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>Minus Dividend&nbsp;</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Asset Plus (APL) has announced significant cuts to 2H22 distributions reflecting (1) ongoing rent relief provided to tenants, and (2) the need to retain capital to fund leasing and redevelopment. APL also indicated its dividend policy is under review. Given APL will be broadly breakeven once Eastgate is finally divested, we don't expect dividends to return until Munroe Lane begins producing rental income in 1Q23. The key catalyst to partly closing APL's 37% discount to NTA is leasing up of Graham St, however, this is taking longer than expected and will potentially require extra incentives to attract a tenant. With investors now not paid to wait, we see the risk/reward as more balanced and downgrade our rating to NEUTRAL.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22/FY23 DPS -38%/-100% reflecting today's distribution cuts</li>
<li><strong>Target price</strong>:&nbsp;Target price cut -3cps to NZ$0.33 largely due to a reduction in the value of Graham St in our NAV</li>
<li><strong>Rating</strong>:&nbsp;Downgrade&nbsp;to NEUTRAL from OUTPERFORM</li>
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<h3>Dividends unlikely until mid-2023</h3>
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<p>APL announced its 3Q22 dividend of 0.225cps and stated there would be no 4Q22 dividend taking the FY22 dividend to 1.125cps. APL is also reviewing its commitment to distribute 1.8cps per annum until completion of the Munroe Lane development. Post the sale of Eastgate, and with Graham St vacant, APL will be broadly breakeven until Munroe Lane completes in March 2023. As such we expect distributions to be suspended for more than a year. We estimate APL will retain NZ$9m as a result of this reduction in distributions or around half of the refurbishment cost of Graham St. Finding a tenant to anchor the redevelopment continues to be a challenge and higher leasing incentives are likely required (and potentially for leasing the remaining 35% of Munroe Lane as well).​​​​​​​</p>
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<h3>Eastgate&nbsp;settlement extended</h3>
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<p>The sale of&nbsp;Eastgate&nbsp;will now&nbsp;complete at the later of either 1 April 2022 or when the purchaser receives new titles for a planned subdivision of the site. If the new titles aren’t granted by 1 July APL is able to terminate the sale. Whilst this delays the sale slightly, it will provide some modest incremental earnings for APL for the extra period that it is held, we assume one&nbsp;month in FY23.&nbsp;</p>
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<h3>Long and winding road</h3>
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<p>Investors will have to look through FY22–23E to FY24E&nbsp;with completion of&nbsp;Munroe Lane&nbsp;and income from Graham St after our assumed year of refurbishment and leasing downtime (which may prove optimistic). Leasing remains a key catalyst to close some of the 37% discount to NTA, however, attracting a tenant is clearly challenging and&nbsp;APL's&nbsp;capital envelope remains tight. Investors are now not paid as they wait&nbsp;for progress on leasing which may take some time.</p>
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Asset Plus Minus Dividend&nbsp;

NEUTRAL
Asset Plus (APL) has announced significant cuts to 2H22 distributions reflecting (1) ongoing rent relief provided to tenants, and (2) the need to retain capital to fund leasing and redevelopment. APL also indicated its dividend policy is under review. Given APL will be broadly breakeven once Eastgate is finally divested, we don't expect dividends to return until Munroe Lane begins producing rental income in 1Q23. The key catalyst to partly closing APL's 37% discount to NTA is leasing up of Graham St, however, this is taking longer than expected and will potentially require extra incentives to attract a tenant. With investors now not paid to wait, we see the risk/reward as more balanced and downgrade our rating to NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;FY22/FY23 DPS -38%/-100% reflecting today's distribution cuts
Target price:&nbsp;Target price cut -3cps to NZ$0.33 largely due to a reduction in the value of Graham St in our NAV
Rating:&nbsp;Downgrade&nbsp;to NEUTRAL from OUTPERFORM



Dividends unlikely until mid-2023


APL announced its 3Q22 dividend of 0.225cps and stated there would be no 4Q22 dividend taking the FY22 dividend to 1.125cps. APL is also reviewing its commitment to distribute 1.8cps per annum until completion of the Munroe Lane development. Post the sale of Eastgate, and with Graham St vacant, APL will be broadly breakeven until Munroe Lane completes in March 2023. As such we expect distributions to be suspended for more than a year. We estimate APL will retain NZ$9m as a result of this reduction in distributions or around half of the refurbishment cost of Graham St. Finding a tenant to anchor the redevelopment continues to be a challenge and higher leasing incentives are likely required (and potentially for leasing the remaining 35% of Munroe Lane as well).​​​​​​​


Eastgate&nbsp;settlement extended


The sale of&nbsp;Eastgate&nbsp;will now&nbsp;complete at the later of either 1 April 2022 or when the purchaser receives new titles for a planned subdivision of the site. If the new titles aren’t granted by 1 July APL is able to terminate the sale. Whilst this delays the sale slightly, it will provide some modest incremental earnings for APL for the extra period that it is held, we assume one&nbsp;month in FY23.&nbsp;


Long and winding road


Investors will have to look through FY22–23E to FY24E&nbsp;with completion of&nbsp;Munroe Lane&nbsp;and income from Graham St after our assumed year of refurbishment and leasing downtime (which may prove optimistic). Leasing remains a key catalyst to close some of the 37% discount to NTA, however, attracting a tenant is clearly challenging and&nbsp;APL's&nbsp;capital envelope remains tight. Investors are now not paid as they wait&nbsp;for progress on leasing which may take some time.


Asset Plus

Asset Plus: Minus Dividend