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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Stride Property Group</h2>
FY20 Result – Initial thoughts
Stride Property Group (SPG) has reported FY20 distributable profit of NZ$37.7, down -2.8% on pcp, and slightly below our expectations (NZ$38.2m) with slightly better operating earnings due to higher management fees more than offset by increased tax. Operating (WALT 5.8 years, 98.1% occupancy) and leasing metrics (50% of the portfolio reviewed resulting in a +3.1% annualised increase in rents with market rents +6.8%) were solid. NTA remains flat at NZ$1.91/share. SPG continues to progress growth in its asset management business and expects its most recent fund, Industre, to be established on 30 June 2020.
SPG distributed 9.91cps in FY20 which equates to 114% of adjusted funds from operations which was 8.71cps. SPG expects to maintain FY21 distributions at 9.91cps.
Key take-outs
<ul>
<li>Flat dividend of 9.91cps in FY21: SPG has guided to FY21 dividend of 9.91cps. The impact of COVID-19 rent abatements on FY21 earnings will be offset by higher one-off activity based fees as well as tax benefits. We currently forecast AFFO of 8.22cps and distributions of 6.9cps.</li>
<li>COVID-19 impact: SPG is providing rent abatements and deferrals to assist tenants with the financial impact of COVID-19. This tenant support is expected to impact FY21 distributable earnings by NZ$2.9-5.1m, or around half SPGs prior expectations of NZ$5.8-8.0m. Our forecasts currently include NZ$6.8m impact on FY21 distributable income.</li>
<li>Activity based income: SPG expects one-off activity based income to lift FY21 distributable earnings by NZ$2.2-3.6m. This income is from Investore performance fees and establishment fees from Industre. Establishment of Industre will grow SPG’s external asset under management from NZ$1.2bn to NZ$1.8bn with capital available for acquisitions of NZ$300m.</li>
<li>Gearing low: SPG’s FY20 year-end balance sheet gearing of 39.1% reduces to 17.8% on a pro forma basis after adjusting for the sale of 3 large format retail assets to Investore and the establishment of Industre being partially offset by swap break payments. SPG is well positioned to warehouse assets on its balance sheet for the establishment of further funds. SPG has suggested an office fund is its next likely product.</li>
</ul>
Conference call:&nbsp;11:00am (NZ time). Dial in: Auckland (09) 280 5280, NZ 0800 444 845, Australia 1800 454 137; Conference ID: 9884904
FY20 result summary (NZ$m)
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1670240773881761558&amp;th=172de32270988f16&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ8JrOVqZOon6qtYr5ylsMuavCr1Dey0KZy99q0UXAf_LpvUkQBRVSnSNNmRwBqRPcphmUxwJJVDu7uePC5ly14vbR6U5hXjJv3ev8pw_Wd0bTk3_ErCM2wdFGg&amp;disp=emb" width="475" height="273" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities Forsyth Barr Limited
P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Stride Property Group
FY20 Result – Initial thoughts
Stride Property Group (SPG) has reported FY20 distributable profit of NZ$37.7, down -2.8% on pcp, and slightly below our expectations (NZ$38.2m) with slightly better operating earnings due to higher management fees more than offset by increased tax. Operating (WALT 5.8 years, 98.1% occupancy) and leasing metrics (50% of the portfolio reviewed resulting in a +3.1% annualised increase in rents with market rents +6.8%) were solid. NTA remains flat at NZ$1.91/share. SPG continues to progress growth in its asset management business and expects its most recent fund, Industre, to be established on 30 June 2020.
SPG distributed 9.91cps in FY20 which equates to 114% of adjusted funds from operations which was 8.71cps. SPG expects to maintain FY21 distributions at 9.91cps.
Key take-outs

Flat dividend of 9.91cps in FY21: SPG has guided to FY21 dividend of 9.91cps. The impact of COVID-19 rent abatements on FY21 earnings will be offset by higher one-off activity based fees as well as tax benefits. We currently forecast AFFO of 8.22cps and distributions of 6.9cps.
COVID-19 impact: SPG is providing rent abatements and deferrals to assist tenants with the financial impact of COVID-19. This tenant support is expected to impact FY21 distributable earnings by NZ$2.9-5.1m, or around half SPGs prior expectations of NZ$5.8-8.0m. Our forecasts currently include NZ$6.8m impact on FY21 distributable income.
Activity based income: SPG expects one-off activity based income to lift FY21 distributable earnings by NZ$2.2-3.6m. This income is from Investore performance fees and establishment fees from Industre. Establishment of Industre will grow SPG’s external asset under management from NZ$1.2bn to NZ$1.8bn with capital available for acquisitions of NZ$300m.
Gearing low: SPG’s FY20 year-end balance sheet gearing of 39.1% reduces to 17.8% on a pro forma basis after adjusting for the sale of 3 large format retail assets to Investore and the establishment of Industre being partially offset by swap break payments. SPG is well positioned to warehouse assets on its balance sheet for the establishment of further funds. SPG has suggested an office fund is its next likely product.

Conference call:&nbsp;11:00am (NZ time). Dial in: Auckland (09) 280 5280, NZ 0800 444 845, Australia 1800 454 137; Conference ID: 9884904
FY20 result summary (NZ$m)

Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities Forsyth Barr Limited
P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Stride Property Group: FY20 Result – Initial Thoughts