Taking Stock – 28 July 2026

Are listed property companies finally offering value?

Edward Lee writes:

New Zealand’s listed property companies have spent much of the past few years dealing with a difficult combination of falling property values, higher borrowing costs, and competition from term deposits and bonds.

For investors, this has created a frustrating period. Many property companies continued collecting rent, maintaining high occupancy and paying regular distributions, yet their share prices remained well below the levels reached before interest rates began rising.

More recently, the outlook had started to improve. Interest rates have been falling, financing costs were beginning to ease, and commercial property valuations appeared to be stabilising. This has led to renewed interest from investors, seeking an attractive income while waiting for share price recovery as the discount to net tangible assets begins to narrow.

However, the latest inflation figures have made that recovery less certain.

Annual inflation has risen to 4.1%, its highest level in more than two years. Electricity prices increased by around 12% over the year, while petrol prices rose by 27.5%. This has led to fears that interest rates may need to head higher, raising the possibility that borrowing costs may remain higher for longer than investors had previously expected. 

While the sector still has a compelling investment case, the new data changes the way investors must assess the outlook for Listed Property Trusts.

The quality of each portfolio, its tenants, debt, dividend coverage and development commitments now deserve greater attention.

So, we have reviewed six of the larger property companies - Investore, Argosy, Kiwi Property, Precinct Properties, Vital Healthcare Property Trust and Property for Industry. 

Although these businesses are grouped within the same sector, they are not interchangeable. One owns supermarkets and hardware stores, another owns hospitals, while others focus on industrial buildings, shopping centres or premium offices. Their risks and sources of return are therefore quite different.

Why the discounts have become so large

One of the attractions of property trusts is that several companies trade well below their reported net tangible assets (NTA).

NTA is calculated by taking the value of a company’s properties and other tangible assets, deducting its liabilities, and dividing the balance by the number of shares.

If a company reports NTA of $1.50 per share but trades at $1.00, investors are buying the shares at a discount of one-third to the reported value of the underlying assets.

Investore and Argosy both currently trade at discounts of approximately one-third. Vital Healthcare and Property for Industry trade around 17% to 18% below NTA, Kiwi Property is approximately 12.5% below, while Precinct trades much closer to its asset backing.

These discounts can look like straightforward opportunities, but NTA is an estimate rather than a guaranteed sale value.

Commercial properties are valued using assumptions about rent, vacancy, future expenses, and the return a buyer would require. 

When interest rates rise, buyers usually demand a higher return from property. Unless rents increase enough to offset that higher required return, property values can fall.

Debt then amplifies the impact on shareholders.

Consider a property worth $100 million with $35 million of debt. The net value attributable to the owner is $65 million. If the property value falls by 10% to $90 million, the debt remains at $35 million and the owner’s net value falls to $55 million.

The property has fallen by 10%, but the owner’s net asset value has fallen by more than 15%.

Share prices also react much faster than property valuations. Shares trade every day, while independent property valuations are usually completed only once each year. A large discount to NTA may therefore indicate that the sharemarket expects future property values to be reduced.

Dividend yields are another influence.

Listed property companies compete with term deposits, government bonds, and corporate bonds for investors seeking income. If an investment paying a 6.5 cent annual dividend trades at $1.08, its cash yield is about 6%. If investors begin demanding a 7% yield, the share price would need to fall to approximately 93 cents, assuming the dividend remained unchanged.

This helps explain why higher interest rates can place pressure on listed property shares even when the buildings remain occupied and the rent continues to be paid.

However, yield does not explain the full difference between the companies.

Argosy and Precinct offer similar forecast cash yields of slightly above 6%, yet Argosy trades at a discount of more than 30% to NTA while Precinct trades less than 7% below NTA. Investors are clearly considering more than the dividend. They are also judging the buildings, tenants, vacancies, balance sheets, and development plans.

Where the deeper value appears to lie

Investore Property is one of the more interesting examples.

The company owns 43 large-format properties, including supermarkets, Bunnings stores and open-air shopping centres. These properties are supported by spending on food, household items and hardware, which tend to be more resilient during weaker economic periods than discretionary retail spending.

The portfolio is 99.5% occupied and has an average lease term of 5.9 years. Investore has also improved its portfolio by buying Silverdale Centre and Bunnings New Lynn, while selling several older supermarket properties above their previous book values.

Those sales provide some comfort that the reported valuations are credible. The acquisitions were also completed at a higher rental yield than the properties sold, which should improve future income.

At a share price of $1.10, Investore provides a forecast cash yield of approximately 6% and trades one-third below its reported NTA of $1.62.

The discount reflects genuine concerns, including refinancing, tenant concentration, convertible note dilution, and external management. However, these concerns need to be balanced against almost full occupancy, defensive tenants and recent property sales above book value.

Argosy Property also trades approximately one-third below NTA, but its investment case is different.

Argosy owns a mixture of industrial, office, and large-format retail properties. Industrial assets account for about 55% of the portfolio, with management aiming to increase this to between 60% and 70%.

That direction is sensible. Demand for industrial property has generally remained stronger than demand for office space, while warehouses and logistics buildings often require lower tenant incentives and less refurbishment between leases.

Argosy’s weakness is its occupancy of 94.6%, which is lower than the other companies reviewed. Much of the vacancy is concentrated in several office buildings. 

Vacant office space can be expensive. A new tenant may require the building to be refurbished, together with fit-out contributions and rent-free periods. Even when a lease is signed, the full financial benefit may take time to reach shareholders.

However, the vacancy also creates potential. Argosy estimates that its portfolio is approximately 9% under-rented, meaning current rents remain below assessed market levels. Leasing vacant space and completing rent reviews could improve income without the need to purchase more properties.

Argosy is also developing modern industrial buildings at Onehunga and Mt Richmond, while selling properties that no longer fit its long-term strategy.

Its gearing fell to approximately 36% following recent asset sales, while the forecast dividend of 6.65 cents provides a cash yield of about 6.2%.

The dividend does not have a large buffer once maintenance and leasing expenditure are considered. Higher interest costs or continued office vacancy could therefore limit future dividend growth.

A gradual improvement in leasing, further asset sales, and continued industrial development could be enough to support both income and a higher share price.

A more balanced alternative

Kiwi Property may not trade at such a steep discount, but it has fewer immediate weaknesses.

The company owns major retail-led properties, including Sylvia Park, LynnMall and The Base in Hamilton, together with office buildings such as Vero Centre and the Aurora Centre.

Sylvia Park is the most important asset. The wider precinct includes the shopping centre, large-format retail, office buildings and the Resido apartments.

This creates concentration risk because a significant proportion of the company’s value is located in one area. However, Sylvia Park remains one of New Zealand’s strongest retail locations and benefits from a wide range of tenants and uses. 

Kiwi Property’s recent operating performance has been encouraging. Occupancy increased to 99%, rental growth reached 4.5% and adjusted funds from operations rose by 8%.

The company has also addressed a previous concern at Vero Centre, where occupancy improved from 92.4% to 99.1%.

The sales of The Plaza in Palmerston North and ASB North Wharf reduced pro forma gearing to approximately 33%. This gives Kiwi Property greater financial flexibility, although selling established properties also removes rental income.

Its largest future opportunity is the Drury development in south Auckland. Kiwi Property is building roads and infrastructure to support a major retail-led precinct. Agreements have been reached to sell land to several large retailers, which should help recover part of the development expenditure.

The project still requires substantial capital and some of the land sales remain conditional, so Drury should continue to be developed in stages.

At 98 cents, Kiwi Property offers a forecast cash yield of approximately 5.9% and trades about 12.5% below NTA.

It lacks the deep discount of Investore or Argosy, but it also has high occupancy, improving earnings and lower gearing. For investors who do not want to rely on a large recovery in the share price, Kiwi Property offers a more balanced combination of income and risk.

Income security and portfolio quality

Vital Healthcare Property Trust provides a different type of property exposure.

Vital owns private hospitals, specialist healthcare facilities, and medical centres across New Zealand and Australia. Its portfolio is 99% occupied and has an average lease term of 19 years.

That lease profile is exceptional. Hospitals are expensive to build and difficult to relocate, while operators often invest heavily in the facilities. This encourages longer leases and provides greater certainty over future rental income.

The trade-off is tenant concentration. Four major hospital operators contribute approximately 63% of Vital’s rent. Long leases are valuable, but their security still depends on the financial strength of the operators.

Vital is also investing heavily in Australian developments, including healthcare projects at Coomera and Macarthur. These projects should provide future income, but both require further leasing.

Macarthur Stage 2 is expected to cost more than A$100 million, with approximately 35% of expected fully leased income committed when the project was announced.

Vital also recently internalised its management. This should improve alignment with investors and remove external management fees, but the transaction was expensive and required a large share issue.

At $1.91, Vital provides a forecast cash yield of approximately 5.1% and trades around 18% below NTA.

It is unlikely to appeal to investors simply seeking the highest yield. Its attraction is the long duration and predictability of the leases.

Property for Industry, on the other hand, offers the strongest operating portfolio of the companies reviewed.

PFI owns more than 90 industrial properties, mainly in Auckland. Occupancy is 99.9%, and recent rent reviews produced annualised increases of more than 7%. 

The portfolio is also assessed as approximately 9% under-rented, providing further potential for income growth.

PFI is developing industrial properties at Springs Road and Totara Creek, while taking a more cautious approach to its Harris Road site by waiting for an anchor tenant before beginning construction.

The company has refinanced its banking facilities and is expected to maintain debt levels in the mid-30% range as its developments progress.

PFI’s difficulty is the price investors are being asked to pay. At $2.38, the forecast dividend yield is only about 4%, lower than the yields offered by several lower-risk fixed-interest investments.

Investors purchasing PFI are therefore relying on continued rent growth, development returns, and increasing distributions. The company has a strong portfolio and credible growth opportunities, but its current price leaves less room for the downside risk.

Precinct Properties also sits at the higher-quality end of the sector.

It owns premium office buildings in central Auckland and Wellington, including Commercial Bay and PwC Tower. Its office portfolio is 97% occupied, with an average lease term of 6.1 years.

Precinct has agreed to sell a 50% interest in PwC Tower to an investment partner. Once completed, the transaction should materially strengthen its balance sheet.

The company is also expanding into residential development, student accommodation, and property management partnerships.

These activities provide greater growth potential, but they also make Precinct more complicated than a conventional office landlord. Construction costs, apartment sales, leasing and the availability of outside investment partners will all influence future returns.

At $1.10, Precinct offers a forecast cash yield similar to Argosy’s, but it trades much closer to NTA.

The premium reflects the quality of its buildings and balance sheet, but it also means investors receive less protection if its development programme is delayed or produces lower returns than expected.

Our current view

Vital has raised capital, Kiwi Property and Argosy have sold properties to reduce debt. PFI has refinanced its banking facilities, while Investore and Precinct shares will see dilution through the eventual conversion of their notes.

So, these companies may not need new capital now, but that position could change if interest rates continue rising, property valuations fall or development programmes expand. Investors should pay particular attention to projects being funded through debt when the company’s shares already trade below NTA.

The recent increase in inflation and interest rates means the sector is unlikely to experience an easy recovery. Some companies will benefit from rental growth and successful developments, while others may struggle with refinancing, vacancy or capital requirements.

For this reason, listed property should not be viewed as one investment category where the highest yield or largest discount automatically represents the best opportunity.

The more important question is whether the income is sustainable, the debt is manageable and the company can fund its future plans without diluting existing shareholders.

On that basis, selective opportunities remain, but the strongest returns are likely to come from choosing the right company rather than simply waiting for the entire sector to recover.

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Travel

Edward Lee - Auckland (Ellerslie) - 6 August

David Colman - Whanganui - 6 August

David Colman - New Plymouth - 7 August

Edward Lee and Gavin Parkes – Wellington – 10 August

Johnny Lee – Taupo – 1 September

Johnny Lee – Hamilton – 2 September

Johnny Lee – Tauranga – 3 September

Johnny Lee – Christchurch – 7 September

Chris Lee & Partners Limited