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>Reporting on Property</h2>
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<p>Buoyant transactional activity continues to drive expectations for further cap rate compression across office and industrial. However, a lifting yield curve in recent months is likely starting to reduce tailwinds from low interest rates. That said, the outlook for rental and occupancy is improving, underpinned by a strong economic backdrop but rental growth is typically late cycle. The August reporting season numbers should be strong given the locked-down prior period and robust operating backdrop. The recent index driven re-rating of the sector has seen relative value reduce across the sector with Precinct (PCT) and Asset Plus (APL) the only two where we are rated OUTPERFORM.</p>
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<h3>Eyes on August reporting</h3>
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<p>Three&nbsp;LPVs&nbsp;will report&nbsp;results in August, with PCT and Vital&nbsp;Healthcare&nbsp;(VHP) reporting FY21 results and Property for Industry (PFI) 1H21. Key things of interest this reporting season will be (1) any update to&nbsp;VHP's&nbsp;development pipeline, (2) impact of working from home and subleasing on office demand, and (3) expectations for industrial valuations given recent strong increases. We are expecting strong EPS growth across the sector given&nbsp;&nbsp;lockdown&nbsp;impacts in the prior period.</p>
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<h3>Mixed performance across commercial property sectors</h3>
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<p>June quarter metrics for the commercial property sector (CBRE Research) highlight fundamentals remain mixed across sectors. The industrial and office sectors continue to see strong asset pricing but yield compression looks to have slowed slightly over the June quarter. Looking forward, rising interest rates may limit investors ability to pay ever tighter yields. Sector-wide rental growth is restricted to industrial assets, with both office and retail assets having mixed performance depending on grade and location. Strong industrial indicators bode well for those with large industrial portfolios (Goodman, [GMT] Property for Industry, and Argosy [ARG]) but this is largely reflected in the share price in our view.</p>
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<h3>A drop in bond rates and index demand sees property outperform</h3>
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<p>The NZ LPV sector was up +2.4% in July, out performing the NZX50G which was down -0.5%. The best performing LPV was GMT, which was up +5.6% due to Goodman Group purchasing c.100m shares, whilst ARG, Stride (SPG) and VHP were up +4.5%, +3.8% and +2.4% respectively due to passive funds flow from possible EPRA NAREIT index inclusion. PFI was up +1.2%, likely on the back of GMT strength in the month.&nbsp;</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 Reporting on Property


Buoyant transactional activity continues to drive expectations for further cap rate compression across office and industrial. However, a lifting yield curve in recent months is likely starting to reduce tailwinds from low interest rates. That said, the outlook for rental and occupancy is improving, underpinned by a strong economic backdrop but rental growth is typically late cycle. The August reporting season numbers should be strong given the locked-down prior period and robust operating backdrop. The recent index driven re-rating of the sector has seen relative value reduce across the sector with Precinct (PCT) and Asset Plus (APL) the only two where we are rated OUTPERFORM.



Eyes on August reporting


Three&nbsp;LPVs&nbsp;will report&nbsp;results in August, with PCT and Vital&nbsp;Healthcare&nbsp;(VHP) reporting FY21 results and Property for Industry (PFI) 1H21. Key things of interest this reporting season will be (1) any update to&nbsp;VHP's&nbsp;development pipeline, (2) impact of working from home and subleasing on office demand, and (3) expectations for industrial valuations given recent strong increases. We are expecting strong EPS growth across the sector given&nbsp;&nbsp;lockdown&nbsp;impacts in the prior period.


Mixed performance across commercial property sectors


June quarter metrics for the commercial property sector (CBRE Research) highlight fundamentals remain mixed across sectors. The industrial and office sectors continue to see strong asset pricing but yield compression looks to have slowed slightly over the June quarter. Looking forward, rising interest rates may limit investors ability to pay ever tighter yields. Sector-wide rental growth is restricted to industrial assets, with both office and retail assets having mixed performance depending on grade and location. Strong industrial indicators bode well for those with large industrial portfolios (Goodman, [GMT] Property for Industry, and Argosy [ARG]) but this is largely reflected in the share price in our view.


A drop in bond rates and index demand sees property outperform


The NZ LPV sector was up +2.4% in July, out performing the NZX50G which was down -0.5%. The best performing LPV was GMT, which was up +5.6% due to Goodman Group purchasing c.100m shares, whilst ARG, Stride (SPG) and VHP were up +4.5%, +3.8% and +2.4% respectively due to passive funds flow from possible EPRA NAREIT index inclusion. PFI was up +1.2%, likely on the back of GMT strength in the month.&nbsp;



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



Real Estate Reflections: Reporting on Property