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 FY20 – Solid result and guidance but priced in</h2>
Property for Industry (PFI) reported adjusted funds from operations (AFFO) +3.3% to NZ$40.1m (ForBarr NZ$38.3m) largely driven by lower tax and interest expense.&nbsp;PFI guided to FY21 DPS of 7.85-7.90cps&nbsp;based on a 80-90% FFO and a 95-100% AFFO payout. We currently forecast 7.91cps but our forecasts do not include the Carlaw Park divestment, as such this guidance range suggests stronger operating outcomes than we currently forecast.
Overall, and despite underlying guidance higher than our expectations, we see little to change our NEUTRAL view on PFI; while industrial property is better positioned than other real estate subsectors we believe this is largely priced in. PFI is currently trading at a 30% premium to its NTA vs. the sector at a 15% premium and a FY21 cash yield of 2.7% based on PFIs guidance vs. the sector on 3.5%.
Key takeouts
<ul>
<li>COVID-19 impact: Total COVID-19 impacts on AFFO was -NZ$1.0m in FY20 in the period.</li>
<li>Portfolio metrics remain strong: PFI maintains 99.4% occupancy, WALT of 5.3 years, and has a diversified income stream from 148 tenants across its 94 properties. Only 3.3% of contract rent is due to expire in FY21.</li>
<li>Asset recycling: With Carlaw Park contracted for sale PFIs FY21 focus is its last remaining non-industrial property, Shed 22 in Wellington. PFI expected to dispose of Shed 22 after completion of seismic works. Proceeds are expected to fund new core-industrial acquisitions and/or internal portfolio initiatives.</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 2.5% over the next 5-years. Furthermore, PFI believes its portfolio its c.2.6% under rented.</li>
<li>Property values lift NTA: PFI’s passing yield tightened 22bp to 5.53%, this was the principal driver of NTA lifting 15cps to NZ$2.21. CBRE estimate Auckland prime industrial yields are 4.38% and secondary industrial yields are 5.41%, with recent transactions being completed at levels lower than this.</li>
</ul>
Result call details
10:00am, preregister at&nbsp;<a href="http://apac.directeventreg.com/registration/event/6081809" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://apac.directeventreg.com/registration/event/6081809&amp;source=gmail&amp;ust=1614037292316000&amp;usg=AFQjCNEo3XVJQyraiq_2yKuAmok4-VCkaA" rel="noopener">http://apac.directeventreg.com/registration/event/6081809</a>
Webcast:&nbsp;<a href="https://edge.media-server.com/mmc/p/ykx59fkj" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/p/ykx59fkj&amp;source=gmail&amp;ust=1614037292316000&amp;usg=AFQjCNFlMZ5LG4_vFBIgos9S3QV-Pp_Jfw" rel="noopener">https://edge.media-server.com/mmc/p/ykx59fkj</a>
PFI FY20 result analysis
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1692338584177394592&amp;th=177c64f9d594c3a0&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_z7wLo2kl0bbUoPYNF5lPVQM6jxhYw1SAHmareQM2NF-QHn6zQc3QeCtlAbIJGubM7pKff1mQfvk-O4h-xGR3v-wLU_VP_6ey9IXTwg5yORRZUAqz0UnNRYYI&amp;disp=emb" width="484" height="460" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1692338584177394592&amp;th=177c64f9d594c3a0&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-0pTHcWzsTjy6MFdlRD0WUs-LL09VYKOptiolZWaTPp4NHaxT9e5tyvxvzVP93r__XvHbZmk8ZFpvAaP0LVFzTveXxaV33OosYYXaSAWAgRqI14L7fRpFW--A&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Property for Industry FY20 – Solid result and guidance but priced in
Property for Industry (PFI) reported adjusted funds from operations (AFFO) +3.3% to NZ$40.1m (ForBarr NZ$38.3m) largely driven by lower tax and interest expense.&nbsp;PFI guided to FY21 DPS of 7.85-7.90cps&nbsp;based on a 80-90% FFO and a 95-100% AFFO payout. We currently forecast 7.91cps but our forecasts do not include the Carlaw Park divestment, as such this guidance range suggests stronger operating outcomes than we currently forecast.
Overall, and despite underlying guidance higher than our expectations, we see little to change our NEUTRAL view on PFI; while industrial property is better positioned than other real estate subsectors we believe this is largely priced in. PFI is currently trading at a 30% premium to its NTA vs. the sector at a 15% premium and a FY21 cash yield of 2.7% based on PFIs guidance vs. the sector on 3.5%.
Key takeouts

COVID-19 impact: Total COVID-19 impacts on AFFO was -NZ$1.0m in FY20 in the period.
Portfolio metrics remain strong: PFI maintains 99.4% occupancy, WALT of 5.3 years, and has a diversified income stream from 148 tenants across its 94 properties. Only 3.3% of contract rent is due to expire in FY21.
Asset recycling: With Carlaw Park contracted for sale PFIs FY21 focus is its last remaining non-industrial property, Shed 22 in Wellington. PFI expected to dispose of Shed 22 after completion of seismic works. Proceeds are expected to fund new core-industrial acquisitions and/or internal portfolio initiatives.
Market rent growth expected: CBRE’s market outlook suggests relatively robust outlook for the industrial sector and expect market rent growth to average 2.5% over the next 5-years. Furthermore, PFI believes its portfolio its c.2.6% under rented.
Property values lift NTA: PFI’s passing yield tightened 22bp to 5.53%, this was the principal driver of NTA lifting 15cps to NZ$2.21. CBRE estimate Auckland prime industrial yields are 4.38% and secondary industrial yields are 5.41%, with recent transactions being completed at levels lower than this.

Result call details
10:00am, preregister at&nbsp;http://apac.directeventreg.com/registration/event/6081809
Webcast:&nbsp;https://edge.media-server.com/mmc/p/ykx59fkj
PFI FY20 result analysis

Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Property for Industry: FY20 – Solid Result and Guidance but Priced In

Property For Industry

Property for Industry: FY20 – Solid Result and Guidance but Priced In