Kiwi Income Property Trust has a high-quality portfolio of assets and a very solid balance sheet but it faces further headwinds both in the office and retail markets over the next six to 12 months, says Buffy Gill, an analyst at Goldman Sachs & Partners New Zealand.
"In addition, the stock looks fully valued once tax changes come into play. We would need to see retail or office rents recover faster than we are forecasting or management being able to lease up vacant space ahead of expectations in order to revise this view,"Gill says.
The trust's underlying rentals weakened in the six months ended September with office rentals on a like-for-like basis down 2.6% and retail rentals down 1.3%, she says.
"The retail environment is still very tough, in our view, particularly at a top-line sales level. We would therefore expect to see further weakness in the retail portfolio as the remainder of leases are rolled over in the next six to 12 months."
In the Auckland office market, occupancy continues to be "challenging" with excess capacity and new builds not expected to clear for the next few years. Against her expectations, the Christchurch PricewaterhouseCoopers centre is also proving difficult to refill, Gill says.
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