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>
Striding out the Industrial Legs
Stride Property Group (SPG) and JP Morgan Asset Management (JPAM) have entered into a conditional joint venture to develop an industrial property investment management product, Industre Property. SPG has re-iterated the existing flat dividend guidance of 9.91 cps for FY20 and we have not made any changes to our forecasts at this point. SPG’s strategic intentions to create funds management vehicles have been well flagged. SPG continues to build its scale and expertise in funds management and this is a point of difference with NZ’s largely vanilla REIT market.&nbsp; NEUTRAL
Industrial benefits take centre stage
This Special Purpose Vehicle (SPV) intends to invest strictly in the Industrial sector across the NZ property market, overweight to the Auckland region. Industre will be managed by Stride Investment Management Limited (SIML). Industre will absorb SPG’s entire 11 property industrial portfolio, coupled with a further 2 properties that will be acquired upon practical completion, presenting an aggregate expected value of NZ$362.2m.
As a sector specific investment vehicle, Industre is mandated to invest solely in industrial properties. Strategically, the introduction of Industre ideally positions SPG to gain further exposure to the favourable dynamics at play in the industrial property sector; an area that is experiencing robust tenant demand, historically high occupancy rates, firm cap rates, and consequently elevated valuations.&nbsp;
Structure for Stride
JPAM (as adviser to a group of international investors) has made an NZ$185m equity commitment to Industre over the first two years, with immediate contributions totalling NZ$70 million. This additional NZ$115m of committed capital will provide Industre with the capacity to fund initial portfolio growth through development and acquisitions. SPG’s initial holding in Industre will be ~70%, with intentions to reduce over time to ~25% as JPAM gradually increases its equity investment to become the majority stakeholder in the investment vehicle. If available funds are fully utilized this would take the value of the portfolio (based on current values) to approximately NZ$550m.
No changes to our numbers at this stage, SPG delivers to strategy
While initial agreements have been signed, the commencement of this JV has a number of material conditions to be finalised. SPG has re-iterated the existing flat dividend guidance of 9.91 cps for FY20 and the terms of the management arrangements for the JV are in line with its other funds. SPG continues to deliver to its strategy to build scale and expertise in funds management.&nbsp;&nbsp;&nbsp;
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Investment View
We remain positive on the medium-term potential of SPG’s funds management platform which we view as scalable, albeit this is being overshadowed by cost pressures in the near-term. Management continues to execute well on portfolio initiatives, generating solid returns on redevelopment projects. Consistent with peers, SPG is paying out above adjusted funds from operations (AFFO), which is reflected in a flat DPS profile. In our view SPG is fairly valued versus property peers. NEUTRAL.&nbsp;
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Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Stride Property
Striding out the Industrial Legs
Stride Property Group (SPG) and JP Morgan Asset Management (JPAM) have entered into a conditional joint venture to develop an industrial property investment management product, Industre Property. SPG has re-iterated the existing flat dividend guidance of 9.91 cps for FY20 and we have not made any changes to our forecasts at this point. SPG’s strategic intentions to create funds management vehicles have been well flagged. SPG continues to build its scale and expertise in funds management and this is a point of difference with NZ’s largely vanilla REIT market.&nbsp; NEUTRAL
Industrial benefits take centre stage
This Special Purpose Vehicle (SPV) intends to invest strictly in the Industrial sector across the NZ property market, overweight to the Auckland region. Industre will be managed by Stride Investment Management Limited (SIML). Industre will absorb SPG’s entire 11 property industrial portfolio, coupled with a further 2 properties that will be acquired upon practical completion, presenting an aggregate expected value of NZ$362.2m.
As a sector specific investment vehicle, Industre is mandated to invest solely in industrial properties. Strategically, the introduction of Industre ideally positions SPG to gain further exposure to the favourable dynamics at play in the industrial property sector; an area that is experiencing robust tenant demand, historically high occupancy rates, firm cap rates, and consequently elevated valuations.&nbsp;
Structure for Stride
JPAM (as adviser to a group of international investors) has made an NZ$185m equity commitment to Industre over the first two years, with immediate contributions totalling NZ$70 million. This additional NZ$115m of committed capital will provide Industre with the capacity to fund initial portfolio growth through development and acquisitions. SPG’s initial holding in Industre will be ~70%, with intentions to reduce over time to ~25% as JPAM gradually increases its equity investment to become the majority stakeholder in the investment vehicle. If available funds are fully utilized this would take the value of the portfolio (based on current values) to approximately NZ$550m.
No changes to our numbers at this stage, SPG delivers to strategy
While initial agreements have been signed, the commencement of this JV has a number of material conditions to be finalised. SPG has re-iterated the existing flat dividend guidance of 9.91 cps for FY20 and the terms of the management arrangements for the JV are in line with its other funds. SPG continues to deliver to its strategy to build scale and expertise in funds management.&nbsp;&nbsp;&nbsp;

Investment View
We remain positive on the medium-term potential of SPG’s funds management platform which we view as scalable, albeit this is being overshadowed by cost pressures in the near-term. Management continues to execute well on portfolio initiatives, generating solid returns on redevelopment projects. Consistent with peers, SPG is paying out above adjusted funds from operations (AFFO), which is reflected in a flat DPS profile. In our view SPG is fairly valued versus property peers. NEUTRAL.&nbsp;

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

Stride Property: Striding Out the Industrial Legs