KEY POINTS:
Listed property companies that own real estate they can develop are highly attractive and have the most potential in the sector, says broker Goldman Sachs JBWere.
And commercial real estate is favoured over retail or industrial property.
Analysts at Goldman Sachs JBWere have produced an in-depth analysis of
the $6 billion listed property sector, and gave the highest ratings to companies or trusts that own land they can develop.
"We believe internal development opportunities should command a premium in the listed property vehicle sector," wrote analysts Shamubeel Eaqub and Matt Henry.
Kiwi Income Property Trust's ability to build offices at Sylvia Park made it an extremely attractive stock, they said.
Macquarie Goodman Property Trust's strong development pipeline gave it potential. And Property For Industry's significant number of development chances made it a drawcard.
Another criterion for potential winners is their mix of real estate. The analysts are picking stocks with large holdings of commercial real estate will do better than those with industrial or retail property.
"Industrial and retail properties tend to require redevelopment with higher frequency, shorter development lead times and greater ease of securing leasing commitments," they wrote.
They favour the office or commercial real estate for which demand is high, leases are long and redevelopment is needed less often.
AMP NZ Office Trust's focus on the commercial sector was attractive, they said, and they ranked it as one of their most preferred because of its pure exposure to the prime office sector.
"We expect the strong sector dynamics to deliver solid near-term rental growth in the coming period, supported by the trust's 12.5 per cent under-rented portfolio. We view the high quality portfolio as offering a below-sector risk profile - higher quality assets tend to be more resilient in less supportive macro environments."
AMP says its trust is New Zealand's largest in the office sector, owning and managing $1.4 billion of real estate.
Macquarie was the analysts' most preferred stock in the sector with "a compelling above-sector average net yield of 6.6 per cent" and big upside through its development portfolio.
Expansion had been Macquarie's major theme since the trust's inception, they said. Its Australian associate, Macquarie Goodman Group, had relationships with quality tenants in Australia and this would help the New Zealand trust to deliver good returns.
But the analysts downgraded their recommendation on Kiwi from buy to hold, saying its unit price had risen more than any other listed property entity in their coverage.
Kiwi should trade at a premium to the sector because of the quality of its assets and its inherent development opportunities at Sylvia Park.
"However we believe the share price fully reflects the value of the trust's portfolio encompassing these factors," they said.
ING received far less praise.
"In general, we view ING's portfolio as being at the lowest quality of the listed property vehicle sector under our coverage," they wrote. "Since inception, the trust has pursued a growth-in-assets-under-management strategy, the pace and volume of which has meant the quality of stock entering the portfolio has been mixed.
"We see the lower quality as being accompanied by greater vacancy and cap rate risk in a slowing economy, and therefore relative to its peers, we maintain a lower confidence in the trust delivering against our forecasts."
ING this month ditched its takeover plans for Calan Healthcare Properties Trust and started a unit buyback plan. It claims its $1 billion portfolio is one of New Zealand's largest and best.
The two analysts said Property For Industry's shares had traded at a premium because shareholders had given it credit for its strong value creation through portfolio expansion.
Its shares would hold that premium and the analysts were confident it would continue to perform well.