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 Out of the Gate

OUTPERFORM
Asset Plus (APL) is making good progress on its portfolio transformation, announcing&nbsp;the unconditional sale of the&nbsp;Eastgate&nbsp;Shopping Centre for NZ$43.45m.&nbsp;While the sale price is -8% below its 1H21 valuation of NZ$47.4m, APL finished yesterday up +4.3%, highlighting that the transaction satisfied investor expectations. We view the outcome as a favourable one for shareholders;&nbsp;Eastgate&nbsp;was a challenged asset in Christchurch's highly competitive retail market and APL is now net cash and can focus on its development projects.&nbsp;The next key catalyst for APL is tenant commitment at 35 Graham Street.&nbsp;We make substantial earnings changes given the relative size of&nbsp;Eastgate&nbsp;to&nbsp;APL's&nbsp;portfolio, and retain an OUTPERFORM rating.


What's changed?&nbsp;



Earnings:&nbsp;AFFO estimates changed +0.0%/-1.6%/-37.1% in FY21/FY22/FY23
Target price:&nbsp;Lifted 2cps to NZ$0.40



A positive outcome, albeit with some risk


APL has announced the unconditional sale of&nbsp;Eastgate&nbsp;for NZ$43.45m&nbsp;(reflecting a c.8.3% yield) with&nbsp;a delayed settlement. APL will continue to fund the development of a Taco Bell at&nbsp;Eastgate, which has c.NZ$1m of cost remaining.&nbsp;The settlement date is the earlier of 22 February 2022, or a date nominated by the purchaser that is not before 22 August 2021 (with 20 working days’ notice). While we view the delayed settlement as a positive outcome&nbsp;as it allows APL to maintain income from&nbsp;Eastgate&nbsp;(c. 40% of AFFO) as developments progress, it does introduce&nbsp;a level of settlement risk.


35 Graham St is the next positive catalyst


Next on the to-do list for APL is securing tenant commitment at 35 Graham Street before Auckland Council's lease ends in December 2021. APL has received resource consent for the preferred redevelopment option, which would see it spend NZ$144m to construct a campus style office building. Securing tenant commitment is becoming a more realistic proposition with office market sentiment improving. Colliers recently noted “while a number of mooted projects have been put on hold earlier in 2020, confidence is returning about the future. This is showcased by some project commencements we are aware of that are expected to be announced soon”.


Investment thesis unchanged


APL has made decent progress on its medium-term plans to re-mix its portfolio away from retail, undertake large office developments, and build scale, however, the path ahead requires times, capital, and execution. While this transition carries a higher degree of risk compared to other LPVs, its undemanding valuation (17% discount to NTA, 7% gross yield) makes it an appealing risk/reward prospect. We anticipate that leasing progress at Graham Street will assist in closing the valuation gap further.



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: Out of the Gate