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 half year results, released on 27 November 2024:

Stride Property Group (Stride) (note 1) announces its interim results for the six months ended 30 September 2024 (HY25).

Key highlights

• Higher net rental income of $36.0m, up 3.5% on HY24
• Profit before other expense and income tax at $25.4m, in line with HY24
• Profit after income tax of $18.5m, up $69.0m compared to HY24
• A strong balance sheet, with net tangible assets (NTA) of 175cps, marginally down from 31 March 2024
• Total assets under management (AUM) after commitments (note 2) of $3.3bn as at 30 September 2024, with external AUM of $2.2bn
• Stride Property Limited (SPL) committed balance sheet loan to value ratio (LVR) (note 3) of 29% and committed bank LVR (note 4) of 38%, as at 30 September 2024
• SPL entered into $75m of forward starting interest rate hedging during the period, with 73% of drawn debt hedged as at 30 September 2024
• Industre Property Joint Venture (Industre) committed to two developments during HY25, with total expected development cost of $61m (excluding land)
• Combined cash dividend of 2.0cps declared for SPL and Stride Investment Management Limited (SIML) for the quarter ended 30 September 2024; the Boards reaffirmed full year cash dividend guidance of 8.0cps

Results overview

Stride is pleased to announce its interim results for HY25. Stride’s strategy to invest in high quality properties with enduring demand, supported by its diversified and enduring investment management business, has delivered strong results.

Chief Executive Philip Littlewood said “We have always sought to grow our business in a sustainable way. We are very pleased to see that, once again, all of our funds delivered strong income growth for the period. As expected, our investment management business has delivered in-line results for its recurring income, reflecting a stabilising investment market, and we look forward to an improving activity fee income outlook with new committed developments in our pipeline."

While macroeconomic conditions have been challenging during HY25, the commencement of the interest rate easing cycle is expected to benefit property transaction activity, supporting asset valuations and transactional activity for SIML’s investment management business.

Stride’s balance sheet remains robust as valuations stabilised during the period, with a small net reduction in fair value of investment properties of $(3.6)m, an improvement of $51.7m on HY24, contributing to profit after income tax of $18.5m, up $69.0m on HY24.

Higher net rental income and lower corporate expenses were offset by one-off income in the prior period, which contributed to an overall small decline in profit before net finance expense, other (expense)/income and income tax of $35.1m, down $(0.7)m on HY24, however lower net finance expense resulted in profit before other (expense)/income and income tax of $25.4m, in line with HY24.

Distributable profit (note 5) after current income tax of $24.1m was down $(7.3)m from HY24, due primarily to one-off income of $6.2m received in the prior period, together with higher taxation following the removal of tax deduction for building depreciation. Stride’s effective tax rate has increased to 16.8% for HY25 (HY24: 11.6%).