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>Cleaning Up Before Stepping Out</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>Stride Property (SPG) has acquired 110 Carlton Gore Rd and partly funded the transaction with the sale of four of its B-grade office assets. Positives of the transaction include (1) improved office portfolio metrics, (2) limited impact to&nbsp;SPG's&nbsp;earnings from asset remixing, and (3) gearing remaining within target ranges.&nbsp;​​​​​​​While the Fabric portfolio remains on&nbsp;SPG's&nbsp;balance sheet we believe it is now a more attractive proposition for potential investors. The next catalyst is the announcement of third party capital to grow the office fund and associated management fees.​​​​​​​​​​​​​&nbsp;We continue to like&nbsp;SPG's&nbsp;transition to fund manager and believe the value of its funds management business is yet to reflected in the share price.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/267/220/original/image_99747180221649209528017.png?1649209528" class="editor-image img-responsive" data-smartkarma-image-id="267220"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_4301647524173214553iwrmo3">
<ul>
<li><strong>Earnings</strong>:&nbsp;Our earnings forecasts are broadly unchanged, with the yield offsetting the value differential of the assets being remixed.</li>
</ul>
</div>
<div>
<h3>Transaction details</h3>
</div>
<div id="m_4301647524173214553ibv9k">
<p>SPG acquired 110 Carlton Gore Rd for NZ$213m reflecting an initial yield of 5.1%. The property is expected to be 100% occupied on acquisition with a weighted average lease term (WALT) of 10.5 years and has 3% annual fixed rent reviews. SPG will provide NZ$186m of funding at a&nbsp;5% interest rate until the development is completed in March-23. Properties 25 Teed St, 35 Teed St, 7–9&nbsp;Fanshawe&nbsp;St and 80 Greys Ave will be divested for a combined NZ$84m to part fund&nbsp;the acquisition. The Teed St properties are expected to settle in May 2022 and the others in September 2022. We calculate these transactions lift SPG’s committed gearing to 38%.</p>
</div>
<div>
<h3>Fabric portfolio enhanced</h3>
</div>
<div id="m_4301647524173214553ifeji">
<p>This transaction tidies up the Fabric portfolio metrics. Fabric's pro-forma portfolio is now 84% Premium/A grade&nbsp;and is&nbsp;52% weighted to Auckland with a 7.8 year WALT and &lt;10year average building age. 74% of the assets will meet green standards. We believe this is a more attractive proposition to potential third party investors than the prior portfolio with its tail of B grade assets.</p>
</div>
<div>
<h3>Should help to unlock value</h3>
</div>
<div id="m_4301647524173214553illul">
<p>SPG's last reported NTA was NZ$2.21 which does not include the value of its asset management business. We conservatively value the management business at 5% of external assets, in line with Australian real estate asset manager peers, which adds +19cps to book NTA. SPG's -17% share price discount to this net asset value implies c.+100bp cap rate expansion for SPG's balance sheet portfolio, which looks high to us given the improvements made to the office portfolio. Now the overhang of 110 Carlton Gore Rd has been cleared and the office fund made more attractive to potential investors, the next catalyst is SPG finding third party capital to grow its office fund and associated management fees.​​​​​​​</p>
</div>

Stride Property Cleaning Up Before Stepping Out

OUTPERFORM
Stride Property (SPG) has acquired 110 Carlton Gore Rd and partly funded the transaction with the sale of four of its B-grade office assets. Positives of the transaction include (1) improved office portfolio metrics, (2) limited impact to&nbsp;SPG's&nbsp;earnings from asset remixing, and (3) gearing remaining within target ranges.&nbsp;​​​​​​​While the Fabric portfolio remains on&nbsp;SPG's&nbsp;balance sheet we believe it is now a more attractive proposition for potential investors. The next catalyst is the announcement of third party capital to grow the office fund and associated management fees.​​​​​​​​​​​​​&nbsp;We continue to like&nbsp;SPG's&nbsp;transition to fund manager and believe the value of its funds management business is yet to reflected in the share price.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;Our earnings forecasts are broadly unchanged, with the yield offsetting the value differential of the assets being remixed.



Transaction details


SPG acquired 110 Carlton Gore Rd for NZ$213m reflecting an initial yield of 5.1%. The property is expected to be 100% occupied on acquisition with a weighted average lease term (WALT) of 10.5 years and has 3% annual fixed rent reviews. SPG will provide NZ$186m of funding at a&nbsp;5% interest rate until the development is completed in March-23. Properties 25 Teed St, 35 Teed St, 7–9&nbsp;Fanshawe&nbsp;St and 80 Greys Ave will be divested for a combined NZ$84m to part fund&nbsp;the acquisition. The Teed St properties are expected to settle in May 2022 and the others in September 2022. We calculate these transactions lift SPG’s committed gearing to 38%.


Fabric portfolio enhanced


This transaction tidies up the Fabric portfolio metrics. Fabric's pro-forma portfolio is now 84% Premium/A grade&nbsp;and is&nbsp;52% weighted to Auckland with a 7.8 year WALT and &lt;10year average building age. 74% of the assets will meet green standards. We believe this is a more attractive proposition to potential third party investors than the prior portfolio with its tail of B grade assets.


Should help to unlock value


SPG's last reported NTA was NZ$2.21 which does not include the value of its asset management business. We conservatively value the management business at 5% of external assets, in line with Australian real estate asset manager peers, which adds +19cps to book NTA. SPG's -17% share price discount to this net asset value implies c.+100bp cap rate expansion for SPG's balance sheet portfolio, which looks high to us given the improvements made to the office portfolio. Now the overhang of 110 Carlton Gore Rd has been cleared and the office fund made more attractive to potential investors, the next catalyst is SPG finding third party capital to grow its office fund and associated management fees.​​​​​​​


Stride Property: Cleaning Up Before Stepping Out