New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Stride Property</h2>
Starts warehousing of assets for office fund with purchase of 34 Shortland St
Stride (SPG) has announced it has entered into an unconditional agreement to acquire 34 Shortland St for NZ$67.5m (including c.NZ$3m of building upgrades largely to the lifts) or an initial yield of 6.0%. The property is 87% occupied (with level 8 being the only full floor not occupied and part floors on 13 and 15) and has a WALT of 2.7 years. The vendors have provided a 1.5 year rental underwrite and key upcoming expiries are SPG on level 12, one half of the Public Trust’s two floors, and Korn Ferry on level 11. Settlement is expected on 2 September. The transaction is being funded from available debt facilities and will lift gearing to c.28% and lift SPGs office exposure +6% to 25% of assets on a look-through basis (+8% to 48% of directly held property assets). We estimate the acquisition is 3%/5% accretive to FY21/22 distributable earnings reflecting the low incremental cost of debt.
The acquisition fits with SPG’s stated strategy of growing its portfolio of A and B grade office assets to warehouse as seeds assets for an office fund. We believe the transaction is a positive as it shows progress on SPGs next step in its transition to being a real estate asset manager. Post the settlement of 34 Shortland St, SPG would have available debt facilities of c.NZ$145m for further acquisitions although deploying all of this would lift gearing to c.43%. Current office assets total c.NZ$250m in value with SPG wanting each of its funds to have a pathway to c.NZ$1bn of assets (we estimate c.NZ$500m of assets for an initial viable listed vehicle). This suggests other sources of funding (equity and/or a capital partner) are likely required.
34 Shortland St tenants Level&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tenant
8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Oxford Finance Limited
9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Barfoot and Thomspon, Training Department
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Public Trust
10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Public Trust (Corporate Office)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Lowthers Chartered Accountants
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chris Horton Associates
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SHL
11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Korn Ferry
12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stride Property
13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Barfoot and Thomspon Annexe
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Business Advisory Group
14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Haigh Lyon Lawyers
15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Turners Automotive Group
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stace Hammond Lawyers
16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fusion5 Reception
17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fusion5
Source: Forsyth Barr analysis
34 Shortland St vacancy
Level 8 - 819m² - Full floor with new base build scheduled. Level 13B - 374m² - North facing offices with reception, boardroom, two meeting rooms, kitchen complete with oven and open-plan seating. Level 15A - 442m² - Shortland Street facing offices with reception, boardroom, two large meeting rooms, three offices and a large modern kitchen.
Source:&nbsp;<a href="https://www.barfoot.co.nz/property/commercial/auckland-city/city-centre/office/77706" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.barfoot.co.nz/property/commercial/auckland-city/city-centre/office/77706&amp;source=gmail&amp;ust=1598930205858000&amp;usg=AFQjCNFO9lYx9DwHwvNv8zxN9R3MlgMEzQ" rel="noopener">Barfoot &amp; Thompson</a>, Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<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:1676508942878500880&amp;th=174428004309e810&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ89Noa2q-tzc7lMS9pNYnQj64eOCyrscZUPreG_P0WFwmLG-qJxGoxJbo2oyZzgZO9sxY_WZzRA7lUkNRlwgZVdR1zyef5L5ijujlFzV1woEmcz-hWZJtWyvPw&amp;disp=emb" class="editor-image img-responsive"></figure>
P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Stride Property
Starts warehousing of assets for office fund with purchase of 34 Shortland St
Stride (SPG) has announced it has entered into an unconditional agreement to acquire 34 Shortland St for NZ$67.5m (including c.NZ$3m of building upgrades largely to the lifts) or an initial yield of 6.0%. The property is 87% occupied (with level 8 being the only full floor not occupied and part floors on 13 and 15) and has a WALT of 2.7 years. The vendors have provided a 1.5 year rental underwrite and key upcoming expiries are SPG on level 12, one half of the Public Trust’s two floors, and Korn Ferry on level 11. Settlement is expected on 2 September. The transaction is being funded from available debt facilities and will lift gearing to c.28% and lift SPGs office exposure +6% to 25% of assets on a look-through basis (+8% to 48% of directly held property assets). We estimate the acquisition is 3%/5% accretive to FY21/22 distributable earnings reflecting the low incremental cost of debt.
The acquisition fits with SPG’s stated strategy of growing its portfolio of A and B grade office assets to warehouse as seeds assets for an office fund. We believe the transaction is a positive as it shows progress on SPGs next step in its transition to being a real estate asset manager. Post the settlement of 34 Shortland St, SPG would have available debt facilities of c.NZ$145m for further acquisitions although deploying all of this would lift gearing to c.43%. Current office assets total c.NZ$250m in value with SPG wanting each of its funds to have a pathway to c.NZ$1bn of assets (we estimate c.NZ$500m of assets for an initial viable listed vehicle). This suggests other sources of funding (equity and/or a capital partner) are likely required.
34 Shortland St tenants Level&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tenant
8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Oxford Finance Limited
9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Barfoot and Thomspon, Training Department
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Public Trust
10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Public Trust (Corporate Office)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Lowthers Chartered Accountants
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chris Horton Associates
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SHL
11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Korn Ferry
12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stride Property
13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Barfoot and Thomspon Annexe
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Business Advisory Group
14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Haigh Lyon Lawyers
15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Turners Automotive Group
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stace Hammond Lawyers
16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fusion5 Reception
17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fusion5
Source: Forsyth Barr analysis
34 Shortland St vacancy
Level 8 - 819m² - Full floor with new base build scheduled. Level 13B - 374m² - North facing offices with reception, boardroom, two meeting rooms, kitchen complete with oven and open-plan seating. Level 15A - 442m² - Shortland Street facing offices with reception, boardroom, two large meeting rooms, three offices and a large modern kitchen.
Source:&nbsp;Barfoot &amp; Thompson, Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Stride Property: Starts Warehousing of Assets for Office Fund with Purchase of 34 Shortland St