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>Stride Property<br>1H22 Result: Solid Footing</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Stride Property Group (SPG) delivered a solid 1H22 result, with distributable income up +14% yoy boosted by acquisitions but down slightly on our expectations due to higher corporate and interest costs. SPG also announced a fully underwritten NZ$120m equity raise at NZ$2.00/share that will lower gearing to a more comfortable 30%. SPG now has balance sheet flexibility to progress its broader strategic plan to become a capital light asset manager. At the equity raise price SPG is trading at a 10% discount to NTA and an 18% discount to our NAV which includes the value of the asset management business and offers an attractive gross yield of 7.2%. We believe the market is either attributing little value to SPG's asset management business or overly discounting its office assets. We upgrade our rating to OUTPERFORM.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22–24E AFFO/share of -1.2%/-4.9%/-0.4% but no change to DPS reflecting a higher payout ratio</li>
<li><strong>Target price</strong>:&nbsp;Decreased -5cps to NZ$2.45 largely reflecting equity raise dilution</li>
<li><strong>Rating</strong>:&nbsp;Upgrade to OUTPERFORM from NEUTRAL</li>
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<h3>Solid result</h3>
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<p>SPG delivered a solid 1H22 result&nbsp;with distributable income +14% to NZ$24.2m and AFFO +15% to NZ$23.1m driven by acquisitions. SPG delivered 1H22 like-for-like net rental income of +3.3% and also allowed for NZ$3.2m of COVID-19 rental&nbsp;abatements&nbsp;with&nbsp;a similar amount to be recognised in 2H22. There was no change to&nbsp;SPG's&nbsp;FY22 dividend guidance of 9.91cps despite the rent&nbsp;abatements&nbsp;and increased share count, partly reflecting a higher payout ratio. At the portfolio level&nbsp;look-through metrics remain healthy with 97.7% occupancy and a&nbsp;6.7 year weighted average lease term.</p>
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<h3>Equity raise provides balance sheet flexibility</h3>
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<p>The equity raise (split NZ$100m placement&nbsp;and NZ$20m retail offer) will bring&nbsp;gearing down from 41% to 30% and gives&nbsp;SPG flexibility around the&nbsp;structure of its proposed office fund (Fabric) as well as the ability to progress other strategic initiatives.&nbsp;Net tangible assets of NZ$2.21/share reflect strong revaluation gains being partly offset by the equity raising. We note that this does not include the value of&nbsp;SPG's&nbsp;asset management business which we value at 23cps in our NZ$2.45 NAV.</p>
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<h3>Office fund spin-off still a likely next step</h3>
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<p>With 110 Carlton Gore Rd still under a conditional contract until&nbsp;31 March 2022, we believe&nbsp;the IPO of Fabric remains&nbsp;SPG's&nbsp;near-term objective. We expect some changes to the structure of the offer and see potential&nbsp;existing SPG shareholders to own a larger portion of Fabric than was proposed in the first IPO offer.</p>
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Stride Property 1H22 Result: Solid Footing

OUTPERFORM
Stride Property Group (SPG) delivered a solid 1H22 result, with distributable income up +14% yoy boosted by acquisitions but down slightly on our expectations due to higher corporate and interest costs. SPG also announced a fully underwritten NZ$120m equity raise at NZ$2.00/share that will lower gearing to a more comfortable 30%. SPG now has balance sheet flexibility to progress its broader strategic plan to become a capital light asset manager. At the equity raise price SPG is trading at a 10% discount to NTA and an 18% discount to our NAV which includes the value of the asset management business and offers an attractive gross yield of 7.2%. We believe the market is either attributing little value to SPG's asset management business or overly discounting its office assets. We upgrade our rating to OUTPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;FY22–24E AFFO/share of -1.2%/-4.9%/-0.4% but no change to DPS reflecting a higher payout ratio
Target price:&nbsp;Decreased -5cps to NZ$2.45 largely reflecting equity raise dilution
Rating:&nbsp;Upgrade to OUTPERFORM from NEUTRAL



Solid result


SPG delivered a solid 1H22 result&nbsp;with distributable income +14% to NZ$24.2m and AFFO +15% to NZ$23.1m driven by acquisitions. SPG delivered 1H22 like-for-like net rental income of +3.3% and also allowed for NZ$3.2m of COVID-19 rental&nbsp;abatements&nbsp;with&nbsp;a similar amount to be recognised in 2H22. There was no change to&nbsp;SPG's&nbsp;FY22 dividend guidance of 9.91cps despite the rent&nbsp;abatements&nbsp;and increased share count, partly reflecting a higher payout ratio. At the portfolio level&nbsp;look-through metrics remain healthy with 97.7% occupancy and a&nbsp;6.7 year weighted average lease term.


Equity raise provides balance sheet flexibility


The equity raise (split NZ$100m placement&nbsp;and NZ$20m retail offer) will bring&nbsp;gearing down from 41% to 30% and gives&nbsp;SPG flexibility around the&nbsp;structure of its proposed office fund (Fabric) as well as the ability to progress other strategic initiatives.&nbsp;Net tangible assets of NZ$2.21/share reflect strong revaluation gains being partly offset by the equity raising. We note that this does not include the value of&nbsp;SPG's&nbsp;asset management business which we value at 23cps in our NZ$2.45 NAV.


Office fund spin-off still a likely next step


With 110 Carlton Gore Rd still under a conditional contract until&nbsp;31 March 2022, we believe&nbsp;the IPO of Fabric remains&nbsp;SPG's&nbsp;near-term objective. We expect some changes to the structure of the offer and see potential&nbsp;existing SPG shareholders to own a larger portion of Fabric than was proposed in the first IPO offer.


Stride Property: 1H22 Result: Solid Footing