Analysts applaud DNZ Property as shares hit new heights

Shares in listed landlord DNZ Property Fund have been trading at all-time highs.

Craig Tyson, OnePath equity investment manager, said he had noticed the stock hit a two-year high of $1.42 last Thursday which he said was a 46 per cent increase on the listing price of 97c in August 2010.

Tyson hoped retail investors had not cashed up after the business listed, so they could see a recovery in their fortunes.

Jeremy Simpson and Fraser Hunter, analysts at Forsyth Barr, upgraded their DNZ investment recommendation from hold to accumulate, saying the business was performing well.

"DNZ is delivering a steady operating performance and continues to maintain a high occupancy rate and an attractive WALT [weighted average lease term] and has recently upgraded its dividend guidance. It offers good value relative to the sector on the key metrics of yield and discount to net tangible asset backing. It has reduced the risks in the portfolio around vacancy and lease expiry profile and is developing a positive track record as a listed entity," they said.

DNZ remained one of the cheapest shares on a price to net tangible asset ratio at 85.5 per cent when the sector average was 99.5 per cent, they said. But the analysts also criticised DNZ's debt burden and urged change.

"Issues for investors are that DNZ remains one of the highest geared in the sector (and more likely in our view to issue new equity should its discount close) and it also has a higher than average management expense ratio despite being internally managed. It is also still recovering in the retail market from perceptions from its earlier life as an unlisted fund. However, we think the market is under appreciating DNZ's low level of dividend payout - and hence a more sustainable dividend - relative to the sector and also internalised structures,"' the Forsyth Barr analysts said.

Last year's annual report showed OnePath is DNZ's largest shareholder with more than 5 per cent, although this has climbed to about 8 per cent in the last year. Accident Compensation Corporation, BT Funds, Hayphil Investments, Citibank and Paul Duffy - DNZ's chief executive - also hold stakes of 1.9 per cent or higher, the latest report showed.