yields and 10 year bonds (Fig 14), portfolio fundamentals remain strong (Fig 3) and the supply/demand outlook is balanced.
Dividends carried, share prices up again
During September the sector was boosted by the payment of dividends by seven LPVs which drove another strong month of returns, up +1.9%. Standout performances were from VHP and AUG, both up +5% in the month. Year-to-date the sector is up +33% outpacing the broader equity market up +25%.
A capital raise and a new fund
Goodman Property Trust (GMT) undertook a NZ$165m equity raise in an opportunistic move to provide further balance sheet capacity and fund an expanding brownfield development pipeline. GMT’s announcement also featured an interim revaluation gain of ~NZ$170m(+6%) providing further evidence of the favourable supply/demand dynamic at play for industrial property in the Auckland region.&nbsp;Another highlight in the month was&nbsp;Stride Property Group’s (SPG) JV to develop an unlisted industrial property investment fund, Industre Property. Industre is designed to invest strictly in the industrial sector across the NZ property market and will absorb SPG’s entire 11 property industrial portfolio coupled with two properties that will be acquired upon practical completion, presenting an aggregate expected initial value of NZ$362.2m.
Figure 1. NZ listed property sector summary




LPV


Code


Rating


Price


Target


Gross


AFFO


P/NAV









1-Oct


price


yield


yield





Asset Plus


APL


NEUTRAL


$0.64


$0.65


8.0%


5.0%


98%




Argosy Property


ARG


NEUTRAL


$1.47


$1.35


6.1%


4.2%


114%




Augusta Capital


AUG


NEUTRAL


$1.53


$1.38


5.9%


4.7%


110%




Goodman Property


GMT


UNDERPERFORM


$2.21


$1.83


4.3%


2.8%


126%




Investore


IPL


OUTPERFORM


$1.92


$1.85


5.7%


3.9%


116%




Kiwi Property Group


KPG


OUTPERFORM


$1.67


$1.62


6.0%


3.9%


108%




Precinct Properties


PCT


NEUTRAL


$1.85


$1.60


4.9%


3.2%


119%




Property for Industry


PFI


NEUTRAL


$2.39


$2.00


4.6%


3.2%


122%




Stride Property


SPG


NEUTRAL


$2.32


$2.18


6.1%


3.9%


113%




Vital Healthcare


VHP


OUTPERFORM


$2.72


$2.69


4.7%


3.0%


118%




Core simple average






5.3%


3.5%


117%




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

Real Estate Reflections — 178th Ed: October 2019 — Scaling the Summit

<h2>Real Estate Reflections — 177th&nbsp;Ed</h2>
September 2019 — Spring has Sprung
Despite August being a month which traditionally sees the least sun, the LPV sector was as luminous as ever, mirroring the performance that has preceded it in 2019. The sector ticked up +3.1% in August, with an historic 50bps OCR cut fuelling the continued success. August saw three LPVs announce results, all of which were largely inline with our forecasts. Our preferred LPVs are VHP (OUTPERFORM), KPG (OUTPERFORM), and IPL (OUTPERFORM).&nbsp;Target prices upgraded with new WACCs — little change to relative investment ratings
We have adopted our new risk free rate of 2% (down from 2.75%) and market risk premium of 7.5% (down from 7.75%) which is being rolled out across our research coverage universe. Given the relatively low asset betas in the listed property sector this has had a material positive impact on our DCF valuations. The level of impact on our target prices is less significant, but still material, given our target price is a 50% blend of our DCF valuations and our unchanged NAV valuations. While our target prices have lifted by +7% to +17% it has had little impact on our investment ratings. This is because our investment ratings are relative to the sector, not the wider equity market. We have downgraded AUG to NEUTRAL and upgraded KPG to OUTPERFORM reflecting relative valuation appeal after recent share price moves.
Property: the gift that keeps on giving
Other than the three steady results, activity in the sector was relatively subdued and yet the S&amp;P/NZX50 gross property benchmark was still up +3%, bringing the YTD return to an impressive +30%. Low interest rates continue to be the key driver of this return; however, property fundamentals remain very robust in terms of vacancy, rental growth, and supply and demand dynamics.
Revaluations a continued feature
The fears of a progressively weakening macro backdrop are yet to eventuate in reduced demand for prime industrial or office space. Rental growth and cap rate compression assisted the +6.2% revaluation gain for PCT, whilst VHP’s NTA lifted +2% to NZ$2.31 on the back of revaluation gains which were negatively affected by unfavourable financial derivative movements. PFI’s NTA per share of NZ$1.83 per share was up +3% on the back of a pleasing +8.8% interim revaluation gain to 13 properties in its portfolio.
Figure 1. NZ Listed property sector summary
<table class="table table-striped">
<thead>
<tr>
<td>
LPV
</td>
<td>
Code
</td>
<td>
Rating
</td>
<td>
Price
</td>
<td>
Target
</td>
<td>
Gross
</td>
<td>
AFFO
</td>
<td>
P/NAV
</td>
</tr>
</thead>
<tbody>
<tr>
<td>
&nbsp;
</td>
<td></td>
<td></td>
<td>
4-Sep
</td>
<td>
price
</td>
<td>
yield
</td>
<td>
yield
</td>
<td></td>
</tr>
<tr>
<td>
Asset Plus
</td>
<td>
APL
</td>
<td>
NEUTRAL
</td>
<td>
$0.64
</td>
<td>
$0.65
</td>
<td>
8.1%
</td>
<td>
5.1%
</td>
<td>
97%
</td>
</tr>
<tr>
<td>
Argosy Property
</td>
<td>
ARG
</td>
<td>
NEUTRAL
</td>
<td>
$1.48
</td>
<td>
$1.35
</td>
<td>
6.1%
</td>
<td>
4.2%
</td>
<td>
114%
</td>
</tr>
<tr>
<td>
Augusta Capital
</td>
<td>
AUG
</td>
<td>
NEUTRAL
</td>
<td>
$1.51
</td>
<td>
$1.38
</td>
<td>
6.0%
</td>
<td>
4.8%
</td>
<td>
108%
</td>
</tr>
<tr>
<td>
Goodman Property
</td>
<td>
GMT
</td>
<td>
UNDERPERFORM
</td>
<td>
$2.18
</td>
<td>
$1.79
</td>
<td>
4.4%
</td>
<td>
2.9%
</td>
<td>
130%
</td>
</tr>
<tr>
<td>
Investore
</td>
<td>
IPL
</td>
<td>
OUTPERFORM
</td>
<td>
$1.94
</td>
<td>
$1.85
</td>
<td>
5.6%
</td>
<td>
3.9%
</td>
<td>
116%
</td>
</tr>
<tr>
<td>
Kiwi Property Group
</td>
<td>
KPG
</td>
<td>
OUTPERFORM
</td>
<td>
$1.64
</td>
<td>
$1.62
</td>
<td>
6.1%
</td>
<td>
4.0%
</td>
<td>
106%
</td>
</tr>
<tr>
<td>
Precinct Properties
</td>
<td>
PCT
</td>
<td>
NEUTRAL
</td>
<td>
$1.87
</td>
<td>
$1.60
</td>
<td>
4.8%
</td>
<td>
3.2%
</td>
<td>
120%
</td>
</tr>
<tr>
<td>
Property for Industry
</td>
<td>
PFI
</td>
<td>
NEUTRAL
</td>
<td>
$2.40
</td>
<td>
$2.00
</td>
<td>
4.5%
</td>
<td>
3.2%
</td>
<td>
122%
</td>
</tr>
<tr>
<td>
Stride Property
</td>
<td>
SPG
</td>
<td>
NEUTRAL
</td>
<td>
$2.35
</td>
<td>
$2.18
</td>
<td>
6.1%
</td>
<td>
3.9%
</td>
<td>
114%
</td>
</tr>
<tr>
<td>
Vital Healthcare
</td>
<td>
VHP
</td>
<td>
OUTPERFORM
</td>
<td>
$2.67
</td>
<td>
$2.69
</td>
<td>
4.9%
</td>
<td>
3.0%
</td>
<td>
115%
</td>
</tr>
<tr>
<td>
Core simple average
</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>
5.3%
</td>
<td>
3.5%
</td>
<td>
117%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company Reports&nbsp;
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Real Estate Reflections — 177th&nbsp;Ed
September 2019 — Spring has Sprung
Despite August being a month which traditionally sees the least sun, the LPV sector was as luminous as ever, mirroring the performance that has preceded it in 2019. The sector ticked up +3.1% in August, with an historic 50bps OCR cut fuelling the continued success. August saw three LPVs announce results, all of which were largely inline with our forecasts. Our preferred LPVs are VHP (OUTPERFORM), KPG (OUTPERFORM), and IPL (OUTPERFORM).&nbsp;Target prices upgraded with new WACCs — little change to relative investment ratings
We have adopted our new risk free rate of 2% (down from 2.75%) and market risk premium of 7.5% (down from 7.75%) which is being rolled out across our research coverage universe. Given the relatively low asset betas in the listed property sector this has had a material positive impact on our DCF valuations. The level of impact on our target prices is less significant, but still material, given our target price is a 50% blend of our DCF valuations and our unchanged NAV valuations. While our target prices have lifted by +7% to +17% it has had little impact on our investment ratings. This is because our investment ratings are relative to the sector, not the wider equity market. We have downgraded AUG to NEUTRAL and upgraded KPG to OUTPERFORM reflecting relative valuation appeal after recent share price moves.
Property: the gift that keeps on giving
Other than the three steady results, activity in the sector was relatively subdued and yet the S&amp;P/NZX50 gross property benchmark was still up +3%, bringing the YTD return to an impressive +30%. Low interest rates continue to be the key driver of this return; however, property fundamentals remain very robust in terms of vacancy, rental growth, and supply and demand dynamics.
Revaluations a continued feature
The fears of a progressively weakening macro backdrop are yet to eventuate in reduced demand for prime industrial or office space. Rental growth and cap rate compression assisted the +6.2% revaluation gain for PCT, whilst VHP’s NTA lifted +2% to NZ$2.31 on the back of revaluation gains which were negatively affected by unfavourable financial derivative movements. PFI’s NTA per share of NZ$1.83 per share was up +3% on the back of a pleasing +8.8% interim revaluation gain to 13 properties in its portfolio.
Figure 1. NZ Listed property sector summary




LPV


Code


Rating


Price


Target


Gross


AFFO


P/NAV






&nbsp;




4-Sep


price


yield


yield





Asset Plus


APL


NEUTRAL


$0.64


$0.65


8.1%


5.1%


97%




Argosy Property


ARG


NEUTRAL


$1.48


$1.35


6.1%


4.2%


114%




Augusta Capital


AUG


NEUTRAL


$1.51


$1.38


6.0%


4.8%


108%




Goodman Property


GMT


UNDERPERFORM


$2.18


$1.79


4.4%


2.9%


130%




Investore


IPL


OUTPERFORM


$1.94


$1.85


5.6%


3.9%


116%




Kiwi Property Group


KPG


OUTPERFORM


$1.64


$1.62


6.1%


4.0%


106%




Precinct Properties


PCT


NEUTRAL


$1.87


$1.60


4.8%


3.2%


120%




Property for Industry


PFI


NEUTRAL


$2.40


$2.00


4.5%


3.2%


122%




Stride Property


SPG


NEUTRAL


$2.35


$2.18


6.1%


3.9%


114%




Vital Healthcare


VHP


OUTPERFORM


$2.67


$2.69


4.9%


3.0%


115%




Core simple average






5.3%


3.5%


117%




Source: Forsyth Barr analysis, Company Reports&nbsp;
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Real Estate Reflections — 177th Ed: September 2019 — Spring Has Sprung

New Zealand

Investore Property Limited operates as a real estate investment company. The Company invests in retail property assets. Investore Property also provides leasing services. Investore Property serves clients in New Zealand.

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Investore Property (IPL NZ)

Real Estate Reflections — 178th Ed: October 2019 — Scaling the Summit

Real Estate Reflections — 178th Ed October 2019 — Scaling the Summit The listed property vehicle (LPV) sector’s performance during the month was...

Forsyth Barr

Real Estate Reflections — 177th Ed: September 2019 — Spring Has Sprung

Real Estate Reflections — 177th Ed September 2019 — Spring has Sprung Despite August being a month which traditionally sees the least sun, the LPV...

Forsyth Barr

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