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: The 183rd Ed</h2>
Asset Backed
After a stellar 10 year period, the Listed Property Vehicles (LPVs) haven't been immune to the outbreak of&nbsp;COVID-19, with the sector down ~-22%&nbsp;and broadly similar to the wider market. In this note we look at sector gearing and provide an update on our preferred&nbsp;LPVs, some thoughts on how investors should be positioned as uncertainty persists, and a reminder of what happened during the global financial crisis (GFC) and how things may be 'different this cycle'.
Eyes on upcoming valuations, and hence gearing and also dividend guidance
During the GFC we had a larger amount of office relative to what we have today. Office has historically been the most volatile in a recession, however, retail may face the toughest test this time. The NZ LPV sector was one of the best performing LPV sectors worldwide through the GFC period, although there was still a large pull back in share prices and asset values, but only two raised equity. During the GFC the broader NZ equity market had widespread discounted equity issuance and the cutting of dividends and this is happening again. Property is not immune this time given the uncertainties with retail assets the most at risk in terms of what asset values will do and the near-term dividend guidance. Boards will probably wait and get a steer from valuers, with a number of LPVs having 31 March valuations due including the larger retail owners KPG, APL, SPG and to a lesser extent ARG.​​​​​​​
Investment rating changes
Going into this correction we had an OUTPERFORM on IPL given its defensive qualities and we recently pulled back VHP from OUTPERFORM to NEUTRAL following its share price rise. We had an OUTPERFORM on KPG based on relative valuation versus large caps GMT and PCT. We had an UNDERPERFORM on GMT given its substantial re-rating and sector premium. Over recent weeks IPL, PCT and GMT have outperformed the wider equity market, and VHP and PFI have been broadly in line. Share price falls are overdone in our view and we like listed property with its strong asset backing of cash flow generating property, but considerable uncertainty remains. We have upgraded VHP and PFI to OUTPERFORM, GMT to NEUTRAL and downgraded KPG and APL to UNDERPERFORM.
Note that our valuations and earnings have not changed and are under review.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Real Estate Reflections: The 183rd Ed
Asset Backed
After a stellar 10 year period, the Listed Property Vehicles (LPVs) haven't been immune to the outbreak of&nbsp;COVID-19, with the sector down ~-22%&nbsp;and broadly similar to the wider market. In this note we look at sector gearing and provide an update on our preferred&nbsp;LPVs, some thoughts on how investors should be positioned as uncertainty persists, and a reminder of what happened during the global financial crisis (GFC) and how things may be 'different this cycle'.
Eyes on upcoming valuations, and hence gearing and also dividend guidance
During the GFC we had a larger amount of office relative to what we have today. Office has historically been the most volatile in a recession, however, retail may face the toughest test this time. The NZ LPV sector was one of the best performing LPV sectors worldwide through the GFC period, although there was still a large pull back in share prices and asset values, but only two raised equity. During the GFC the broader NZ equity market had widespread discounted equity issuance and the cutting of dividends and this is happening again. Property is not immune this time given the uncertainties with retail assets the most at risk in terms of what asset values will do and the near-term dividend guidance. Boards will probably wait and get a steer from valuers, with a number of LPVs having 31 March valuations due including the larger retail owners KPG, APL, SPG and to a lesser extent ARG.​​​​​​​
Investment rating changes
Going into this correction we had an OUTPERFORM on IPL given its defensive qualities and we recently pulled back VHP from OUTPERFORM to NEUTRAL following its share price rise. We had an OUTPERFORM on KPG based on relative valuation versus large caps GMT and PCT. We had an UNDERPERFORM on GMT given its substantial re-rating and sector premium. Over recent weeks IPL, PCT and GMT have outperformed the wider equity market, and VHP and PFI have been broadly in line. Share price falls are overdone in our view and we like listed property with its strong asset backing of cash flow generating property, but considerable uncertainty remains. We have upgraded VHP and PFI to OUTPERFORM, GMT to NEUTRAL and downgraded KPG and APL to UNDERPERFORM.
Note that our valuations and earnings have not changed and are under review.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Real Estate Reflections: The 183rd Ed Asset Backed

Asset Plus

Real Estate Reflections: The 183rd Ed Asset Backed