What we could see as property and retirement businesses report full-year results

Nine NZX-listed property and retirement village companies are due to report full-year annual results in the next week.

Six are property stocks and three are retirement businesses.

First to report is the diversified landlord Argosy Property which owns large-format retail, industrial and office land and buildings. On the same day, Investore Property (managed by Stride), which specialises in owing large-format retail assets, will report.

On Budget day Thursday, Centurion-managed Asset Plus and the dominant stock in the industrial/warehouse/logistics/freight forwarding sector Goodman Property Trust will report.

Asset Plus is selling its empty offices at 35 Graham St in Auckland but developing at Albany for Auckland Council.

The Herald reported this week on Goodman’s $250m Roma Road Estate, the 13.1ha site it bought from Foodstuffs North Island which had its headquarters there before moving to rental premises at the airport.

Friday is the big day for retirement giants Ryman Healthcare and Oceania Healthcare followed by Arvida on Tuesday, May 24. We’ll no doubt hear more about Ryman’s big push into Australia, particularly Victoria.

On Monday, May 23, the multibillion-dollar listed commercial and retail property landlord Kiwi Property Group reports its full-year earnings. It is now diversifying into residential via the construction of its first build-to-rent project at Sylvia Park.

Next Friday Stride Property Group reports its results.

Matthew Leach, Aaron Ibbotson and Rohan Koreman-Smit of Forsyth Barr issued a May 9 analysis saying what they expect from the nine businesses, referring to the real estate companies and one trust collectively as real estate investment trusts (REITs).

Rising mortgage interest rates, they say, could substantially affect results this season.

“We believe three themes will be in focus over this REITs and aged care heavy earnings season,” they wrote referring to interest rates, rising costs and the pandemic.

“After several years of falling interest expenses, we expect the focus to move to the rapidly increasing rates. Market rates have more than doubled over the last year and corporates are currently issuing debt at a yield of 5–6 per cent. We will look for the expected impact on interest coverage, potential capital structure considerations and hedging profile,” the three wrote.

Cost inflation was the topic du jour last earnings season and they expect it to remain so this season.

“Omicron/Covid already feels like last year’s story. However, the six months to March that is being reported this earnings season was heavily influenced by the Omicron wave both here in New Zealand and abroad. We expect non-recurring costs and unusual trading conditions to feature frequently in the earnings releases,” the analysts wrote.

New Zealand REITs had a strong run in the last decade, supported by falling interest rates which supported earnings given their financial leverage, and portfolio valuations, the three analysts noted.

The FY22 results out this month may be the last of easy years for the sector with the sharp upward move in interest rates over the last 12 months likely to weight on debt costs, they said.

Guidance for the 2023 full-year could be more cautionary.

Last week, Ibbotson and Matt Montgomerie issued a new note on the three retirement companies’ outlook, noting how difficult the last six months had been because the companies’ share prices had dropped by around 30 per cent.

Ryman had been trading around $15.50 two years ago but is now only around $9.32, one of the biggest tumbles in the sector. It has a new chairman Greg Campbell as well as a new chief executive Richard Umbers, replacing David Kerr and Gordon MacLeod.

Ibbotson and Montgomerie said expectations about these businesses and their pending results had been sufficiently lowered by the share price plummet.

The results focus could be on inflationary cost pressures in general, particularly the pay of care or hospital-level staff.

“We expect Oceania to fare substantially better than Arvida and Ryman due to its fast-growing care suite model,” the analysts forecast.

Arvida made a major acquisition of Arena Living and last equity last year. Oceania made a more minor acquisition via Waterfront and raised equity at the very end of its 2021 full-year, they noted.

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