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<br>The Green Edition</h2>
<p>&nbsp;</p>
<p>The listed property vehicles (LPVs) didn't participate in November's vaccine fuelled rally, with the sector down -0.5% as bond yields made a recovery. Notably in November, six&nbsp;LPVs&nbsp;reported interim results, with results broadly positive across the board. In this month's report, we highlight our takeaways from the reporting season and our subsequent&nbsp;rating changes, and also how the sector is responding to sustainability issues in light of our recently published ESG report "Part of the Problem or Part of the Solution?". Although the&nbsp;LPVs&nbsp;aren't first to mind when contemplating carbon emissions, it is becoming an increasingly important issue&nbsp;to management teams, tenants, and investors&nbsp;with regards to development, funding, and leasing.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/177/366/original/image_90611667431607473048403.png?1607473049" class="editor-image img-responsive" data-smartkarma-image-id="177366"></figure>
<h3>ESG: Greening portfolios</h3>
<p>The built environment is responsible for 13–20% of&nbsp;NZ's&nbsp;carbon emissions, and commercial buildings consume 9% of all electricity. While the LPV&nbsp;sector&nbsp;has a relatively low direct carbon footprint there has been movement&nbsp;towards lowering energy use and greening portfolios. Occupiers are starting to demand green and energy efficient buildings; the&nbsp;NZ Government as part of their climate change initiatives has announced that offices and public buildings it constructs or leases must meet energy efficiency standards from 1 January 2021. For landlords there is a capital cost as buildings are upgraded but there is potential upside&nbsp;from lower operating costs as well as better occupier demand lifting rents, and lower vacancy (although this is yet to be delineated within the market).</p>
<h3>Solid November reporting season</h3>
<p>The LPV sector&nbsp;had a solid 1H21 reporting season with COVID-19 impacts being more modest than expected and offset by lower interest costs and tax (although for some names this was due to large one-offs).&nbsp;Five out of the six&nbsp;LPVs&nbsp;who reported interim results beat our forecasts by +2.5% or more, with Kiwi Property (KPG) being the key laggard as retail was particularly impacted by the ongoing impacts of COVID-19.&nbsp; We lifted our earnings estimates by +1.5% or more for four names;&nbsp;Argosy&nbsp;(ARG) and Goodman (GMT) lifted guidance, while KPG&nbsp;provided FY21 guidance for the first time but below our prior estimates.</p>
<h3>Vaccinated&nbsp;bond yields a headwind</h3>
<p>Property didn’t participate in November’s market rally, despite a better than expected reporting season. The All Real Estate gross index was down -0.5%, versus the broader market up +5.7%, likely due to rising bond rates with the NZ 10 year bond yield lifting +32bps (or +56%) in November on the back of vaccine news flow. Asset Plus (APL), the only stock trading at a wide discount to its net asset value,&nbsp;lifted +8.2%, while ARG was up +7.2% following a strong result.&nbsp;</p>
<p><strong>Rohan Koreman-Smit CFA</strong><br>rohan.koreman-smit@forsythbarr.co.nz<br>+64 9 368 0085&nbsp;</p>
<p><strong>Ashton Olds</strong><br>ashton.olds@forsythbarr.co.nz<br>+64 9 368 0127</p>

Real Estate Reflections The Green Edition
&nbsp;
The listed property vehicles (LPVs) didn't participate in November's vaccine fuelled rally, with the sector down -0.5% as bond yields made a recovery. Notably in November, six&nbsp;LPVs&nbsp;reported interim results, with results broadly positive across the board. In this month's report, we highlight our takeaways from the reporting season and our subsequent&nbsp;rating changes, and also how the sector is responding to sustainability issues in light of our recently published ESG report "Part of the Problem or Part of the Solution?". Although the&nbsp;LPVs&nbsp;aren't first to mind when contemplating carbon emissions, it is becoming an increasingly important issue&nbsp;to management teams, tenants, and investors&nbsp;with regards to development, funding, and leasing.

ESG: Greening portfolios
The built environment is responsible for 13–20% of&nbsp;NZ's&nbsp;carbon emissions, and commercial buildings consume 9% of all electricity. While the LPV&nbsp;sector&nbsp;has a relatively low direct carbon footprint there has been movement&nbsp;towards lowering energy use and greening portfolios. Occupiers are starting to demand green and energy efficient buildings; the&nbsp;NZ Government as part of their climate change initiatives has announced that offices and public buildings it constructs or leases must meet energy efficiency standards from 1 January 2021. For landlords there is a capital cost as buildings are upgraded but there is potential upside&nbsp;from lower operating costs as well as better occupier demand lifting rents, and lower vacancy (although this is yet to be delineated within the market).
Solid November reporting season
The LPV sector&nbsp;had a solid 1H21 reporting season with COVID-19 impacts being more modest than expected and offset by lower interest costs and tax (although for some names this was due to large one-offs).&nbsp;Five out of the six&nbsp;LPVs&nbsp;who reported interim results beat our forecasts by +2.5% or more, with Kiwi Property (KPG) being the key laggard as retail was particularly impacted by the ongoing impacts of COVID-19.&nbsp; We lifted our earnings estimates by +1.5% or more for four names;&nbsp;Argosy&nbsp;(ARG) and Goodman (GMT) lifted guidance, while KPG&nbsp;provided FY21 guidance for the first time but below our prior estimates.
Vaccinated&nbsp;bond yields a headwind
Property didn’t participate in November’s market rally, despite a better than expected reporting season. The All Real Estate gross index was down -0.5%, versus the broader market up +5.7%, likely due to rising bond rates with the NZ 10 year bond yield lifting +32bps (or +56%) in November on the back of vaccine news flow. Asset Plus (APL), the only stock trading at a wide discount to its net asset value,&nbsp;lifted +8.2%, while ARG was up +7.2% following a strong result.&nbsp;
Rohan Koreman-Smit CFA 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 Green Edition