New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Asset Plus<br>FY21 Result&nbsp;— Holding Pattern</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Asset Plus's (APL) FY21 result provided no materially new information to shareholders. With the stock trading at a 29% discount to its net asset backing, the main question for APL shareholders is whether this value disparity can be closed. In our view, APL's development potential pipeline in excess of NZ$250m puts capital constraints in focus given balance sheet capacity of c.NZ$160m. A positive leasing outcome and a smaller redevelopment at Graham St could assist in solving this funding equation. Further asset divestments could also help, however, this contradicts its strategic objective to grow scale. While we see a positive asymmetric risk/reward profile given the stocks current discount to book, unlocking this value won't be straightforward. We maintain an OUTPERFORM rating on valuation grounds.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22–24&nbsp;AFFO +1.1%/-6.5%/-4.0%</li>
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<h3>FY21: Not the principal focus for shareholders</h3>
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<p>Operationally, APL's FY21 result provided no surprises and does little to change our thinking. AFFO of NZ$5.8m was broadly in-line with expectations of NZ$5.9m. Like for like revaluation gains of +6% were largely driven by capitalisation rate compression at Stoddard Road and Graham Street, offset marginally by a mark-down of the held-for-sale Eastgate Shopping Centre. Market evidence would suggest further upside to Stoddard Rd's valuation, however, securing a lease extension from The Warehouse before its 2025 expiry will likely dictate further compression beyond its current 6.0% capitalisation rate.</p>
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<h3>Breaking down&nbsp;APL's&nbsp;capital requirements</h3>
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<p>Capital constraints are weighing on&nbsp;APL's&nbsp;share price in our view. The development pipeline which has been outlined by APL includes further spending of c.NZ$100m at Munroe Lane, NZ$20m or NZ$144m at Graham St, plus another sum required for its land at&nbsp;Kamo&nbsp;(where APL plans to build a supermarket, service station, and fast food restaurant). Meanwhile, we estimate it has c.NZ$110m of balance sheet capacity (to get to a 40% LVR), plus a further NZ$43m from the proceeds of&nbsp;Eastgate. While a full redevelopment of Graham St would help improve the scale of portfolio, we believe a smaller redevelopment makes more sense given it removes the need to raise further capital, which would be painful given the large disparity between&nbsp;APL's&nbsp;current share price and its NTA backing.&nbsp;</p>
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<h3>Leasing outcomes the next catalyst</h3>
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<p>We retain our OUTPERFORM rating given APL's undemanding valuation. The next catalyst to closing its valuation gap to NTA is&nbsp; leasing progress at 35 Graham St and Stoddard Rd, as outlined above. Our 40cps 12 month target price is unchanged.</p>
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<div><strong>Rohan Koreman-Smit, CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Ashton Olds, CFA</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
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Asset Plus FY21 Result&nbsp;— Holding Pattern

OUTPERFORM
Asset Plus's (APL) FY21 result provided no materially new information to shareholders. With the stock trading at a 29% discount to its net asset backing, the main question for APL shareholders is whether this value disparity can be closed. In our view, APL's development potential pipeline in excess of NZ$250m puts capital constraints in focus given balance sheet capacity of c.NZ$160m. A positive leasing outcome and a smaller redevelopment at Graham St could assist in solving this funding equation. Further asset divestments could also help, however, this contradicts its strategic objective to grow scale. While we see a positive asymmetric risk/reward profile given the stocks current discount to book, unlocking this value won't be straightforward. We maintain an OUTPERFORM rating on valuation grounds.


What's changed?&nbsp;



Earnings:&nbsp;FY22–24&nbsp;AFFO +1.1%/-6.5%/-4.0%



FY21: Not the principal focus for shareholders


Operationally, APL's FY21 result provided no surprises and does little to change our thinking. AFFO of NZ$5.8m was broadly in-line with expectations of NZ$5.9m. Like for like revaluation gains of +6% were largely driven by capitalisation rate compression at Stoddard Road and Graham Street, offset marginally by a mark-down of the held-for-sale Eastgate Shopping Centre. Market evidence would suggest further upside to Stoddard Rd's valuation, however, securing a lease extension from The Warehouse before its 2025 expiry will likely dictate further compression beyond its current 6.0% capitalisation rate.


Breaking down&nbsp;APL's&nbsp;capital requirements


Capital constraints are weighing on&nbsp;APL's&nbsp;share price in our view. The development pipeline which has been outlined by APL includes further spending of c.NZ$100m at Munroe Lane, NZ$20m or NZ$144m at Graham St, plus another sum required for its land at&nbsp;Kamo&nbsp;(where APL plans to build a supermarket, service station, and fast food restaurant). Meanwhile, we estimate it has c.NZ$110m of balance sheet capacity (to get to a 40% LVR), plus a further NZ$43m from the proceeds of&nbsp;Eastgate. While a full redevelopment of Graham St would help improve the scale of portfolio, we believe a smaller redevelopment makes more sense given it removes the need to raise further capital, which would be painful given the large disparity between&nbsp;APL's&nbsp;current share price and its NTA backing.&nbsp;


Leasing outcomes the next catalyst


We retain our OUTPERFORM rating given APL's undemanding valuation. The next catalyst to closing its valuation gap to NTA is&nbsp; leasing progress at 35 Graham St and Stoddard Rd, as outlined above. Our 40cps 12 month target price is unchanged.



Rohan Koreman-Smit, CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Ashton Olds, CFA
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Asset Plus: FY21 Result — Holding Pattern