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

Kiwi Property Group Rent Relief Retreating

NEUTRAL
Having reiterated guidance just two months ago, Kiwi Property Group (KPG) has now increased its FY22 dividend expectation following a strong final quarter despite Omicron disruptions. KPG has provided meaningful relief through COVID-19 and this announcement suggests this cash flow headwind is easing with solid retail sales across its assets and robust rental growth. The muted share price reaction to&nbsp;KPG's&nbsp;higher guidance suggests the market was looking through these disruptions. While KPG continues to trade at a large discount to net tangible assets (NTA) and offers an attractive 7.4% gross yield, it is in the early stages of executing on a capital hungry strategic transformation and its initial capital recycling is taking longer than expected. We retain NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;FY22-24E DPS +5.7%/+3.7%/+0.0% reversing half our assumed Omicron rent relief and further delays in the divestment of The Plaza (was end of FY22 now assuming mid-FY23).



Shoppers still spending


Sales across KPG's shopping malls have been solid through the current outbreak and were +4% yoy through January and February. Sylvia Park remains the standout with total sales +8% yoy supported by the Galleria expansion and new athleisure precinct. Our carpark tracker suggests that while KPG's flagship Sylvia Park is still seeing comparable traffic to the prior year, LynnMall has been tracking below through the red traffic light setting.&nbsp;


Solid rent growth but the outlook is more challenging


KPG also provided an update on rents. FY22 rent reviews have delivered c.+4% growth for both its retail&nbsp;and office assets. New leases lifted retail&nbsp;rents by +4% and office rents by +8%. These are solid outcomes in a challenging year. However, the outlook for retail spending has moderated with a significant decline in consumer confidence reflecting higher mortgage rates and rising inflation. Retail rent growth may be more modest over FY23.


Undemanding valuation but in the early stages in its transformation


KPG has a clear plan to lower its retail exposure and fund its development pipeline within a relatively tight fiscal envelope. However, seismic issues and COVID-19 outbreaks&nbsp;have lowered cash income and delayed divestment of non-core retail assets. Near-term, investors continue to be rewarded with a solid dividend yield underpinned by a higher quality portfolio once the retail assets held for sale are divested. Successful rezoning of&nbsp;Drury&nbsp;land may also deliver a solid revaluation uplift. KPG will report its FY22 result&nbsp;on 23 May 2022.


Kiwi Property Group: Rent Relief Retreating