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>
Taking Steps in Every Direction
Stride Property Group (SPG) has announced the conditional sale of its last remaining three large format retail properties to IPL for NZ$140.75m; this one move grows its assets under management via its management of IPL and significantly frees up its balance sheet capacity for further acquisitions. The next update from SPG is with its 1H20 result to be announced on 25 November and we will review our forecasts then. Our rating remains NEUTRAL.
Selling its remaining large format assets
The assets to be sold are:
<ul>
<li>Bunnings, Mt Roskill, Auckland — cap rate 4.88%, WALT 7.4 years</li>
<li>Mt Wellington Shopping Centre, Auckland — cape rate 6.63%, WALT 3.1 years and has 22 tenants</li>
<li>Bay centre Shopping Centre, Tauranga — cap rate 6.75%, WALT 4.2 years and has 29 tenants</li>
</ul>
The purchase price is in line with 30 September 2019 valuations. These properties were not part of the initial sell down of retail assets by SPG to IPL and since then there has been leasing improvements across the properties. Of concern for IPL investors though is the relatively low WALT of the assets which will drop IPL’s WALT from 11.9 years to ~10 years, but it does improve the tenant diversification within the IPL portfolio which is a key strategic plank of the business.
As part of the sales process SPG is undertaking some seismic improvements and has provided a two year rental underwrite across four specialty properties.&nbsp;
Conditional sale and SPG to invest more in IPL
The sale is conditional on IPL Board approval, IPL shareholder approval and OIO approval with settlement note expected on 1 April 2020. IPL is raising NZ$80m of new equity capital and SPG has indicated it intends to maintain its existing 19.9% stake in IPL.
SPG 1H20 result on 25 November — Funds management activity and update of key interest
The key area of interest will be an update on SPG’s strategies to grow its funds management business further. FUM grows to NZ$1.7b following the latest sale of three large format retail properties to IPL. In terms of the actual 1H20 result, we expect a flat EPS and DPS performance i.e. in line with FY20 guidance, but key portfolio metrics for directly owned assets are expected to remain robust.
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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, that continues to grow rapidly. 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.
</div>
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Stride Property
Taking Steps in Every Direction
Stride Property Group (SPG) has announced the conditional sale of its last remaining three large format retail properties to IPL for NZ$140.75m; this one move grows its assets under management via its management of IPL and significantly frees up its balance sheet capacity for further acquisitions. The next update from SPG is with its 1H20 result to be announced on 25 November and we will review our forecasts then. Our rating remains NEUTRAL.
Selling its remaining large format assets
The assets to be sold are:

Bunnings, Mt Roskill, Auckland — cap rate 4.88%, WALT 7.4 years
Mt Wellington Shopping Centre, Auckland — cape rate 6.63%, WALT 3.1 years and has 22 tenants
Bay centre Shopping Centre, Tauranga — cap rate 6.75%, WALT 4.2 years and has 29 tenants

The purchase price is in line with 30 September 2019 valuations. These properties were not part of the initial sell down of retail assets by SPG to IPL and since then there has been leasing improvements across the properties. Of concern for IPL investors though is the relatively low WALT of the assets which will drop IPL’s WALT from 11.9 years to ~10 years, but it does improve the tenant diversification within the IPL portfolio which is a key strategic plank of the business.
As part of the sales process SPG is undertaking some seismic improvements and has provided a two year rental underwrite across four specialty properties.&nbsp;
Conditional sale and SPG to invest more in IPL
The sale is conditional on IPL Board approval, IPL shareholder approval and OIO approval with settlement note expected on 1 April 2020. IPL is raising NZ$80m of new equity capital and SPG has indicated it intends to maintain its existing 19.9% stake in IPL.
SPG 1H20 result on 25 November — Funds management activity and update of key interest
The key area of interest will be an update on SPG’s strategies to grow its funds management business further. FUM grows to NZ$1.7b following the latest sale of three large format retail properties to IPL. In terms of the actual 1H20 result, we expect a flat EPS and DPS performance i.e. in line with FY20 guidance, but key portfolio metrics for directly owned assets are expected to remain robust.

Investment View
We remain positive on the medium-term potential of SPG’s funds management platform, which we view as scalable, that continues to grow rapidly. 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.

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

Stride Property: Taking Steps in Every Direction