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>Solving the Funding Equation</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Asset Plus (APL) has announced a NZ$60.2m capital raise and a restructuring of its banking facilities, which will allow it to undertake its development at Munroe Lane.&nbsp;The need for capital has weighed on&nbsp;APL's&nbsp;share price for the past six months after its NZ$100m capital raise was withdrawn due to the outbreak of&nbsp;COVID-19.&nbsp;New shares will be offered at NZ$0.30 per share representing a 32% discount to the post-raise pro-forma&nbsp;net tangible asset (NTA) of NZ$0.44 per share.&nbsp;​​​​​​​The capital raise doesn't solve all of&nbsp;APL's&nbsp;problems but it is a step in the right direction, removing development funding constraints and providing distribution certainty. We upgrade our rating to NEUTRAL with a high risk rating, reflecting&nbsp;APL's&nbsp;attractive yield and discount to&nbsp;NTA, balanced against a concentrated portfolio with high lease expiry. Our revised target price is NZ$0.36.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/366/original/image_77409615531599782313156.png?1599782316" class="editor-image img-responsive" data-smartkarma-image-id="158366"></figure>
<div>
<h3>Take two</h3>
</div>
<div id="m_4384890404379985854i58ii">
<p>APL has announced a capital raise to provide funding for the development of a 15.1sqm NLA office development at Munroe Lane, Albany. In late 2019, APL entered an Agreement to Develop and Lease Munroe Lane to Auckland Council. The agreement remains conditional on shareholder approval at a special meeting on 29 September 2020.&nbsp;</p>
<p>The development is a relatively attractive proposition given its 15 year lease to Auckland Council upon completion, 9.8% development margin, and 5.9% yield on cost.&nbsp;APL&nbsp;expects to continue paying dividends of 1.8cps (annualised) throughout the Munroe Lane development period, and up to 31 March 2023 (implying a 6% cash yield at the offer price), although this will be debt funded until the development is completed.</p>
</div>
<div>
<h3>Focus turns to Graham Street</h3>
</div>
<div id="m_4384890404379985854iwuyk">
<p>Assuming APL receives shareholder approval for Munroe Lane, attention will turn to 35 Graham Street. The building represents c.40% of APL's current net rental and will become vacant at the beginning of 2022. If APL can secure a tenant it will look to proceed with its preferred ~NZ$140m redevelopment option, which will require another capital raise and/or asset divestments. We currently assume that APL undertakes a NZ$20m refurbishment with nine months downtime.&nbsp;</p>
</div>
<div>
<h3>Upgrade to NEUTRAL</h3>
</div>
<div id="m_4384890404379985854ixmm7">
<p>We upgrade our rating on APL to NEUTRAL with a high risk rating. APL's capital raise removes the funding dilemma which has weighed on its share price over the past six months, and provides distribution certainty and capacity to undertake development of a flagship asset. While APL still faces challenges at Graham Street and Eastgate, we believe this is broadly captured with the stock trading at a large discount to NTA. We view the capital raise as a necessary step in APL's strategy to increase scale and diversify its portfolio away from retail.</p>
</div>
<div>
<div>
<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>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Ashton Olds</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>
</div>
</div>

Asset Plus Solving the Funding Equation

NEUTRAL
Asset Plus (APL) has announced a NZ$60.2m capital raise and a restructuring of its banking facilities, which will allow it to undertake its development at Munroe Lane.&nbsp;The need for capital has weighed on&nbsp;APL's&nbsp;share price for the past six months after its NZ$100m capital raise was withdrawn due to the outbreak of&nbsp;COVID-19.&nbsp;New shares will be offered at NZ$0.30 per share representing a 32% discount to the post-raise pro-forma&nbsp;net tangible asset (NTA) of NZ$0.44 per share.&nbsp;​​​​​​​The capital raise doesn't solve all of&nbsp;APL's&nbsp;problems but it is a step in the right direction, removing development funding constraints and providing distribution certainty. We upgrade our rating to NEUTRAL with a high risk rating, reflecting&nbsp;APL's&nbsp;attractive yield and discount to&nbsp;NTA, balanced against a concentrated portfolio with high lease expiry. Our revised target price is NZ$0.36.


Take two


APL has announced a capital raise to provide funding for the development of a 15.1sqm NLA office development at Munroe Lane, Albany. In late 2019, APL entered an Agreement to Develop and Lease Munroe Lane to Auckland Council. The agreement remains conditional on shareholder approval at a special meeting on 29 September 2020.&nbsp;
The development is a relatively attractive proposition given its 15 year lease to Auckland Council upon completion, 9.8% development margin, and 5.9% yield on cost.&nbsp;APL&nbsp;expects to continue paying dividends of 1.8cps (annualised) throughout the Munroe Lane development period, and up to 31 March 2023 (implying a 6% cash yield at the offer price), although this will be debt funded until the development is completed.


Focus turns to Graham Street


Assuming APL receives shareholder approval for Munroe Lane, attention will turn to 35 Graham Street. The building represents c.40% of APL's current net rental and will become vacant at the beginning of 2022. If APL can secure a tenant it will look to proceed with its preferred ~NZ$140m redevelopment option, which will require another capital raise and/or asset divestments. We currently assume that APL undertakes a NZ$20m refurbishment with nine months downtime.&nbsp;


Upgrade to NEUTRAL


We upgrade our rating on APL to NEUTRAL with a high risk rating. APL's capital raise removes the funding dilemma which has weighed on its share price over the past six months, and provides distribution certainty and capacity to undertake development of a flagship asset. While APL still faces challenges at Graham Street and Eastgate, we believe this is broadly captured with the stock trading at a large discount to NTA. We view the capital raise as a necessary step in APL's strategy to increase scale and diversify its portfolio away from retail.



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: Solving the Funding Equation