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>Share Price Steps Up</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Stride's (SPG) share price has risen +8% over the last two weeks, largely driven by suggestions it will enter the FTSE EPRA NAREIT Global Real Estate Indexes. With the next index changes announced on 1 September 2021 and enacted on the 17 September 2021, index demand may continue to underpin SPG share price for some time yet. While SPG likely meets size and liquidity requirements, its real estate management fee income may have grown to a level that impedes index entry. Outside of this risk, we view SPG as fairly valued at current levels and whilst we continue to like the growth potential from its transformation into a real estate asset manager, we view the risk/reward as more evenly balanced, and downgrade to NEUTRAL from OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/217/294/original/image_18371869931625703521988.png?1625703524" class="editor-image img-responsive" data-smartkarma-image-id="217294"></figure>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Rating</strong>:&nbsp;​​​​​​​Downgrade to NEUTRAL from OUTPERFORM&nbsp;</li>
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<h3>Will it or won't it go into the index?</h3>
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<p>On our calculations SPG meets the revised size (&gt;US$430m free float market cap) and liquidity requirements (10 out of the prior 12 months median daily liquidity &gt;0.05%) for inclusion into the&nbsp;FTSE EPRA NAREIT Global Property Indexes. However,&nbsp;SPG's&nbsp;growing real estate asset management business and associated fee income may be an impediment.&nbsp;The index rules require a maximum of 25% of EBITDA&nbsp;in the past financial year to be derived&nbsp;from third party management, development and leasing fees.&nbsp;Our calculations, that apportion overheads based on revenue as per index rules, suggest SPG may fail this test.</p>
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<h3>Office fund the next step on&nbsp;SPG's&nbsp;asset management growth path</h3>
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<p>The next step in SPG's strategic transformation into a real estate asset manager is the establishment of an office fund ("Office Co"). SPG has been acquiring office properties and now has a large enough portfolio to separately list on the NZX. SPG expects to list Office Co in FY22 and we envisage a process similar to Investore, with SPG receiving Office Co shares in specie and SPG retaining a co-investment. For more information, please refer to our note, Stride Property — Office Spin-off Primer, published 28 June 2021.</p>
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<h3>SPG at fair value</h3>
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<div id="m_-5989843647974798263ilwhj">
<p>Since suggestions of SPG's index inclusion its share price has risen +8.4%. We believe SPG looks fairly valued vs. sector peers trading on an NTA premium of +20% vs the market average of +6% and a gross yield broadly in line with the sector average. Compared to its historical trading levels, SPG is trading at a 390bp premium to the 10-year bond yield vs. its historical premium of 520bp, and at a +20% premium to its NTA vs. its historical premium of +6% (however, this metric does not adjust for significant growth in the value of SPG's asset management business).&nbsp;&nbsp;</p>
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<div><strong>Rohan Koreman-Smit, CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
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Stride Property Share Price Steps Up

NEUTRAL
Stride's (SPG) share price has risen +8% over the last two weeks, largely driven by suggestions it will enter the FTSE EPRA NAREIT Global Real Estate Indexes. With the next index changes announced on 1 September 2021 and enacted on the 17 September 2021, index demand may continue to underpin SPG share price for some time yet. While SPG likely meets size and liquidity requirements, its real estate management fee income may have grown to a level that impedes index entry. Outside of this risk, we view SPG as fairly valued at current levels and whilst we continue to like the growth potential from its transformation into a real estate asset manager, we view the risk/reward as more evenly balanced, and downgrade to NEUTRAL from OUTPERFORM.


What's changed?&nbsp;



Rating:&nbsp;​​​​​​​Downgrade to NEUTRAL from OUTPERFORM&nbsp;



Will it or won't it go into the index?


On our calculations SPG meets the revised size (&gt;US$430m free float market cap) and liquidity requirements (10 out of the prior 12 months median daily liquidity &gt;0.05%) for inclusion into the&nbsp;FTSE EPRA NAREIT Global Property Indexes. However,&nbsp;SPG's&nbsp;growing real estate asset management business and associated fee income may be an impediment.&nbsp;The index rules require a maximum of 25% of EBITDA&nbsp;in the past financial year to be derived&nbsp;from third party management, development and leasing fees.&nbsp;Our calculations, that apportion overheads based on revenue as per index rules, suggest SPG may fail this test.


Office fund the next step on&nbsp;SPG's&nbsp;asset management growth path


The next step in SPG's strategic transformation into a real estate asset manager is the establishment of an office fund ("Office Co"). SPG has been acquiring office properties and now has a large enough portfolio to separately list on the NZX. SPG expects to list Office Co in FY22 and we envisage a process similar to Investore, with SPG receiving Office Co shares in specie and SPG retaining a co-investment. For more information, please refer to our note, Stride Property — Office Spin-off Primer, published 28 June 2021.


SPG at fair value


Since suggestions of SPG's index inclusion its share price has risen +8.4%. We believe SPG looks fairly valued vs. sector peers trading on an NTA premium of +20% vs the market average of +6% and a gross yield broadly in line with the sector average. Compared to its historical trading levels, SPG is trading at a 390bp premium to the 10-year bond yield vs. its historical premium of 520bp, and at a +20% premium to its NTA vs. its historical premium of +6% (however, this metric does not adjust for significant growth in the value of SPG's asset management business).&nbsp;&nbsp;



Rohan Koreman-Smit, CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Stride Property

Stride Property: Share Price Steps Up