New Zealand Professional Investment Services Firm

Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Property for Industry 1H20 – Strong start to the year, no change to guidance</h2>
Property for Industry (PFI) reported adjusted funds from operations (AFFO) +25% to NZ$23.7m largely driven by acquisitions. The result was ahead of our expectations (ForBarr NZ$20.9m) largely due to a stronger topline but also lower maintenance capex. Despite the strong start to the year there was no change to PFIs DPS guidance of “at least 7.90cps” reflecting a payout ratio below 80% of FFO and 95% of AFFO. While the divestment of non-industrial assets (Carlaw Park and Shed 22) will reduce gearing, net rental income will also decline c.8% in FY22 all else equal. To provide greater flexibility PFI has adjusted its payout ratio to 90-100% of AFFO on a rolling three-year historic basis. FY21 DPS guidance of 7.90cps is expected to result in a payout in the middle of this revised range.
Key takeouts
<ul>
<li>Portfolio metrics remain strong: PFI maintains 99.5% occupancy, WALT reduced to 4.8 years (5.3 years at Dec-20), and has a diversified income stream from 148 tenants across its 96 properties. Only 1.1% of contract rent is due to expire in 2H21. 66 rent reviews delivered an average annual uplift of +3.1% with market reviews +1.9%. 42% of PFI’s portfolio is subject to a rent review in 2H21. Furthermore, PFI believes its portfolio its c.3.0% under rented.</li>
<li>Asset recycling: With Carlaw Park contracted for sale and to settle towards the end of FY21, PFIs focus is now the divestment of Shed 22 in Wellington. PFI expects to dispose of Shed 22 after completion of seismic works. Post divestments gearing reduces to 25.4% and industrial will make up 98.8% of the portfolio assets.</li>
<li>Market rent growth expected: CBRE’s market outlook suggests relatively robust outlook for the industrial sector and expect market rent growth to average 3.9% over the next 5-years (this expectation was +2.5% at Dec-20).</li>
<li>Property values lift NTA: PFI’s passing yield tightened 78bp to 4.75%, this was the principal driver of NTA lifting 50.5cps to NZ$2.71. CBRE estimate Auckland prime industrial yields are 4.22% and secondary industrial yields are 5.30%. 90% of PFI’s 1H21 NTA growth was driven by yield compression.</li>
</ul>
Result call details
10:00am, pre-register at&nbsp;<a href="https://apac.directeventreg.com/registration/event/9886819" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://apac.directeventreg.com/registration/event/9886819&amp;source=gmail&amp;ust=1629505413209000&amp;usg=AFQjCNHKzxsjho54mgEUo8MLrgFKhIyBBA" rel="noopener">https://apac.directeventreg.com/registration/event/9886819</a>, Webcast:&nbsp;<a href="https://edge.media-server.com/mmc/p/w955frcv" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/p/w955frcv&amp;source=gmail&amp;ust=1629505413209000&amp;usg=AFQjCNGE5rQBroRlxzbpRtiqDphoq0s1bg" rel="noopener">https://edge.media-server.com/mmc/p/w955frcv</a>
PFI 1H20 result analysis
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/225/014/original/image_49893357621629419216137.png?1629419217" class="editor-image img-responsive" data-smartkarma-image-id="225014"></figure>
Source: Forsyth Barr analysis

Property for Industry 1H20 – Strong start to the year, no change to guidance
Property for Industry (PFI) reported adjusted funds from operations (AFFO) +25% to NZ$23.7m largely driven by acquisitions. The result was ahead of our expectations (ForBarr NZ$20.9m) largely due to a stronger topline but also lower maintenance capex. Despite the strong start to the year there was no change to PFIs DPS guidance of “at least 7.90cps” reflecting a payout ratio below 80% of FFO and 95% of AFFO. While the divestment of non-industrial assets (Carlaw Park and Shed 22) will reduce gearing, net rental income will also decline c.8% in FY22 all else equal. To provide greater flexibility PFI has adjusted its payout ratio to 90-100% of AFFO on a rolling three-year historic basis. FY21 DPS guidance of 7.90cps is expected to result in a payout in the middle of this revised range.
Key takeouts

Portfolio metrics remain strong: PFI maintains 99.5% occupancy, WALT reduced to 4.8 years (5.3 years at Dec-20), and has a diversified income stream from 148 tenants across its 96 properties. Only 1.1% of contract rent is due to expire in 2H21. 66 rent reviews delivered an average annual uplift of +3.1% with market reviews +1.9%. 42% of PFI’s portfolio is subject to a rent review in 2H21. Furthermore, PFI believes its portfolio its c.3.0% under rented.
Asset recycling: With Carlaw Park contracted for sale and to settle towards the end of FY21, PFIs focus is now the divestment of Shed 22 in Wellington. PFI expects to dispose of Shed 22 after completion of seismic works. Post divestments gearing reduces to 25.4% and industrial will make up 98.8% of the portfolio assets.
Market rent growth expected: CBRE’s market outlook suggests relatively robust outlook for the industrial sector and expect market rent growth to average 3.9% over the next 5-years (this expectation was +2.5% at Dec-20).
Property values lift NTA: PFI’s passing yield tightened 78bp to 4.75%, this was the principal driver of NTA lifting 50.5cps to NZ$2.71. CBRE estimate Auckland prime industrial yields are 4.22% and secondary industrial yields are 5.30%. 90% of PFI’s 1H21 NTA growth was driven by yield compression.

Result call details
10:00am, pre-register at&nbsp;https://apac.directeventreg.com/registration/event/9886819, Webcast:&nbsp;https://edge.media-server.com/mmc/p/w955frcv
PFI 1H20 result analysis

Source: Forsyth Barr analysis

Property for Industry: 1H20 – Strong Start to the Year, No Change to Guidance

Property For Industry

Property for Industry: 1H20 – Strong Start to the Year, No Change to Guidance