New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Investore<br>1H21 Result — Waiting for an LFR Restock</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Investore&nbsp;(IPL) reported a solid 1H21 result, with AFFO ahead of our expectations largely due to lower than expected maintenance&nbsp;capex. Over the period strong demand for large format retail (LFR) properties led to tightening capitalisation rates and strong revaluations. While this has benefitted shareholders, competitive bidding and scarce supply has made&nbsp;IPL's&nbsp;growth-via-acquisition strategy more challenging in the near-term. We remain confident that acquisitions will drive better than peers earnings growth and believe this will prove attractive vs. a low growth sector. We make minor adjustments to our earnings estimates and retain our NZ$2.35 12-month target price and OUTPERFORM rating.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21–23 AFFO +3%/-0%/+2%</li>
<li><strong>Target price</strong>:&nbsp;NZ$2.35 unchanged</li>
<li><strong>Rating</strong>:&nbsp;Retain OUTPERFORM</li>
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<h3>Tidy result, boosted by no maintenance&nbsp;capex</h3>
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<div id="m_1075375110163285703iiaonh-2-2">
<p>IPL reported a solid interim result with AFFO of NZ$13.7m, up +55% yoy and ahead of our expectations, driven by acquisitions, lower interest and tax expenses, and no maintenance capex. Clarity around COVID-19 abatements was provided, with IPL lowering the FY21 rental impact to NZ$1m from NZ$1–2m. While no maintenance capex was spent in 1H21, likely due to lockdowns and delays, IPL suggested that the 2H21 will be at a similar level to 2H20.</p>
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<h3>Balance sheet primed for acquisitions</h3>
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<div id="m_1075375110163285703iaxg2e-2-2">
<p>IPL has been active in capital management, raising NZ$105m of equity in May, issuing NZ$125m of bonds in August, and reshuffling its banking facilities. With gearing at 28% (vs. 48% policy max) and NZ$196m of&nbsp;undrawn&nbsp;debt facilities, IPL is well positioned to deploy its balance sheet and acquire assets to grow earnings and dividends. Unfortunately&nbsp;the acquisition market is highly competitive, with&nbsp;the supply of suitable LFR properties being heavily outweighed by demand with long lease term assets being well bid. IPL had previously signalled it was considering NZ$100m of asset purchases, however, this amount has since decreased with one asset no longer being assessed.&nbsp;Management remains optimistic around balance sheet deployment.&nbsp;</p>
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<h3>Remain OUTPERFORM rated on growth potential</h3>
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<div id="m_1075375110163285703i1rt5j-2-2">
<p>We retain our OUTPERFORM on IPL. While its current gross yield of 4.9% is below the sector average of 5.1%, and its recent revaluations see it trading at 16% premium to NTA (vs. sector average of 22%), we expect it to deliver best in sector AFFO growth (CAGR of 6% from FY21–FY23) which makes it an attractive home for capital in a low growth sector. However, this earning path hinges on our assumption that management can execute on NZ$100m of asset purchases over the next two years.</p>
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<div><strong>Rohan Koreman-Smit CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Ashton Olds</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
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Investore 1H21 Result — Waiting for an LFR Restock

OUTPERFORM
Investore&nbsp;(IPL) reported a solid 1H21 result, with AFFO ahead of our expectations largely due to lower than expected maintenance&nbsp;capex. Over the period strong demand for large format retail (LFR) properties led to tightening capitalisation rates and strong revaluations. While this has benefitted shareholders, competitive bidding and scarce supply has made&nbsp;IPL's&nbsp;growth-via-acquisition strategy more challenging in the near-term. We remain confident that acquisitions will drive better than peers earnings growth and believe this will prove attractive vs. a low growth sector. We make minor adjustments to our earnings estimates and retain our NZ$2.35 12-month target price and OUTPERFORM rating.


What's changed?&nbsp;



Earnings:&nbsp;FY21–23 AFFO +3%/-0%/+2%
Target price:&nbsp;NZ$2.35 unchanged
Rating:&nbsp;Retain OUTPERFORM



Tidy result, boosted by no maintenance&nbsp;capex


IPL reported a solid interim result with AFFO of NZ$13.7m, up +55% yoy and ahead of our expectations, driven by acquisitions, lower interest and tax expenses, and no maintenance capex. Clarity around COVID-19 abatements was provided, with IPL lowering the FY21 rental impact to NZ$1m from NZ$1–2m. While no maintenance capex was spent in 1H21, likely due to lockdowns and delays, IPL suggested that the 2H21 will be at a similar level to 2H20.


Balance sheet primed for acquisitions


IPL has been active in capital management, raising NZ$105m of equity in May, issuing NZ$125m of bonds in August, and reshuffling its banking facilities. With gearing at 28% (vs. 48% policy max) and NZ$196m of&nbsp;undrawn&nbsp;debt facilities, IPL is well positioned to deploy its balance sheet and acquire assets to grow earnings and dividends. Unfortunately&nbsp;the acquisition market is highly competitive, with&nbsp;the supply of suitable LFR properties being heavily outweighed by demand with long lease term assets being well bid. IPL had previously signalled it was considering NZ$100m of asset purchases, however, this amount has since decreased with one asset no longer being assessed.&nbsp;Management remains optimistic around balance sheet deployment.&nbsp;


Remain OUTPERFORM rated on growth potential


We retain our OUTPERFORM on IPL. While its current gross yield of 4.9% is below the sector average of 5.1%, and its recent revaluations see it trading at 16% premium to NTA (vs. sector average of 22%), we expect it to deliver best in sector AFFO growth (CAGR of 6% from FY21–FY23) which makes it an attractive home for capital in a low growth sector. However, this earning path hinges on our assumption that management can execute on NZ$100m of asset purchases over the next two years.



Rohan Koreman-Smit CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Ashton Olds
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Investore: 1H21 Result — Waiting for an LFR Restock

Investore Property

Investore: 1H21 Result — Waiting for an LFR Restock