Stride Property Ltd & Stride Investment Management Ltd (NS) Analysis

Overview

Stride Property Group is a stapled group comprising Stride Property Limited ("Stride") and Stride Investment Management Limited ("SIML"). Stride is a listed portfolio investment entity (PIE) that invests in New Zealand office, retail and industrial property. SIML is a real estate investment manager. SIML currently manages Diversified NZ Property Trust and its predecessor fund Diversified NZ Property Fund Limited, Stride and Investore Property Limited ("Investore"). Investore is an NZX listed property company specialising in large format retail assets.

Stride Property Group was formed in July 2016 when SIML was demerged from Stride in a distribution of all of the SIML shares to Stride shareholders and the shares of each company were stapled so that they could only be transferred as a parcel of one Stride share and one SIML share.

Originally known as DNZ Property Fund Limited (DNZ), Stride Property Limited was established on 30 September 2008 through the amalgamation of DNZ Foundation Property Fund Limited, DNZ Income Property Fund Limited, DNZ Retail Property Fund Limited and DNZ Tauranga Property Fund Limited.

Shares in Stride began trading on the NZX Main Board on 16 August 2010 at $0.97. The company entered the S&P/NZX50 on 18 October 2010.

On 25 September 2015, DNZ Property Fund Limited was renamed to Stride.

Each of Stride Property Limited ("Stride") and Stride Investment Management Limited ("SIML") (together, the "Stride Property Group"), has been granted Listing with a 'Non-Standard' ("NS") designation.

The NS designation was assigned to SPG, due to Stride and SIML having constitutions that require Stride to have a board of directors which mirrors the composition of SIML's board of directors (and shareholders of Stride consequently not voting directly on the appointment or removal of Stride directors).

For further information, please see a copy of the waiver under Documents on SPG's homepage on nzx.com.

Performance

The following information was extracted from Stride Property Group Limited's full year results, released on 28 May 2024:

Stride Property Group (Stride) (Note 1) has released its Annual Report, Results Presentation, and Sustainability Report and Climate-Related Disclosures for the twelve months ended 31 March 2024 (FY24).

Overview for the period:

• $(56.1)m loss after income tax, reduced by $60.6m from FY23, due primarily to a smaller net reduction in fair value of investment properties
• Distributable profit (Note 2) after current income tax of $59.1m, up 2.6% from FY23
• FY24 full year dividend of 8.0 cents per share represents a payout of 74% of combined distributable profit (Note 2) and an 83% payout of AFFO (Adjusted Funds from Operations)
• Rent reviews and renewals completed across SPL’s directly held portfolio (Note 3) delivered 4.9% rental growth on previous rentals
• Capitalisation rates for SPL’s directly held portfolio increased 29 basis points to 6.3% over the 12 months, but were unchanged in the six months to 31 March 2024, indicating a stabilising investment market
• Capital management initiatives implemented during FY24 have contributed to ensuring SPL retains a robust balance sheet, with a committed loan to value ratio (LVR) of 28.1% on a balance sheet basis (Note 4) and a committed bank LVR (Note 5) of 37.2%, consistent with 31 March 2023 (Note 6)
• Dividend reinvestment plan (DRP) continued to operate during FY24, with an average participation rate of 45%, resulting in $20m reinvested
• SPL completed the acquisition of the 6 Green Star Design rated office property at 110 Carlton Gore Road, Auckland, and has progressed the refurbishment of the office property at 34 Shortland Street, Auckland
• Progress continues towards meeting sustainability targets, with scope 1 and 2 emissions reducing 26.4% from FY23 and 18.7% from Stride’s FY20 baseline year (Note 7)
• Combined cash dividend guidance for FY25 of 8.0 cents per share provided, in line with FY24

Economic conditions have continued to remain challenging during FY24, with elevated inflation rates driving higher interest rates which, in turn, have impacted property capitalisation rates and resulted in lower portfolio values for SPL and the Stride Products (Note 8). Despite these conditions, Stride’s underlying earnings for FY24, as measured by distributable profit (Note 2), have remained resilient, with FY24 distributable profit after current income tax of $59.1m being 2.6% up on FY23, with distributable profit after current income tax on a weighted per share basis of 10.76 cps, up 0.9% on FY23.

SPL reported a net reduction in fair value of investment properties for FY24 of $(75.8)m, lower than for FY23 where SPL experienced a $(118.5)m net reduction. This has contributed to a loss after income tax of $(56.1)m, compared with a loss after income tax of $(116.7)m for FY23. The key driver of SPL’s portfolio valuation movement for FY24 is market capitalisation rate softening, partly offset by market rental growth.