Kiwi Property Group Limited

Company Overview: Kiwi Property Group Limited (NZX: KPG), formerly Kiwi Income Property Trust, is engaged in investing in New Zealand real estate. The Company's primary assets are investment properties. Its reportable segments are Mixed-use, Retail, Office and Other. Its investment objective is to provide investors with an investment in New Zealand property, focusing on risk-adjusted returns over time through the ownership and active management of a diversified portfolio. It is focused on property investment portfolio comprising retail portfolio, which includes regional shopping centers and large format retail within and outside Auckland region, and office portfolio that includes office properties with floorplate, services, location and car parking in Auckland, and core government office accommodation supported by long-term leases to government in Wellington. Its portfolio includes properties, such as Sylvia Park, LynnMall, Westgate Lifestyle, The Base, North City, Vero Centre and The Aurora Centre, among others.

KPG Details

Kiwi Property Group Limited (NZX: KPG) is the largest listed property company on the New Zealand Stock Exchange. It owns and manages a significant real estate portfolio. The company has a market capitalization of ~$1.81 billion as on 4^th October 2021.

The company registered growth in bottom-line at CAGR of 8.27% over FY17 to FY21. The company’s net income increased from $143.0 million in FY17 to $196.5 million in FY21.

Exhibit 1: Historical Operating Performance

Source: Company Reports, Analysis by Kalkine Group

Results Performance (Year Ended March 31, 2021)

• Decline in Total Income: The company’s total income for FY21 stood at $233.98 million, as compared to $243.62 million in the previous year. Property revenue for the period stood at $232.44 million, as compared to $241.31 million in the previous year. Property management income for the period stood at $1.54 million, as compared to $2.31 million in the previous year.
• Turnaround in NPAT: The company reported a turnaround in the net profit after tax at positive $196.5 million for the year as against negative $186.7 million in the previous year, representing 205.2% growth YoY, supported by growth in value of the investment properties. However, the cost of asset lockdowns and the associated rent relief measures caused net rental income to decline by 7.1% YoY to $173.6 million. In line with decline in net rental income, operating profit before tax declined by 10.3% YoY to $116.3 million. The company’s office assets performed strongly, delivering a 10.2% YoY fair value gain, while mixed-use was up 1.5% YoY. On 31 March 2021, KPG’s property portfolio was valued at $3.3 billion. The company maintained a strong balance sheet throughout FY21 and ended the year with gearing of 31.2%, comfortably within its self-imposed range of 25-35%.
• Final Dividend of 2.95 cps: The Board of Directors declared a final cash dividend of 2.95 cents per share (cps), taking the full-year cash dividend to 5.15 cps, equivalent to 90% of Adjusted Funds from Operations (AFFO).
• Key Developments: Important development includes $277 million Level 1 expansion at Sylvia Park which opened on 15 October 2020 and has performed well in the months since. Customer favourites such as Sephora, North Beach and Superdry have all opened new flagship stores at the centre, helping strengthen Sylvia Park’s already compelling retail offering.

Exhibit 2: Income Statement

(Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 28.21% of the total shareholding. Accident Compensation Corporation and ANZ New Zealand Investments Limited are holding maximum stake in the company at 9.43% and 6.72%, respectively, as provided in the table below:

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics: The company’s gross margin and net margin for FY21 stood at 74.8% and 84.0%, better than the industry median of 69.2% and 48.4%, respectively, implying greater efficiency in managing operating and non-operating costs than the peer group. ROE for FY21 stood at 9.6%, better than the industry median of 6.7%, implying that the company generated better return for its shareholders than its peer group. Current ratio for FY21 stood at 2.02x, better than the industry median of 0.75x, implying that the company possesses better capabilities to meet its short-term obligations than its peer group. Its return on invested capital for FY21 stood at 6.3%.

Exhibit 4: Key Metrics

Source: Analysis by Kalkine Group

Recent Updates:

• On 1 October 2021, the company informed the market that it has agreed to acquire 385 Mt Wellington Highway, next to Sylvia Park Lifestyle in Auckland, for $27.5 million, with settlement scheduled to take place on 24 June 2022. This is a high-profile site with the potential to accommodate a range of uses, including showroom, office and large format retail.
• On 21 September 2021, the company announced it is moving ahead with the construction of New Zealand’s first major build-to-rent development, marking an important milestone in the delivery of the company’s mixed-use strategy. Enabling works are already underway at the Lynton Road site, with construction set to commence in late 2021 and renting to begin in early 2024. The $221 million development will target a stabilised net yield of approximately 4.5%, and a 10-year property internal rate of return of over 8.0%.

Outlook:

FY22 Dividend Expected at least 5.30 cps: The company is expected to provide AFFO guidance once the sale of The Plaza and Northlands has concluded, however based on current projections, the FY22 dividend is expected to be no less than 5.30 cents per share, subject to the financial performance of the company and barring material adverse effects or unforeseen circumstances, such as further COVID-19 related lockdowns. KPG has entered FY22 with good momentum and a clear focus on achieving its strategic priorities.

Key Risks:

The company’s financial performance could be adversely impacted due to COVID-19 pandemic and could affect its net rental income. Notably, operating profit before tax could also witness some impacts.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company stepped-up its portfolio rebalancing programme in FY21, with the aim of reducing the company’s exposure to regional retail and recycling capital to help fund its growth pipeline.

The stock has been valued using a Price/Earnings Per Share multiple based illustrative relative valuation method and arrived at a target price which reflects the rise of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average considering turnaround in NPAT as well as decent outlook.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of NZ$1.150 per share, down by 0.43% on 4^th October 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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