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>Real Estate Reflections<br>Cap Rates Capped Out?</h2>
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<p>The listed property vehicle (LPV) sector reported a solid set of results for the 1H22 period. Six LPVs reported and whilst COVID-19 lockdowns had a small impact due to rental abatements, broader portfolio metrics shrugged off recent lockdowns, remaining solid across all asset classes. There was another round of revaluations as capitalisation rates continue to compress, however, rising interest rates have begun to erode the economics of acquiring assets and industry feedback suggests demand for direct commercial property investment has moderated over recent weeks. Our preferred picks in the sector are; Stride (SPG) for its transition to an asset manager and attractive valuation metrics, Precinct Properties (PCT), and Investore (IPL) due to its large discount to NTA.</p>
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<h3>What will close the discount to NTA?</h3>
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<p>The rise in interest rates and significant valuation gains being booked has seen the property sector go from trading at a premium to its book value, to a c. -6% discount.&nbsp;Prime industrial cap rates are now at their lowest spread to debt funding costs since the GFC but other sub sectors are broadly in line with historical spreads. Industry feedback&nbsp;bidder depth has diminished and core yields have softened slightly over the last couple of weeks. While the discount to NTA may be closed by lower asset values, some&nbsp;LPVs&nbsp;are trading well below book value and share buy backs, and/or M&amp;A may provide alternate routes to close the discount.</p>
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<h3>Reporting season wrap up</h3>
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<p>Six LPVs reported their 1H22 results in November. Results were on average broadly in line with our expectations, despite recent lockdowns leading to rental abatements that we had not factored into our forecasts. Portfolio metrics remained robust and rent growth remained solid, however, guidance was largely unchanged. The sector continues to focus on internal development pipelines and balance sheets generally remain comfortably geared largely due to valuation gains (which have likely come to an end).</p>
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<h3>LPVs&nbsp;underperform&nbsp;the broader market in November</h3>
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<p>The real estate index underperformed the market in November, down -3.8% vs the NZX50G down -2.9%.&nbsp;The best performing&nbsp;LPVs&nbsp;were&nbsp;Investore&nbsp;(IPL) and Goodman (GMT), down -0.4% and -0.8% respectively, whilst Stride Property Group (SPG) was the worst performer, down -11.4%, primarily due to a discounted capital raise. Year-to-date GMT is the only LPV to deliver positive returns, while Property for Industry (PFI) has seen the smallest decline, highlighting demand for industrial assets.</p>
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Real Estate Reflections Cap Rates Capped Out?


The listed property vehicle (LPV) sector reported a solid set of results for the 1H22 period. Six LPVs reported and whilst COVID-19 lockdowns had a small impact due to rental abatements, broader portfolio metrics shrugged off recent lockdowns, remaining solid across all asset classes. There was another round of revaluations as capitalisation rates continue to compress, however, rising interest rates have begun to erode the economics of acquiring assets and industry feedback suggests demand for direct commercial property investment has moderated over recent weeks. Our preferred picks in the sector are; Stride (SPG) for its transition to an asset manager and attractive valuation metrics, Precinct Properties (PCT), and Investore (IPL) due to its large discount to NTA.



What will close the discount to NTA?


The rise in interest rates and significant valuation gains being booked has seen the property sector go from trading at a premium to its book value, to a c. -6% discount.&nbsp;Prime industrial cap rates are now at their lowest spread to debt funding costs since the GFC but other sub sectors are broadly in line with historical spreads. Industry feedback&nbsp;bidder depth has diminished and core yields have softened slightly over the last couple of weeks. While the discount to NTA may be closed by lower asset values, some&nbsp;LPVs&nbsp;are trading well below book value and share buy backs, and/or M&amp;A may provide alternate routes to close the discount.


Reporting season wrap up


Six LPVs reported their 1H22 results in November. Results were on average broadly in line with our expectations, despite recent lockdowns leading to rental abatements that we had not factored into our forecasts. Portfolio metrics remained robust and rent growth remained solid, however, guidance was largely unchanged. The sector continues to focus on internal development pipelines and balance sheets generally remain comfortably geared largely due to valuation gains (which have likely come to an end).


LPVs&nbsp;underperform&nbsp;the broader market in November


The real estate index underperformed the market in November, down -3.8% vs the NZX50G down -2.9%.&nbsp;The best performing&nbsp;LPVs&nbsp;were&nbsp;Investore&nbsp;(IPL) and Goodman (GMT), down -0.4% and -0.8% respectively, whilst Stride Property Group (SPG) was the worst performer, down -11.4%, primarily due to a discounted capital raise. Year-to-date GMT is the only LPV to deliver positive returns, while Property for Industry (PFI) has seen the smallest decline, highlighting demand for industrial assets.


Real Estate Reflections: Cap Rates Capped Out?