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>Kiwi Property Group</h2>
Capital Raise Via Dividend Cut
UNDERPERFORM
KPG has surprised the market and cut its large 2H20 dividend for the six months to 31 March to be prudent and to manage gearing levels. There remains considerable uncertainty with regard to how KPG's retail assets track near-term and also what happens with its FY20 portfolio revaluation, and we expect the news flow to remain challenging. We downgrade our rating to UNDERPERFORM and we have cut our 1H21 dividend forecasts .&nbsp;
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Retail risks in focus
While KPG's headline portfolio metrics are solid (99.4% occupancy and 5.1 year WALT) a deterioration is expected given its high exposure to retail. Risks include rent relief to keep tenants going until centres fully re-open, rental levels, occupancy, and the speed of recovery. Post GFC, KPG's occupancy declined 230bp over four years. We expect that the deterioration from COVID-19 will be more rapid and of a greater magnitude, particularly in the case of a protracted lockdown. Outcomes within KPG's portfolio will be bifurcated with mixed-use (KPG's good retail) outperforming the remaining retail. Sylvia Park vacancy increased only 70bp post GFC. ​​​​​​​
Distribution cut with no 2H20 dividend, and we assume a weak 1H21 dividend
KPG's distribution is unique vs. peers as it is paid semi-annually. Given ongoing disruption in 1Q21 we have assumed the 1H21 distribution is reduced by -50%. This retains ~$80m of capital compared to KPG's GFC capital raise of NZ$65m (plus a $120m convertible note). Further, we expect distribution payments to be restarted at a lower level in 2H21, more in line with AFFO, with KPG going into this crisis with one of the highest pay-out ratios. Our FY20–22 EPS lifts +0%/+1%/+2% on lower interest costs but our dividends reduce -50%/-31%/-6%. KPG is reviewing discretionary​​​​​​​ capex and opex and has reduced employee costs (Board and exec team pay reduced -20%). Our earnings forecasts are under review and in our upcoming Real Estate Reflections out later this week, we review the LPV sector dividend outlook.
Downgraded to&nbsp;UNDERPERFORM
KPG&nbsp;has a solid financial position having recently undertaken a capital raise ($200m in Oct-19) as well as extending the term of its bank facilities (no maturities until FY23). All eyes are now on what happens with&nbsp;KPG's&nbsp;FY20 portfolio revaluation and we expect the news flow to remain challenging.&nbsp;
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Kiwi Property Group
Capital Raise Via Dividend Cut
UNDERPERFORM
KPG has surprised the market and cut its large 2H20 dividend for the six months to 31 March to be prudent and to manage gearing levels. There remains considerable uncertainty with regard to how KPG's retail assets track near-term and also what happens with its FY20 portfolio revaluation, and we expect the news flow to remain challenging. We downgrade our rating to UNDERPERFORM and we have cut our 1H21 dividend forecasts .&nbsp;

Retail risks in focus
While KPG's headline portfolio metrics are solid (99.4% occupancy and 5.1 year WALT) a deterioration is expected given its high exposure to retail. Risks include rent relief to keep tenants going until centres fully re-open, rental levels, occupancy, and the speed of recovery. Post GFC, KPG's occupancy declined 230bp over four years. We expect that the deterioration from COVID-19 will be more rapid and of a greater magnitude, particularly in the case of a protracted lockdown. Outcomes within KPG's portfolio will be bifurcated with mixed-use (KPG's good retail) outperforming the remaining retail. Sylvia Park vacancy increased only 70bp post GFC. ​​​​​​​
Distribution cut with no 2H20 dividend, and we assume a weak 1H21 dividend
KPG's distribution is unique vs. peers as it is paid semi-annually. Given ongoing disruption in 1Q21 we have assumed the 1H21 distribution is reduced by -50%. This retains ~$80m of capital compared to KPG's GFC capital raise of NZ$65m (plus a $120m convertible note). Further, we expect distribution payments to be restarted at a lower level in 2H21, more in line with AFFO, with KPG going into this crisis with one of the highest pay-out ratios. Our FY20–22 EPS lifts +0%/+1%/+2% on lower interest costs but our dividends reduce -50%/-31%/-6%. KPG is reviewing discretionary​​​​​​​ capex and opex and has reduced employee costs (Board and exec team pay reduced -20%). Our earnings forecasts are under review and in our upcoming Real Estate Reflections out later this week, we review the LPV sector dividend outlook.
Downgraded to&nbsp;UNDERPERFORM
KPG&nbsp;has a solid financial position having recently undertaken a capital raise ($200m in Oct-19) as well as extending the term of its bank facilities (no maturities until FY23). All eyes are now on what happens with&nbsp;KPG's&nbsp;FY20 portfolio revaluation and we expect the news flow to remain challenging.&nbsp;
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Kiwi Property Group: Capital Raise Via Dividend Cut