By Jenny Ruth
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Thursday 17th February 2011 |
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AMP NZ Office (ANO) faces falling rentals over the next couple of years, says Buffy Gill, an analyst at Goldman Sachs & Partners.
Gill estimates the company's average per square metre rentals fell by around 1% in the three months ended December.
The company estimates its portfolio was over-rented (the extent to which contracted rentals exceeded market rentals) by 4.7% at June 30 last year.
“We believe that market rentals in office have shown further modest softness since that time and estimate that the portfolio is more likely to now be around 7% over-rented,” Gill says.
“Our forecasts reflect ANO's average per metre square rentals falling by this amount over the next two years before again re-exhibiting net growth,” she says.
At current levels, ANZ provides a reasonable 7.7% yield compared with the 7.4% sector average but dividends per share are expected to fall 5% over the next two years as the over-renting unwinds and tenants reflect as well as reflecting tax changes and rising interest rates.
“While we highly commend the new management’s approach and strongly believe the portfolio offers a quality exposure to office, the negative outlook remains,” Gill says.
“We struggle to see the stock outperforming the sector until it can demonstrate a better than average earnings per unit recovery and growth track.”
Recommendation: Hold.
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