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

Precinct Properties New Zealand / Equity Bottom-Up

<h2>Real Estate Reflections<br>Over Indexing</h2>
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<p>What started out as a normal month, with Precinct Properties (PCT) and Property for Industry (PFI) providing pre-result revaluation updates and Vital Healthcare (VHP) acquiring assets, quickly changed as index driven flows lifted Argosy (ARG), Stride Property (SPG) and VHP's share prices c.+10%. This movement has been driven by a 2/3 reduction in the size requirement for entry into the well followed FTSE EPRA NAREIT Global Real Estate Indexes. The share price uplift is broadly in line with Australian REITs Centuria Industrial (CIP) and Ingenia (INA) who entered the indexes in June. That said, NZ listed property vehicles generally have lower liquidity and more limited offshore ownership than their Australian peers. ARG, SPG, and VHP's entry into the indexes will be confirmed 1 September, as such, index demand will likely underpin share prices over the coming months.&nbsp;</p>
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<h3>VHP, ARG and SPG up on possible index inclusion</h3>
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<p>Following an announcement of a number of changes to the FTSE EPRA NAREIT Global Real Estate Index Series inclusion requirements, Argosy (ARG), Stride Property (SPG) and Vital Healthcare (VHP) have experienced c. +14%, +9% and +11% increases respectively. The key change for these vehicles is the reduced size requirements to enter the index. Precinct Properties (PCT), Goodman Property Trust (GMT) and Kiwi Property Group (KPG) are already constituents of the index, whilst Property for Industry (PFI) looks to just miss out on liquidity.</p>
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<h3>Revaluation gains and acquisitions</h3>
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<p>PCT and PFI both reported strong valuation gains in June, with -10bp and -85bp of cap rate compression over the past six months respectively. PFI's cap rate compression highlights particularly strong industrial asset pricing. VHP announced the acquisition of a private hospital in Melbourne as well as three further development properties in June — lifting FY21E gearing to c. 36% and committed gearing to c. 40%, whilst VHP's investor day on 29 June showed tenant demand for further development is strong.</p>
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<h3>LPVs&nbsp;underperform&nbsp;the broader market</h3>
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<p>The NZ LPV sector was up +1.1% in June, underperforming the broader market with the NZX50G up +2.7%. The best performing LPVs were ARG, SPG and VHP, which were up on the back of possible FTSE EPRA NAREIT index inclusion. Year-to-date SPG has had the best performance, partly reflecting strong growth in management fee income.</p>
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<div><strong>Rohan Koreman-Smit, CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Real Estate Reflections Over Indexing


What started out as a normal month, with Precinct Properties (PCT) and Property for Industry (PFI) providing pre-result revaluation updates and Vital Healthcare (VHP) acquiring assets, quickly changed as index driven flows lifted Argosy (ARG), Stride Property (SPG) and VHP's share prices c.+10%. This movement has been driven by a 2/3 reduction in the size requirement for entry into the well followed FTSE EPRA NAREIT Global Real Estate Indexes. The share price uplift is broadly in line with Australian REITs Centuria Industrial (CIP) and Ingenia (INA) who entered the indexes in June. That said, NZ listed property vehicles generally have lower liquidity and more limited offshore ownership than their Australian peers. ARG, SPG, and VHP's entry into the indexes will be confirmed 1 September, as such, index demand will likely underpin share prices over the coming months.&nbsp;



VHP, ARG and SPG up on possible index inclusion


Following an announcement of a number of changes to the FTSE EPRA NAREIT Global Real Estate Index Series inclusion requirements, Argosy (ARG), Stride Property (SPG) and Vital Healthcare (VHP) have experienced c. +14%, +9% and +11% increases respectively. The key change for these vehicles is the reduced size requirements to enter the index. Precinct Properties (PCT), Goodman Property Trust (GMT) and Kiwi Property Group (KPG) are already constituents of the index, whilst Property for Industry (PFI) looks to just miss out on liquidity.


Revaluation gains and acquisitions


PCT and PFI both reported strong valuation gains in June, with -10bp and -85bp of cap rate compression over the past six months respectively. PFI's cap rate compression highlights particularly strong industrial asset pricing. VHP announced the acquisition of a private hospital in Melbourne as well as three further development properties in June — lifting FY21E gearing to c. 36% and committed gearing to c. 40%, whilst VHP's investor day on 29 June showed tenant demand for further development is strong.


LPVs&nbsp;underperform&nbsp;the broader market


The NZ LPV sector was up +1.1% in June, underperforming the broader market with the NZX50G up +2.7%. The best performing LPVs were ARG, SPG and VHP, which were up on the back of possible FTSE EPRA NAREIT index inclusion. Year-to-date SPG has had the best performance, partly reflecting strong growth in management fee income.



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





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Precinct Properties New Zealand

Real Estate Reflections: Over Indexing