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</h2>
<p><strong>March 2020 Valuations — Keeping Pace</strong></p>
<p><strong>NEUTRAL</strong></p>
<p>Stride Property Group's (SPG) FY20 valuations were broadly stable with a strong uplift for Industrial assets offset by weak Retail outcomes. FY20 dividend guidance of 9.91cps is unchanged. SPG is providing support to tenants impacted by COVID-19 lockdown measures, which is expected to reduce FY21 gross rental income by NZ$8–11m. This lower rental income is partially offset by cost savings and depreciation benefits. The net impact has reduced our FY21 EPS by -9%. Longer term, we currently assume cost and depreciation benefits are offset by vacancy and lower rental rates. As such our FY22+ estimates are broadly unchanged and target price remains NZ$1.75. A broader earnings review will be undertaken with the FY20 result expected over the next month. NEUTRAL.</p>
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<p><strong>Strong industrial valuations offset by retail weakness</strong></p>
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<p>SPG's&nbsp;March 2020 portfolio value was NZ$995.6m,&nbsp;down NZ$1m from March 2019. Industrial valuations were strong (+14%&nbsp;yoy) but offset by declines in office (-2%) and retail (-11%) assets.&nbsp;SPG&nbsp;noted that reported valuations are 3–12% below pre&nbsp;COVID-19 draft valuations received in early March.</p>
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<p><strong>Tenant rent support of NZ$8–11m expected in FY21</strong></p>
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<p>SPG&nbsp;has provided support for tenants impacted by&nbsp;COVID-19 in the form of rent&nbsp;abatements&nbsp;and deferrals, and in some cases combined into wider lease discussions.&nbsp;SPG's&nbsp;initial assessment (assuming no further economic deterioration or any Government interventions rating to commercial leases) that this tenant support will reduce FY21 gross rent by NZ$8.0–11.0m and distributable income by NZ$5.8–8.0m. Lower rent is partially offset by 1) identified corporate cost savings of $3.0m and 2) tax benefits from depreciation on building structure of NZ$1.1m.</p>
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<p><strong>Gearing heading lower</strong></p>
<div id="m_6845719728321509097i4a4nk-2-2-2-2">
<p>Gearing was 39.1% at 31 March but this has since been reduced by the sale of large format retail assets to Investore (IPL) that settled on 30 April. SPG expects gearing to reduce to &lt;20% with the eventual establishment of industrial fund Industre which is waiting on OIO approval (expected in June). This provides headroom of NZ$215m (after a reduction in debt facilities) to warehouse assets as SPG continues its transition from a diversified passive REIT to an asset management business.</p>
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<p><strong>Incorporating FY21 guidance lowers&nbsp;EPS&nbsp;-9%&nbsp;​​​​​​​</strong></p>
<div id="m_6845719728321509097izhps7-2-2-2-2">
<p>We have reduced our FY20/21/22 EPS by 0.0%/-9.2%/-0.4%. Our FY21 change reflects the mid-point of SPG's rent abatement guidance being partially offset by lower corporate costs and depreciation benefits. Our broadly unchanged FY22 earnings assumes depreciation benefits and corporate cost savings (half of which we carry forward) are offset by increased vacancy and lower rental rates. Our DPS forecasts are unchanged and our FY21E of 6.9cps represents a 71% payout of our revised EPS estimate.</p>
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<div><strong>Jeremy Simpson CFA</strong></div>
<div><a href="mailto:jeremy.simpson@forsythbarr.co.nz" target="_blank" rel="noopener">jeremy.simpson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0022</div>
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Stride Property
March 2020 Valuations — Keeping Pace
NEUTRAL
Stride Property Group's (SPG) FY20 valuations were broadly stable with a strong uplift for Industrial assets offset by weak Retail outcomes. FY20 dividend guidance of 9.91cps is unchanged. SPG is providing support to tenants impacted by COVID-19 lockdown measures, which is expected to reduce FY21 gross rental income by NZ$8–11m. This lower rental income is partially offset by cost savings and depreciation benefits. The net impact has reduced our FY21 EPS by -9%. Longer term, we currently assume cost and depreciation benefits are offset by vacancy and lower rental rates. As such our FY22+ estimates are broadly unchanged and target price remains NZ$1.75. A broader earnings review will be undertaken with the FY20 result expected over the next month. NEUTRAL.

Strong industrial valuations offset by retail weakness

SPG's&nbsp;March 2020 portfolio value was NZ$995.6m,&nbsp;down NZ$1m from March 2019. Industrial valuations were strong (+14%&nbsp;yoy) but offset by declines in office (-2%) and retail (-11%) assets.&nbsp;SPG&nbsp;noted that reported valuations are 3–12% below pre&nbsp;COVID-19 draft valuations received in early March.

Tenant rent support of NZ$8–11m expected in FY21

SPG&nbsp;has provided support for tenants impacted by&nbsp;COVID-19 in the form of rent&nbsp;abatements&nbsp;and deferrals, and in some cases combined into wider lease discussions.&nbsp;SPG's&nbsp;initial assessment (assuming no further economic deterioration or any Government interventions rating to commercial leases) that this tenant support will reduce FY21 gross rent by NZ$8.0–11.0m and distributable income by NZ$5.8–8.0m. Lower rent is partially offset by 1) identified corporate cost savings of $3.0m and 2) tax benefits from depreciation on building structure of NZ$1.1m.

Gearing heading lower

Gearing was 39.1% at 31 March but this has since been reduced by the sale of large format retail assets to Investore (IPL) that settled on 30 April. SPG expects gearing to reduce to &lt;20% with the eventual establishment of industrial fund Industre which is waiting on OIO approval (expected in June). This provides headroom of NZ$215m (after a reduction in debt facilities) to warehouse assets as SPG continues its transition from a diversified passive REIT to an asset management business.

Incorporating FY21 guidance lowers&nbsp;EPS&nbsp;-9%&nbsp;​​​​​​​

We have reduced our FY20/21/22 EPS by 0.0%/-9.2%/-0.4%. Our FY21 change reflects the mid-point of SPG's rent abatement guidance being partially offset by lower corporate costs and depreciation benefits. Our broadly unchanged FY22 earnings assumes depreciation benefits and corporate cost savings (half of which we carry forward) are offset by increased vacancy and lower rental rates. Our DPS forecasts are unchanged and our FY21E of 6.9cps represents a 71% payout of our revised EPS estimate.




Jeremy Simpson CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022




Stride Property: March 2020 Valuations — Keeping Pace