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 184th Ed</h2>
April 2020 — Keeping it Real&nbsp;
In this report we have a look at what current share prices imply for&nbsp;LPV&nbsp;asset values and we revisit our dividend forecasts for FY20/21/22 given near-term revenue uncertainties. The Listed Property Vehicle (LPV) sector fell -21% in April as the S&amp;P/NZX&nbsp;50G had its worst month since August 1998. Our preferred&nbsp;LPVs&nbsp;are&nbsp;IPL,&nbsp;PFI&nbsp;and&nbsp;VHP&nbsp;(all rated OUTPERFORM).
Not many places&nbsp;to hide in March
The property sector was very weak in March, down -21%, well below the S&amp;P/NZX&nbsp;50G that was down -13%, but in line with the average&nbsp;NZX&nbsp;50 constituent fall of -21%.&nbsp;LPVs&nbsp;with any sort of traditional retail flavour were marked down significantly (KPG,&nbsp;APL,&nbsp;SPG&nbsp;and&nbsp;ARG) while the others performed in line or better than the sector. The more&nbsp;defensive&nbsp;LPVs&nbsp;have continued to outperform early in April and the year-to-date performance is very contrasted between retail exposed and those with secondary office assets, versus those with very limited retail, or mostly prime assets, or&nbsp;IPL&nbsp;which is largely supermarkets.
Reduced&nbsp;NAVs&nbsp;for retail and secondary office
During March we have made initial reductions to our&nbsp;NAVs&nbsp;for retail&nbsp;focussed&nbsp;NAVs&nbsp;and also for&nbsp;LPVs&nbsp;with secondary office&nbsp;assets and this has lowered&nbsp;target prices. In terms of gearing levels, these look manageable at close to 30% on average, but the large uncertainty is what happens to 31 March 2020 portfolio revaluations and hence gearing levels. This will have a major bearing on a board's appetite&nbsp;to pay dividends in the near-term.
Lowering near-term dividend payout ratios to capture uncertainties
There is considerable near-term revenue uncertainty given the unknowns around rent relief, government support and bankruptcy. We are yet to make material changes to forecast EPS or AFFO per share, however, we have adopted lower dividend pay out ratios near-term to attempt to adjust for this uncertainty and present dividend yields that capture an element of near term earnings downside and board conservatism around dividend payments. To date, only KPG has cancelled an upcoming dividend and is not paying its 2H20 dividend for the six months to 31 March. We remain with a defensive focus with preferred LPVs being IPL, PFI and VHP.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022&nbsp;
Rohan Koreman-Smit rohan.koreman-smit@forsythbarr.co.nz +64 9 368 0085&nbsp;
Ashton Olds ashton.olds@forsythbarr.co.nz +64 9 368 0127

Real Estate Reflections: The 184th Ed
April 2020 — Keeping it Real&nbsp;
In this report we have a look at what current share prices imply for&nbsp;LPV&nbsp;asset values and we revisit our dividend forecasts for FY20/21/22 given near-term revenue uncertainties. The Listed Property Vehicle (LPV) sector fell -21% in April as the S&amp;P/NZX&nbsp;50G had its worst month since August 1998. Our preferred&nbsp;LPVs&nbsp;are&nbsp;IPL,&nbsp;PFI&nbsp;and&nbsp;VHP&nbsp;(all rated OUTPERFORM).
Not many places&nbsp;to hide in March
The property sector was very weak in March, down -21%, well below the S&amp;P/NZX&nbsp;50G that was down -13%, but in line with the average&nbsp;NZX&nbsp;50 constituent fall of -21%.&nbsp;LPVs&nbsp;with any sort of traditional retail flavour were marked down significantly (KPG,&nbsp;APL,&nbsp;SPG&nbsp;and&nbsp;ARG) while the others performed in line or better than the sector. The more&nbsp;defensive&nbsp;LPVs&nbsp;have continued to outperform early in April and the year-to-date performance is very contrasted between retail exposed and those with secondary office assets, versus those with very limited retail, or mostly prime assets, or&nbsp;IPL&nbsp;which is largely supermarkets.
Reduced&nbsp;NAVs&nbsp;for retail and secondary office
During March we have made initial reductions to our&nbsp;NAVs&nbsp;for retail&nbsp;focussed&nbsp;NAVs&nbsp;and also for&nbsp;LPVs&nbsp;with secondary office&nbsp;assets and this has lowered&nbsp;target prices. In terms of gearing levels, these look manageable at close to 30% on average, but the large uncertainty is what happens to 31 March 2020 portfolio revaluations and hence gearing levels. This will have a major bearing on a board's appetite&nbsp;to pay dividends in the near-term.
Lowering near-term dividend payout ratios to capture uncertainties
There is considerable near-term revenue uncertainty given the unknowns around rent relief, government support and bankruptcy. We are yet to make material changes to forecast EPS or AFFO per share, however, we have adopted lower dividend pay out ratios near-term to attempt to adjust for this uncertainty and present dividend yields that capture an element of near term earnings downside and board conservatism around dividend payments. To date, only KPG has cancelled an upcoming dividend and is not paying its 2H20 dividend for the six months to 31 March. We remain with a defensive focus with preferred LPVs being IPL, PFI and VHP.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022&nbsp;
Rohan Koreman-Smit rohan.koreman-smit@forsythbarr.co.nz +64 9 368 0085&nbsp;
Ashton Olds ashton.olds@forsythbarr.co.nz +64 9 368 0127


Real Estate Reflections: The 184th Ed: April 2020 — Keeping It Real

Kiwi Property

Real Estate Reflections: The 184th Ed: April 2020 — Keeping It Real