Investment and advisory business Jarden has analysed New Zealand sharemarket listed real estate stocks and found a clear winner which scores above all others due to its to high building quality, financial and growth prospects.
Investors who are seeking exposure to real estate could find the information valuable because, Jarden says, it has created a new model to give a sector valuation update.
Owen Batchelor, a Jarden research analyst, this month examined all nine businesses specialising in property but found one Auckland-headquartered one by far the winner.
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"At this stage, our sector preference remains Precinct on its quality portfolio, near-term growth in earnings per share, dividends per share, net tangible assets and relative valuation against our price target," Batchelor said.
Jarden established a new framework to score each listed property vehicle, based on dividend yield and growth, quality of its real estate, risk, balance sheet and portfolio scale along with overhead efficiencies.
That will give investors an overview of its preferred exposures within the sector based on qualitative measures, Batchelor said.
"Precinct is a clear sector preference," he said, noting the company's strategy to sell older assets and reallocate capital into newer higher-yielding developments. That was improving the portfolio quality and delivering some of the highest growth in earnings and dividends per share in the sector.
Goodman Property Trust and Property For Industry ranked relatively well on the framework, Goodman for its portfolio risk and balance sheet capacity and PFI for its portfolio, balance sheet and overhead efficiency.
Kiwi Property Group scored poorly on near-term dividend per share growth and its elevated adjusted funds from operations payout.
Investore Property was a relatively defensive and unique, albeit low growth stock in the LPV sector, Batchelor said.
Vital Healthcare was below average on balance sheet and overhead efficiency, although that had improved after its recent investor vote, he noted.
Asset Plus offered one of the highest dividend yields in the sector but "struggles to score well on most metrics due to scale". It was downgraded to neutral.
"Asset Plus remains in the early stages of a major repositioning of its portfolio," the research said. It had an opportunity to add value through the redevelopment of 35 Graham St in Auckland CBD.
"Further growth involves a number of challenges. The most pressing of which is achieving a share price re-rate required to fund portfolio growth. Near-term, Asset Plus's portfolio remains subscale and it scores poorly on our growth, portfolio risk and scale/overhead measures," Batchelor said.
Mark Francis, Asset Plus managing director, agreed that the business was "definitely too small. The market has known that for a long time and has priced it accordingly for some time. When we took control of the company, we made it clear that our intention was to grow it but that growth obviously needs to be underpinned by clever deals. One of which we have done in 35 Graham St and others that we are working on. We have really good support from institutional shareholders for our strategy. We'll get there."
Stride Property was praised for its growth prospects and momentum after selling its industrial portfolio, "although we are cautious on its directly held retail exposure".
Jarden has a neutral rating on Stride, Vital and Asset Plus. Argosy Property was a business which "screens middle of the pack" but Stride was the most attractive on valuation.