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>Property For Industry</h2>
<p><strong>1Q20 Update — Dividend Confirmed</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>Property for Industry (PFI) has delivered a 1Q20 update, confirming its 1Q20 dividend and providing some detail of the ongoing impact of COVID-19 on its business. PFI is providing some relief to tenants on a case by case basis, which could potentially be entirely offset by benefits from lower floating interest rates and higher building depreciation allowances. As such, we see potential upside risk to our FY20 DPS of 5.8cps. PFI remains one of our preferred exposures in the listed property vehicle (LPV) sector given its defensive attributes, internal management structure, and strong track record throughout a number of cycles. OUTPERFORM.</p>
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<p><strong>PFI&nbsp;providing relief</strong></p>
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<p>In the release,&nbsp;PFI&nbsp;highlighted that it is working with tenants on a case by case basis, providing a mixture of rent&nbsp;abatements&nbsp;and deferrals. Additionally,&nbsp;PFI&nbsp;noted that approximately 6% of tenants were contractually entitled to rent relief under clause 27.5 of the&nbsp;ADLS&nbsp;6th&nbsp;edition lease. We estimate this equates to c.0.5% of gross rent over Level 4. It is unlikely we will know the full impact of&nbsp;COVID-19 on&nbsp;PFI's&nbsp;FY20 rent collection for a while, and&nbsp;PFI&nbsp;expects discussions with tenants to continue throughout 2020.</p>
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<p><strong>1Q20 dividend confirmed</strong></p>
<div id="m_3292893230860373621i641l3-2-2">
<p>PFI&nbsp;has confirmed its 1Q20 dividend of 1.8cps, in line with its 1Q19 dividend. Dividends are being considered on a quarterly basis, with&nbsp;PFI&nbsp;assessing 1) its performance over the period, and 2) its financial position. Its performance over the period (Jan–Mar) would have been only marginally impacted by the government enforced&nbsp;lockdown&nbsp;which began on 26 March, and its balance sheet remains in a strong position.&nbsp;</p>
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<p><strong>What is the risk to FY20 dividends?</strong></p>
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<p>Reintroduction of building depreciation will provide PFI with an NZ$1.9m FY20 AFFO benefit. Additionally, we estimate lower floating debt costs will provide a net benefit of c.NZ$0.7m to FY20 AFFO. The combined AFFO benefit of NZ$2.5m would require a 4.5% reduction in PFI's gross rent, or c.2.3 weeks rent free for every tenant. With only a "small number" of tenants requiring rent relief the net impact vs. PFI's prior FY20 distribution guidance of 7.65–7.70cps (since withdrawn) may be limited. As such, we see upside risk to our current FY20 DPS estimate of 5.8cps. That said, with rent relief largely impacting 2Q cash flows we see particular risk to this quarterly dividend payment.​​​​​​​ Furthermore​​​<wbr>​​​​, PFI may still elect to be conservative given the highly uncertain economic outlook.</p>
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<div><strong>Jeremy Simpson CFA</strong></div>
<div><a href="mailto:jeremy.simpson@forsythbarr.co.nz" target="_blank" rel="noopener">jeremy.simpson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0022</div>
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Property For Industry
1Q20 Update — Dividend Confirmed
OUTPERFORM
Property for Industry (PFI) has delivered a 1Q20 update, confirming its 1Q20 dividend and providing some detail of the ongoing impact of COVID-19 on its business. PFI is providing some relief to tenants on a case by case basis, which could potentially be entirely offset by benefits from lower floating interest rates and higher building depreciation allowances. As such, we see potential upside risk to our FY20 DPS of 5.8cps. PFI remains one of our preferred exposures in the listed property vehicle (LPV) sector given its defensive attributes, internal management structure, and strong track record throughout a number of cycles. OUTPERFORM.

PFI&nbsp;providing relief

In the release,&nbsp;PFI&nbsp;highlighted that it is working with tenants on a case by case basis, providing a mixture of rent&nbsp;abatements&nbsp;and deferrals. Additionally,&nbsp;PFI&nbsp;noted that approximately 6% of tenants were contractually entitled to rent relief under clause 27.5 of the&nbsp;ADLS&nbsp;6th&nbsp;edition lease. We estimate this equates to c.0.5% of gross rent over Level 4. It is unlikely we will know the full impact of&nbsp;COVID-19 on&nbsp;PFI's&nbsp;FY20 rent collection for a while, and&nbsp;PFI&nbsp;expects discussions with tenants to continue throughout 2020.

1Q20 dividend confirmed

PFI&nbsp;has confirmed its 1Q20 dividend of 1.8cps, in line with its 1Q19 dividend. Dividends are being considered on a quarterly basis, with&nbsp;PFI&nbsp;assessing 1) its performance over the period, and 2) its financial position. Its performance over the period (Jan–Mar) would have been only marginally impacted by the government enforced&nbsp;lockdown&nbsp;which began on 26 March, and its balance sheet remains in a strong position.&nbsp;

What is the risk to FY20 dividends?

Reintroduction of building depreciation will provide PFI with an NZ$1.9m FY20 AFFO benefit. Additionally, we estimate lower floating debt costs will provide a net benefit of c.NZ$0.7m to FY20 AFFO. The combined AFFO benefit of NZ$2.5m would require a 4.5% reduction in PFI's gross rent, or c.2.3 weeks rent free for every tenant. With only a "small number" of tenants requiring rent relief the net impact vs. PFI's prior FY20 distribution guidance of 7.65–7.70cps (since withdrawn) may be limited. As such, we see upside risk to our current FY20 DPS estimate of 5.8cps. That said, with rent relief largely impacting 2Q cash flows we see particular risk to this quarterly dividend payment.​​​​​​​ Furthermore​​​​​​​, PFI may still elect to be conservative given the highly uncertain economic outlook.




Jeremy Simpson CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022




Property For Industry: 1Q20 Update — Dividend Confirmed