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

Real Estate Reflections Focus Shifts to Fundamentals


Bond yields have dictated LPV sector performance year-to-date, however, with six LPVs reporting FY21 results in May, we expect fundamentals to come back into focus. Results will still feature the impact of lockdown, as such 2H run rates and outlook commentary/guidance (which we expect the majority of the LPVs to provide given more stable operating conditions) will be our focal point. We expect portfolio outcomes to be mixed given the varied impacts on each sub-sector, but modest given the quality of listed portfolios. Longer-term, retail and office markets have the most open questions as to the structural impacts of the pandemic; has it accelerated the shift of retail online (likely in our view), has working from home reduced office demand (we believe modestly but not for quality buildings).&nbsp;



May reporting to bring&nbsp;fundamentals&nbsp;back into focus


Six&nbsp;LPVs&nbsp;will report FY21 results in May with outcomes still featuring&nbsp;the impact of&nbsp;lockdown. We expect portfolio fundamentals to be mixed with 1) retail rents and occupancy&nbsp;reset downwards but with the outlook more stable due to robust current trading conditions, 2) office rents pressured by&nbsp;impact of working from home induced sub-leasing particularly in A-grade assets, and 3) strong demand for logistics space continuing to&nbsp;underpin industrial rents.&nbsp;


Cap rates catch up


Asset plus (APL), Goodman (GMT),&nbsp;Investore&nbsp;(IPL), and Kiwi Property (KPG) have now all provided FY21 valuation updates. A consistant theme has been 1) strong industrial and large format retail valuations, with those assets being viewed as pandemic proof, 2) upward movement in office valuations despite working from home concerns, and 3) flat retail valuations despite solid retail sales.&nbsp;SPG and ARG do not typically release&nbsp;valuation updates prior to results but we expect solid results from each given their exposure of industrial (ARG 43% of the portfolio, and SPG 22%) and office (ARG 42% and SPG 42%).&nbsp;


LPVs&nbsp;flat but&nbsp;underperform&nbsp;the broader market


The NZ LPV sector was up +1.2% in April, slightly underperforming the broader market with the NZX50G up +1.4%. The best performing LPVs were NZ Rural Land Company (NZL) which announced a large acquisition and Argosy (ARG), while Asset Plus (APL) was the largest underperformer, with a flat FY21 portfolio valuation outcome likely weighing on the stock. Year-to-date KPG is the only LPV that has delivered positive returns, with valuation pressure from rising interest rates weighing on the rest of the sector.



Rohan Koreman-Smit, CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Ashton Olds, CFA
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Real Estate Reflections: Focus Shifts to Fundamentals