Property fund tipped to do well

Increasing dividends, escalating earnings and rising profits are projected for newly-listed DNZ Property Fund.

Jason Lindsay, First NZ Capital research analyst, praised the ninth real estate stock trading on NZX.

DNZ, New Zealand's second listing on the NZX this year, began trading on August 16 and Lindsay's comments came after Jeremy Simpson and Fraser Hunter of Forsyth Barr said the company, with its open share register, could be a potential takeover target.

Analysts are turning the spotlight on the business, trading yesterday at $1.18 and now on the NZX-50, NZX-50 Portfolio, NZX MidCap, NZX All and NZX Property indices.

Lindsay said the prospects of good returns projected out until 2016.

"DNZ is one of our preferred plays within the sector. Based on our conservative assumptions, DNZ offers a yield in line with the sector-weighted average. We believe DNZ has based its current distribution on higher bank margins and fees and factoring in the negative impact from tax changes in 2012 and should not have to cut distributions from current levels, unlike most in the sector that still face cuts," Lindsay said in a report yesterday.

DNZ, once 32 property syndicates, has been steadily reducing its gearing and Lindsay said it had reduced its bank facilities from $500 million to $350 million, selling properties to slice into its risky levels of debt.

The sharemarket listing saw DNZ raise $45 million and the business had 50 properties worth $631 million at March 31.

Lindsay put a 12-month price target on DNZ of $1.20 but said it was now trading at one of the largest discounts to net tangible asset backing in the sector.