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">Real Estate Reflections — 179th&nbsp;Ed</a></h2>
November 2019 — The 11th month &amp; the seven LPVs
The listed property vehicle (LPV) sector’s return for October was -2.8%, a result not seen for twelve months and below the -1.2% return from the S&amp;P/NZX 50. Whilst there were no noticeable shifts in fundamentals, the lacklustre return was not helped by a significant capital raise from KPG announced late in the month. Our preferred LPVs remain the very defensive VHP (OUTPERFORM) and IPL (OUTPERFORM), coupled by KPG (OUTPERFORM), the cheapest large cap. The sector is up +35.5% ver<a target="_blank"></a>sus the broader equity market return of +24.4% over the last twelve months.
November always one to remember
November illustrates a month which features seven LPVs reporting results; hence, generating a robust level of news-flow which we believe is likely to only reinforce the sector’s defensive attributes with limited surprises. We anticipate:
<ul>
<li>Record occupancy levels underpinning solid like-for-like rental growth.</li>
<li>Steady development and portfolio updates highlighting improving portfolios.</li>
<li>Flat earnings with forecast median EPS -1%/DPS +1% and a reiteration of flat guidance is expected.</li>
<li>Though interim revaluations rarely feature, we may see some given the ongoing rental growth and cap rate compression in industrial and office.</li>
<li>With the sector at record P/NTA multiples and the strong investor interest, further capital raises could not be ruled out.</li>
</ul>
If they can, they will, and they should
In a market with plenty of capital but very few return accretive investment channels, some LPVs have taken the opportunity to raise funds through the equity and debt capital markets. KPG announced an equity raise of ~NZ$200m whilst ARG announced to the market an offer of ~NZ$100m senior secured fixed rate 7 year green bonds. The rationale for both was very similar: stabilise the balance sheet whilst generating ample capacity to execute on current development projects and retain optionality in a supply constrained market. We anticipate this is a trend that will continue as the LPVs look to take advantage of the defensive yield thematic still at the forefront of investors’ minds.
Figure 1. NZ listed property sector
<table class="table table-striped">
<thead>
<tr>
<td style="width: 63.8pt;">
LPV
</td>
<td style="width: 25.8pt;">
Code
</td>
<td style="width: 71.1pt;">
Rating
</td>
<td style="width: 28.3pt;">
Price
</td>
<td style="width: 30.95pt;">
Target
</td>
<td style="width: 27.65pt;">
Gross
</td>
<td style="width: 27.65pt;">
AFFO
</td>
<td style="width: 33.05pt;">
P/NAV
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 63.8pt;">
&nbsp;
</td>
<td style="width: 25.8pt;"></td>
<td style="width: 71.1pt;"></td>
<td style="width: 28.3pt;">
1-Nov
</td>
<td style="width: 30.95pt;">
price
</td>
<td style="width: 27.65pt;">
yield
</td>
<td style="width: 27.65pt;">
yield
</td>
<td style="width: 33.05pt;"></td>
</tr>
<tr>
<td style="width: 63.8pt;">
Asset Plus
</td>
<td style="width: 25.8pt;">
APL
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$0.64
</td>
<td style="width: 30.95pt;">
$0.65
</td>
<td style="width: 27.65pt;">
8.1%
</td>
<td style="width: 27.65pt;">
5.0%
</td>
<td style="width: 33.05pt;">
97%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Argosy Property
</td>
<td style="width: 25.8pt;">
ARG
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$1.42
</td>
<td style="width: 30.95pt;">
$1.35
</td>
<td style="width: 27.65pt;">
6.3%
</td>
<td style="width: 27.65pt;">
4.3%
</td>
<td style="width: 33.05pt;">
110%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Augusta Capital
</td>
<td style="width: 25.8pt;">
AUG
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$1.51
</td>
<td style="width: 30.95pt;">
$1.38
</td>
<td style="width: 27.65pt;">
6.0%
</td>
<td style="width: 27.65pt;">
4.7%
</td>
<td style="width: 33.05pt;">
109%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Goodman Property
</td>
<td style="width: 25.8pt;">
GMT
</td>
<td style="width: 71.1pt;">
UNDERPERFORM
</td>
<td style="width: 28.3pt;">
$2.14
</td>
<td style="width: 30.95pt;">
$1.83
</td>
<td style="width: 27.65pt;">
4.4%
</td>
<td style="width: 27.65pt;">
2.9%
</td>
<td style="width: 33.05pt;">
122%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Investore
</td>
<td style="width: 25.8pt;">
IPL
</td>
<td style="width: 71.1pt;">
OUTPERFORM
</td>
<td style="width: 28.3pt;">
$1.92
</td>
<td style="width: 30.95pt;">
$1.85
</td>
<td style="width: 27.65pt;">
5.7%
</td>
<td style="width: 27.65pt;">
3.9%
</td>
<td style="width: 33.05pt;">
116%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Kiwi Property Group
</td>
<td style="width: 25.8pt;">
KPG
</td>
<td style="width: 71.1pt;">
OUTPERFORM
</td>
<td style="width: 28.3pt;">
$1.59
</td>
<td style="width: 30.95pt;">
$1.62
</td>
<td style="width: 27.65pt;">
6.3%
</td>
<td style="width: 27.65pt;">
4.1%
</td>
<td style="width: 33.05pt;">
103%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Precinct Properties
</td>
<td style="width: 25.8pt;">
PCT
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$1.84
</td>
<td style="width: 30.95pt;">
$1.60
</td>
<td style="width: 27.65pt;">
4.9%
</td>
<td style="width: 27.65pt;">
3.3%
</td>
<td style="width: 33.05pt;">
118%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Property for Industry
</td>
<td style="width: 25.8pt;">
PFI
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$2.39
</td>
<td style="width: 30.95pt;">
$2.00
</td>
<td style="width: 27.65pt;">
4.6%
</td>
<td style="width: 27.65pt;">
3.2%
</td>
<td style="width: 33.05pt;">
122%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Stride Property
</td>
<td style="width: 25.8pt;">
SPG
</td>
<td style="width: 71.1pt;">
NEUTRAL
</td>
<td style="width: 28.3pt;">
$2.31
</td>
<td style="width: 30.95pt;">
$2.18
</td>
<td style="width: 27.65pt;">
6.1%
</td>
<td style="width: 27.65pt;">
4.0%
</td>
<td style="width: 33.05pt;">
113%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Vital Healthcare
</td>
<td style="width: 25.8pt;">
VHP
</td>
<td style="width: 71.1pt;">
OUTPERFORM
</td>
<td style="width: 28.3pt;">
$2.70
</td>
<td style="width: 30.95pt;">
$2.69
</td>
<td style="width: 27.65pt;">
4.8%
</td>
<td style="width: 27.65pt;">
3.0%
</td>
<td style="width: 33.05pt;">
117%
</td>
</tr>
<tr>
<td style="width: 63.8pt;">
Core simple average
</td>
<td style="width: 25.8pt;">
&nbsp;
</td>
<td style="width: 71.1pt;">
&nbsp;
</td>
<td style="width: 28.3pt;">
&nbsp;
</td>
<td style="width: 30.95pt;">
&nbsp;
</td>
<td style="width: 27.65pt;">
5.4%
</td>
<td style="width: 27.65pt;">
3.6%
</td>
<td style="width: 33.05pt;">
115%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company Reports<a target="_blank">&nbsp;</a>
Jeremy Simpson, CFA
<a target="_blank">jeremy.simpson@forsythbarr.co.nz</a>
<a target="_blank">+64 9 368 0022</a>
James Walton
<a target="_blank">james.walton@forsythbarr.co.nz</a>

Real Estate Reflections — 179th&nbsp;Ed
November 2019 — The 11th month &amp; the seven LPVs
The listed property vehicle (LPV) sector’s return for October was -2.8%, a result not seen for twelve months and below the -1.2% return from the S&amp;P/NZX 50. Whilst there were no noticeable shifts in fundamentals, the lacklustre return was not helped by a significant capital raise from KPG announced late in the month. Our preferred LPVs remain the very defensive VHP (OUTPERFORM) and IPL (OUTPERFORM), coupled by KPG (OUTPERFORM), the cheapest large cap. The sector is up +35.5% versus the broader equity market return of +24.4% over the last twelve months.
November always one to remember
November illustrates a month which features seven LPVs reporting results; hence, generating a robust level of news-flow which we believe is likely to only reinforce the sector’s defensive attributes with limited surprises. We anticipate:

Record occupancy levels underpinning solid like-for-like rental growth.
Steady development and portfolio updates highlighting improving portfolios.
Flat earnings with forecast median EPS -1%/DPS +1% and a reiteration of flat guidance is expected.
Though interim revaluations rarely feature, we may see some given the ongoing rental growth and cap rate compression in industrial and office.
With the sector at record P/NTA multiples and the strong investor interest, further capital raises could not be ruled out.

If they can, they will, and they should
In a market with plenty of capital but very few return accretive investment channels, some LPVs have taken the opportunity to raise funds through the equity and debt capital markets. KPG announced an equity raise of ~NZ$200m whilst ARG announced to the market an offer of ~NZ$100m senior secured fixed rate 7 year green bonds. The rationale for both was very similar: stabilise the balance sheet whilst generating ample capacity to execute on current development projects and retain optionality in a supply constrained market. We anticipate this is a trend that will continue as the LPVs look to take advantage of the defensive yield thematic still at the forefront of investors’ minds.
Figure 1. NZ listed property sector




LPV


Code


Rating


Price


Target


Gross


AFFO


P/NAV






&nbsp;




1-Nov


price


yield


yield





Asset Plus


APL


NEUTRAL


$0.64


$0.65


8.1%


5.0%


97%




Argosy Property


ARG


NEUTRAL


$1.42


$1.35


6.3%


4.3%


110%




Augusta Capital


AUG


NEUTRAL


$1.51


$1.38


6.0%


4.7%


109%




Goodman Property


GMT


UNDERPERFORM


$2.14


$1.83


4.4%


2.9%


122%




Investore


IPL


OUTPERFORM


$1.92


$1.85


5.7%


3.9%


116%




Kiwi Property Group


KPG


OUTPERFORM


$1.59


$1.62


6.3%


4.1%


103%




Precinct Properties


PCT


NEUTRAL


$1.84


$1.60


4.9%


3.3%


118%




Property for Industry


PFI


NEUTRAL


$2.39


$2.00


4.6%


3.2%


122%




Stride Property


SPG


NEUTRAL


$2.31


$2.18


6.1%


4.0%


113%




Vital Healthcare


VHP


OUTPERFORM


$2.70


$2.69


4.8%


3.0%


117%




Core simple average


&nbsp;


&nbsp;


&nbsp;


&nbsp;


5.4%


3.6%


115%




Source: Forsyth Barr analysis, Company Reports&nbsp;
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022
James Walton
james.walton@forsythbarr.co.nz

Real Estate Reflections — 179th Ed: November 2019 — The 11th Month & The Seven LPVs