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

Asset Plus
Kicking the Can
UNDERPERFORM
Asset Plus (APL) has provided an update relating to its properties at Graham St and Munroe Lane. The funding and shareholder approval satisfaction date for Munroe Lane has been pushed three months to 30 October 2020, and Auckland Council has agreed to a six month lease extension for two levels of 35 Graham Street. Although these actions are helpful, they don't resolve the capital shortage which continues to hamstring APL's strategic progress. The capital dilemma could be resolved through capital partnering, asset sales, and/or a heavily discounted capital raise. As such we prefer to watch from the sidelines. We retain our UNDERPERFORM rating and lower our target price to NZ$0.38 due to lower FY22/23 earnings.


Munroe Lane conditions pushed


In December 2019, APL announced that it had entered into an Agreement to Develop and Lease a 15.1k sqm office building for Auckland Council at 6–8 Munroe Lane, Albany. The agreement is conditional on (1) resource consent (satisfied on 25 May 2020), (2) shareholder approval, and (3) funding. APL had plans to raise NZ$100m of equity in March to fund the NZ$115m development, however, this was withdrawn due to the economic impacts of COVID-19. Today, APL announced an extension to the satisfaction date for the funding and shareholder approval condition from 31 July 2020 to 30 October 2020, with a further right to extend to 23 December 2020 (with such agreement at each party's absolute discretion). While this relieves the immediate urgency for capital, it is unclear how APL will satisfy these conditions in three or six months time.


Council extends stay at Graham St


APL also announced that Auckland Council has agreed to lease the basement and ground floor at 35 Graham St for six months upon expiry of its existing lease in June 2021. The lease will provide NZ$1m of rent plus a proportionate share of outgoings. During the six month lease APL will have the ability to undertake soft strip-out, investigative works, and internal refurbishment across the balance of the property; however, it will be unable to carry out certain works if it wishes to progress with its preferred (full scale ~NZ$144m redevelopment) option in this time. We model an NZ$20m refurbishment taking place over the 12 months from June 2021, six months downtime, and no uplift in passing rents.


Funding still an issue


The high capital requirements of APL's development pipeline of NZ$125–131m (assuming a light refurbishment of Graham St) remains an issue given it has NZ$26m of bank facility headroom and saleable assets (Stoddard Rd) of NZ$38m. As such, we expect the risk of a discounted capital raise will continue to weigh on APL in the near term. Other options could include (1) a capital partner, (2) sale of the development to a 3rd party, and/or (3) asset sales. If Munroe Lane development does not eventuate APL portfolio will be highly concentrated in the Eastgate Shopping Centre (35% of FY20 rent) and Graham St (40%). &nbsp;We prefer to watch from the sidelines, and thus retain our UNDERPERFORM rating.



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





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



Asset Plus

Asset Plus: Kicking the Can