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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Stride Property</h2>
Company Update
NEUTRAL
Stride Property Group (SPG) has significantly re-rated downwards in recent weeks, and news flow is likely to remain problematic given the uncertainties around 31 March revaluations, rent relief necessary in the office and retail sectors, and the ability to grow the funds management business in the near-term. We have not changed our earnings forecasts at this stage but have reduced our NAV which has dropped our target price from NZ$2.18 to NZ$1.75 and we retain our NEUTRAL rating. The current NTA is NZ$1.97 and SPG has one of the lowest gearing levels in the sector post the asset sale to Investore (IPL).
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">SPG</td>
<td style="width: 48pt;">Financials:Mar/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$1.34</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">38.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">38.3</td>
<td style="text-align: left; width: 43.2pt;">39.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">39.9&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">12.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.3</td>
<td style="text-align: left; width: 48pt;">13.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.3&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target price</td>
<td style="width: 48pt;">NZ$1.75</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">10.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">10.5&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">10.7&nbsp;</td>
<td style="text-align: left; width: 48pt;">10.9&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">12.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">13.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.3&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">Medium</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">-0.1</td>
<td style="text-align: left; width: 42.6pt;">-1.4</td>
<td style="text-align: left; width: 43.2pt;">2.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">2.2&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">12.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.8&nbsp;</td>
<td style="text-align: left; width: 48pt;">12.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.3&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">365.2m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">9.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">9.9&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">9.9&nbsp;</td>
<td style="text-align: left; width: 48pt;">10.4&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">0.7</td>
<td style="text-align: left; width: 42.6pt;">0.7</td>
<td style="text-align: left; width: 48pt;">0.7</td>
<td style="text-align: left; width: 42.6pt;">0.7</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$489m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">7.4</td>
<td style="text-align: left; width: 42.6pt;">7.4</td>
<td style="text-align: left; width: 48pt;">7.4</td>
<td style="text-align: left; width: 42.6pt;">7.7</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">332.2k (NZ694k)</td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">10.6</td>
<td style="text-align: left; width: 42.6pt;">10.6</td>
<td style="text-align: left; width: 48pt;">10.6</td>
<td style="text-align: left; width: 42.6pt;">11.1</td>
</tr>
</tbody>
</table>
Large discount to NTA
SPG has been very heavily sold off, down -44% YTD, and is trading at one of the largest NTA discounts in the sector (Figure 4). As is the case with other LPVs, there is near-term asset valuation uncertainty as the valuers review assets with a 31 March year-end. We do not expect significant cap rate expansion immediately given the lack of market evidence and lower long term interest rates; however, valuers will be cautious about vacancy, re-leasing time frames, and rental growth levels, in particular for retail assets.
Diversified asset base but high retail weighting and potentially more operating leverage
SPG has diversified revenue sources (17% office, 17% industrial, 14% large format retail (LFR), 29% retail and 23% management fee income) but it has relatively high retail exposure vs. NZ LPVs. Its retail assets typically have a large number of speciality tenants, i.e. Johnsonville and NorthWest Shopping centres, which we see as higher risk vs. LFR. Around half of SPG's asset management income is derived from Shopping Mall owner, Diversified. Management fees are largely based on asset values which are expected to decline.
SPG has been transitioning from a diversified passive REIT to an active asset management business. The 1Q21 sale of three LFR assets to Investore and the establishment of Industre continues to shift assets from its balance sheet to its managed vehicles. SPG has also stated post these transactions its balance sheet gearing will reduce to 20% and allow headroom to grow its portfolio of directly held office assets with the aim of establishing an office product. Given this drop in gearing, SPG is well placed to capitalise on opportunities as they arise and makes it less likely to need an equity issue, depending on what happens to asset values near-term.
Retain NEUTRAL&nbsp;rating
While there remain near-term uncertainties regarding rent relief, and rental and vacancy levels in the office and retail sectors in particular, SPG has been substantially sold off. We have adjusted our earnings estimates for the sales of the three LFR assets to IPL, and the purchase of the 16 Wickham St development. We assume settlement for the LFR divestment occurs at the end of 1Q21. This reduces our FY20–22E EPS by -0.1%/-3.8%/-3.3% with loss of rental income partially offset by higher management fees and lower interest. Our target price has fallen from NZ$2.18 to NZ$1.75 on the back of a drop in our NAV from NZ$2.05 to NZ$1.62.&nbsp;
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Stride Property
Company Update
NEUTRAL
Stride Property Group (SPG) has significantly re-rated downwards in recent weeks, and news flow is likely to remain problematic given the uncertainties around 31 March revaluations, rent relief necessary in the office and retail sectors, and the ability to grow the funds management business in the near-term. We have not changed our earnings forecasts at this stage but have reduced our NAV which has dropped our target price from NZ$2.18 to NZ$1.75 and we retain our NEUTRAL rating. The current NTA is NZ$1.97 and SPG has one of the lowest gearing levels in the sector post the asset sale to Investore (IPL).
         


NZX Code
SPG
Financials:Mar/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$1.34
NPAT* (NZ$m)
38.8&nbsp;
38.3
39.0&nbsp;
39.9&nbsp;
EV/EBITDA
12.8&nbsp;
13.3
13.6&nbsp;
13.3&nbsp;


Target price
NZ$1.75
EPS* (NZc)
10.6&nbsp;
10.5&nbsp;
10.7&nbsp;
10.9&nbsp;
EV/EBIT
12.8&nbsp;
13.3&nbsp;
13.6&nbsp;
13.3&nbsp;


Risk rating
Medium
EPS growth* (%)
-0.1
-1.4
2.0&nbsp;
2.2&nbsp;
PE
12.6&nbsp;
12.8&nbsp;
12.5&nbsp;
12.3&nbsp;


Issued shares
365.2m
DPS (NZc)
9.9&nbsp;
9.9&nbsp;
9.9&nbsp;
10.4&nbsp;
Price/NTA
0.7
0.7
0.7
0.7


Market cap
NZ$489m
Imputation (%)
100
100
100
100
Cash div yld (%)
7.4
7.4
7.4
7.7


Avg daily turnover
332.2k (NZ694k)
*Based on normalised profits


Gross div yld (%)
10.6
10.6
10.6
11.1



Large discount to NTA
SPG has been very heavily sold off, down -44% YTD, and is trading at one of the largest NTA discounts in the sector (Figure 4). As is the case with other LPVs, there is near-term asset valuation uncertainty as the valuers review assets with a 31 March year-end. We do not expect significant cap rate expansion immediately given the lack of market evidence and lower long term interest rates; however, valuers will be cautious about vacancy, re-leasing time frames, and rental growth levels, in particular for retail assets.
Diversified asset base but high retail weighting and potentially more operating leverage
SPG has diversified revenue sources (17% office, 17% industrial, 14% large format retail (LFR), 29% retail and 23% management fee income) but it has relatively high retail exposure vs. NZ LPVs. Its retail assets typically have a large number of speciality tenants, i.e. Johnsonville and NorthWest Shopping centres, which we see as higher risk vs. LFR. Around half of SPG's asset management income is derived from Shopping Mall owner, Diversified. Management fees are largely based on asset values which are expected to decline.
SPG has been transitioning from a diversified passive REIT to an active asset management business. The 1Q21 sale of three LFR assets to Investore and the establishment of Industre continues to shift assets from its balance sheet to its managed vehicles. SPG has also stated post these transactions its balance sheet gearing will reduce to 20% and allow headroom to grow its portfolio of directly held office assets with the aim of establishing an office product. Given this drop in gearing, SPG is well placed to capitalise on opportunities as they arise and makes it less likely to need an equity issue, depending on what happens to asset values near-term.
Retain NEUTRAL&nbsp;rating
While there remain near-term uncertainties regarding rent relief, and rental and vacancy levels in the office and retail sectors in particular, SPG has been substantially sold off. We have adjusted our earnings estimates for the sales of the three LFR assets to IPL, and the purchase of the 16 Wickham St development. We assume settlement for the LFR divestment occurs at the end of 1Q21. This reduces our FY20–22E EPS by -0.1%/-3.8%/-3.3% with loss of rental income partially offset by higher management fees and lower interest. Our target price has fallen from NZ$2.18 to NZ$1.75 on the back of a drop in our NAV from NZ$2.05 to NZ$1.62.&nbsp;
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Stride Property

Stride Property: Company Update