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><a target="_blank">Property Sector</a></h2>
Quarterly S&amp;P/NZX All Real Estate Index Review: D<a target="_blank"></a>ecember 2019
The listed property vehicle (LPV) sector’s performance in the final quarter of 2019 was subdued, down -0.6%, underperforming the S&amp;P/NZX50 which climbed +5.2%. Vital Healthcare Property Trust (VHP), achieved top return honours during the quarter, up +4.6%, underpinned by an encouraging management fee structure renegotiation, and a quarterly update presenting confirmatory evidence of its robust portfolio fundamentals.&nbsp;
Opportunistic Capital Raising putting on the brakes&nbsp;
In a year where markets were characterized by persistently low interest rates, limited growth opportunities, and strong investor demand, the LPVs were left with an ideal platform to insulate balance sheets. Hence, the 4Q saw Goodman Property (GMT), Kiwi Property Group (KPG), and Investore (IPL) all execute opportunistic capital raises. Sector returns during the quarter couldn’t evade such capital market activity, driving the relatively weak finish to the year. The 4Q pullback, however, did little to dampen the sector’s exceptional full year performance, up +31.3% and exceeding the S&amp;P/NZX50 (+30.4%). Immense demand for industrial property inspired the strong performance of GMT, up +51.0%, and Property for Industry (PFI) up +41.1%. Meanwhile, the ultra-defensive VHP, up +40.6%, and differentiated funds management model of Augusta (AUG), up +52.6%, also comfortably trumped the benchmark in 2019.
Yield rationale evolving
The LPV sector is evidence of a sector that is fundamentally sound, with high quality portfolios, well positioned balance sheets, sustainable pay-out ratios and a continued supply-demand imbalance likely to fuel modest cap rate compression short term. But, earnings growth eclipsing steady-state is highly unlikely, where a value trapped market has been derived from peaking valuations for physical assets, and rising construction costs. Additionally, hunt for yield has maintained yield spreads relative to long bonds at ~4% — only lower pre-GFC, while bond rates dropped in 2019. Our preferred LPVs remain VHP, IPL and KPG (all OUTPERFORM).
Figure 1. S&amp;P/NZX All Real Estate Gross index return — December 2019
<table class="table table-striped">
<thead>
<tr>
<td style="width: 4cm;">
Company
</td>
<td style="width: 37.6pt;">
Code
</td>
<td style="width: 37.65pt;">
Price
</td>
<td style="width: 37.65pt;">
Market
</td>
<td style="width: 37.65pt;">
Quarter
</td>
<td style="width: 37.65pt;">
Year
</td>
</tr>
<tr>
<td style="width: 4cm;">
&nbsp;
</td>
<td style="width: 37.6pt;">
&nbsp;
</td>
<td style="width: 37.65pt;">
31-Dec
</td>
<td style="width: 37.65pt;">
Cap
</td>
<td style="width: 37.65pt;">
return
</td>
<td style="width: 37.65pt;">
return
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 4cm;">
Asset Plus
</td>
<td style="width: 37.6pt;">
APL
</td>
<td style="width: 37.65pt;">
$0.625
</td>
<td style="width: 37.65pt;">
$104m
</td>
<td style="width: 37.65pt;">
-0.8%
</td>
<td style="width: 37.65pt;">
+18.1%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Argosy Property
</td>
<td style="width: 37.6pt;">
ARG
</td>
<td style="width: 37.65pt;">
$1.380
</td>
<td style="width: 37.65pt;">
$1,142m
</td>
<td style="width: 37.65pt;">
-4.6%
</td>
<td style="width: 37.65pt;">
+21.6%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Augusta
</td>
<td style="width: 37.6pt;">
AUG
</td>
<td style="width: 37.65pt;">
$1.500
</td>
<td style="width: 37.65pt;">
$138m
</td>
<td style="width: 37.65pt;">
-0.4%
</td>
<td style="width: 37.65pt;">
+52.6%
</td>
</tr>
<tr>
<td style="width: 4cm;">
CDL Investments
</td>
<td style="width: 37.6pt;">
CDI
</td>
<td style="width: 37.65pt;">
$0.930
</td>
<td style="width: 37.65pt;">
$248m
</td>
<td style="width: 37.65pt;">
+16.3%
</td>
<td style="width: 37.65pt;">
+19.6%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Goodman Prop Trust
</td>
<td style="width: 37.6pt;">
GMT
</td>
<td style="width: 37.65pt;">
$2.220
</td>
<td style="width: 37.65pt;">
$3,090m
</td>
<td style="width: 37.65pt;">
+1.1%
</td>
<td style="width: 37.65pt;">
+51.0%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Investore
</td>
<td style="width: 37.6pt;">
IPL
</td>
<td style="width: 37.65pt;">
$1.820
</td>
<td style="width: 37.65pt;">
$548m
</td>
<td style="width: 37.65pt;">
-2.9%
</td>
<td style="width: 37.65pt;">
+25.6%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Kiwi Property Group
</td>
<td style="width: 37.6pt;">
KPG
</td>
<td style="width: 37.65pt;">
$1.560
</td>
<td style="width: 37.65pt;">
$2,448m
</td>
<td style="width: 37.65pt;">
-4.0%
</td>
<td style="width: 37.65pt;">
+20.8%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Precinct Properties NZ
</td>
<td style="width: 37.6pt;">
PCT
</td>
<td style="width: 37.65pt;">
$1.835
</td>
<td style="width: 37.65pt;">
$2,391m
</td>
<td style="width: 37.65pt;">
-0.7%
</td>
<td style="width: 37.65pt;">
+28.8%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Property for Industry
</td>
<td style="width: 37.6pt;">
PFI
</td>
<td style="width: 37.65pt;">
$2.440
</td>
<td style="width: 37.65pt;">
$1,232m
</td>
<td style="width: 37.65pt;">
+2.7%
</td>
<td style="width: 37.65pt;">
+41.1%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Stride Property Group
</td>
<td style="width: 37.6pt;">
SPG
</td>
<td style="width: 37.65pt;">
$2.360
</td>
<td style="width: 37.65pt;">
$862m
</td>
<td style="width: 37.65pt;">
+3.2%
</td>
<td style="width: 37.65pt;">
+29.4%
</td>
</tr>
<tr>
<td style="width: 4cm;">
Vital Healthcare Property Trust
</td>
<td style="width: 37.6pt;">
VHP
</td>
<td style="width: 37.65pt;">
$2.820
</td>
<td style="width: 37.65pt;">
$1,274m
</td>
<td style="width: 37.65pt;">
+4.6%
</td>
<td style="width: 37.65pt;">
+40.6%
</td>
</tr>
<tr>
<td style="width: 4cm;"></td>
<td style="width: 37.6pt;"></td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;"></td>
</tr>
<tr>
<td style="width: 4cm;">
S&amp;P/NZX All Real Estate Cap
</td>
<td style="width: 37.6pt;"></td>
<td style="width: 37.65pt;">
1,471.1
</td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;">
-1.8%
</td>
<td style="width: 37.65pt;">
+26.1%
</td>
</tr>
<tr>
<td style="width: 4cm;">
S&amp;P/NZX All Real Estate Gr.
</td>
<td style="width: 37.6pt;"></td>
<td style="width: 37.65pt;">
1,812.9
</td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;">
-0.6%
</td>
<td style="width: 37.65pt;">
+31.3%
</td>
</tr>
<tr>
<td style="width: 4cm;">
S&amp;P/NZX All Real Estate Gr. wImp
</td>
<td style="width: 37.6pt;"></td>
<td style="width: 37.65pt;">
1,894.0
</td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;">
-0.4%
</td>
<td style="width: 37.65pt;">
+32.4%
</td>
</tr>
<tr>
<td style="width: 4cm;">
S&amp;P/NZX 50 Gross
</td>
<td style="width: 37.6pt;"></td>
<td style="width: 37.65pt;">
11,491.9
</td>
<td style="width: 37.65pt;"></td>
<td style="width: 37.65pt;">
+5.2%
</td>
<td style="width: 37.65pt;">
+30.4%
</td>
</tr>
<tr>
<td style="width: 4cm;">
S&amp;P/NZX 50 Gross wImp
</td>
<td style="width: 37.6pt;">
&nbsp;
</td>
<td style="width: 37.65pt;">
13,978.0
</td>
<td style="width: 37.65pt;">
&nbsp;
</td>
<td style="width: 37.65pt;">
+5.3%
</td>
<td style="width: 37.65pt;">
+31.6%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, IRESS<a target="_blank">&nbsp;</a>
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nzl +64 9 368 0022
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.0.1&amp;permmsgid=msg-f:1655636888249303075&amp;th=16fa00fa59220023&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_GISuSSygjKQIybESDCi4NAvuBCNVGmddjenYQWNumH2TYQKUhqtaPI-4enDWXMmNSm5dXT24-Hp54_324sHXdYmcEANkmd8qECMEIf9EuTrWZKtHwhOtrYVY&amp;disp=emb" width="232" height="232" class="editor-image img-responsive" data-image-whitelisted=""></figure>

Property Sector
Quarterly S&amp;P/NZX All Real Estate Index Review: December 2019
The listed property vehicle (LPV) sector’s performance in the final quarter of 2019 was subdued, down -0.6%, underperforming the S&amp;P/NZX50 which climbed +5.2%. Vital Healthcare Property Trust (VHP), achieved top return honours during the quarter, up +4.6%, underpinned by an encouraging management fee structure renegotiation, and a quarterly update presenting confirmatory evidence of its robust portfolio fundamentals.&nbsp;
Opportunistic Capital Raising putting on the brakes&nbsp;
In a year where markets were characterized by persistently low interest rates, limited growth opportunities, and strong investor demand, the LPVs were left with an ideal platform to insulate balance sheets. Hence, the 4Q saw Goodman Property (GMT), Kiwi Property Group (KPG), and Investore (IPL) all execute opportunistic capital raises. Sector returns during the quarter couldn’t evade such capital market activity, driving the relatively weak finish to the year. The 4Q pullback, however, did little to dampen the sector’s exceptional full year performance, up +31.3% and exceeding the S&amp;P/NZX50 (+30.4%). Immense demand for industrial property inspired the strong performance of GMT, up +51.0%, and Property for Industry (PFI) up +41.1%. Meanwhile, the ultra-defensive VHP, up +40.6%, and differentiated funds management model of Augusta (AUG), up +52.6%, also comfortably trumped the benchmark in 2019.
Yield rationale evolving
The LPV sector is evidence of a sector that is fundamentally sound, with high quality portfolios, well positioned balance sheets, sustainable pay-out ratios and a continued supply-demand imbalance likely to fuel modest cap rate compression short term. But, earnings growth eclipsing steady-state is highly unlikely, where a value trapped market has been derived from peaking valuations for physical assets, and rising construction costs. Additionally, hunt for yield has maintained yield spreads relative to long bonds at ~4% — only lower pre-GFC, while bond rates dropped in 2019. Our preferred LPVs remain VHP, IPL and KPG (all OUTPERFORM).
Figure 1. S&amp;P/NZX All Real Estate Gross index return — December 2019




Company


Code


Price


Market


Quarter


Year




&nbsp;


&nbsp;


31-Dec


Cap


return


return






Asset Plus


APL


$0.625


$104m


-0.8%


+18.1%




Argosy Property


ARG


$1.380


$1,142m


-4.6%


+21.6%




Augusta


AUG


$1.500


$138m


-0.4%


+52.6%




CDL Investments


CDI


$0.930


$248m


+16.3%


+19.6%




Goodman Prop Trust


GMT


$2.220


$3,090m


+1.1%


+51.0%




Investore


IPL


$1.820


$548m


-2.9%


+25.6%




Kiwi Property Group


KPG


$1.560


$2,448m


-4.0%


+20.8%




Precinct Properties NZ


PCT


$1.835


$2,391m


-0.7%


+28.8%




Property for Industry


PFI


$2.440


$1,232m


+2.7%


+41.1%




Stride Property Group


SPG


$2.360


$862m


+3.2%


+29.4%




Vital Healthcare Property Trust


VHP


$2.820


$1,274m


+4.6%


+40.6%












S&amp;P/NZX All Real Estate Cap



1,471.1



-1.8%


+26.1%




S&amp;P/NZX All Real Estate Gr.



1,812.9



-0.6%


+31.3%




S&amp;P/NZX All Real Estate Gr. wImp



1,894.0



-0.4%


+32.4%




S&amp;P/NZX 50 Gross



11,491.9



+5.2%


+30.4%




S&amp;P/NZX 50 Gross wImp


&nbsp;


13,978.0


&nbsp;


+5.3%


+31.6%




Source: Forsyth Barr analysis, IRESS&nbsp;
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nzl +64 9 368 0022


Property Sector: Quarterly S&P/NZX All Real Estate Index Review: December 2019