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>1H22 Result&nbsp;—On the Shopping List</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Investore&nbsp;(IPL) 1H22 earnings were below the prior period and our expectations due to rent&nbsp;abatements&nbsp;and performance fees more than offsetting recent acquisitions. There was no change to&nbsp;IPL's&nbsp;FY22 DPS guidance of 7.90cps which suggests a strong 2H22. While lease structures mean that underlying rent growth will be slower to capture than other property sub-sectors,&nbsp;IPL's&nbsp;<wbr>acquisitions and developments underpin our FY21–24E earnings CAGR of 4.6%. We upgrade IPL to OUTPERFORM reflecting its meaningful discount to NTA and attractive gross dividend yield of 6.2%, and see capital management as one&nbsp;possible way this valuation gap could close.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22–24E DPS 0.0%/+0.2%/-1.7% with longer term reductions largely due to higher interest costs.</li>
<li><strong>Rating</strong>:&nbsp;Upgrade to OUTPERFORM from NEUTRAL</li>
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<h3>Lockdown&nbsp;flattens 1H22</h3>
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<p>1H22 distributable profit was down -2.6% vs. the prior period with contributions from acquisitions (4 Carr Rd and Countdown Petone) and lower interest costs being offset by lockdown rent abatements and higher management fees and tax. Like-for-like rental income was down NZ$0.4m with lower turnover rent partly offset by modest growth from rent reviews. IPL's key rent growth exposure is supermarket sales/food prices which influence both base and turnover rents. Base rents&nbsp; are largely reset every c.5 years (based on the prior 3 years turnover) and turnover rent is earned when sales pass a store specific threshold (broadly 1/3 of supermarkets in the portfolio are currently paying turnover rent) resulting in slower capture of rent growth than other sectors.&nbsp;</p>
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<h3>Deploying the balance sheet</h3>
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<p>IPL has deployed its balance sheet, approving the acquisition of two stabilised assets and some development land (Waimak&nbsp;Junction) in 1H22. IPL&nbsp;also has a number of small projects within the portfolio that provide a solid yield on cost (Highland Park&nbsp;Countdown in Auckland NZ$8m spend 5.15% yield,&nbsp;Bunnings&nbsp;Rotorua&nbsp;NZ$2m spend 6.25% yield,&nbsp;Bunnings&nbsp;Carr Rd expansion NZ$14m c.5% yield, and the rebuild of the old NZ Post building at Bay Central). Including all of these projects we calculate committed gearing to be 33.3%.</p>
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<h3>Discount to NTA presents an opportunity to buyback stock</h3>
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<p>IPL is trading at a 15% discount to NTA, one of the largest in the sector. IPL is confident in its NTA given recent transactional evidence and is geared towards the lower end of its target range (30–40%). We estimate a 5% share buyback at current levels (NZ$35m) would be c.2-4% accretive to distributable earnings, which presents a relatively high hurdle to alternative capital allocation. We estimate IPL has NZ$135m of headroom to the top end of its gearing target but would also want to maintain some capital flexibility.</p>
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Investore 1H22 Result&nbsp;—On the Shopping List

OUTPERFORM
Investore&nbsp;(IPL) 1H22 earnings were below the prior period and our expectations due to rent&nbsp;abatements&nbsp;and performance fees more than offsetting recent acquisitions. There was no change to&nbsp;IPL's&nbsp;FY22 DPS guidance of 7.90cps which suggests a strong 2H22. While lease structures mean that underlying rent growth will be slower to capture than other property sub-sectors,&nbsp;IPL's&nbsp;acquisitions and developments underpin our FY21–24E earnings CAGR of 4.6%. We upgrade IPL to OUTPERFORM reflecting its meaningful discount to NTA and attractive gross dividend yield of 6.2%, and see capital management as one&nbsp;possible way this valuation gap could close.


What's changed?&nbsp;



Earnings:&nbsp;FY22–24E DPS 0.0%/+0.2%/-1.7% with longer term reductions largely due to higher interest costs.
Rating:&nbsp;Upgrade to OUTPERFORM from NEUTRAL



Lockdown&nbsp;flattens 1H22


1H22 distributable profit was down -2.6% vs. the prior period with contributions from acquisitions (4 Carr Rd and Countdown Petone) and lower interest costs being offset by lockdown rent abatements and higher management fees and tax. Like-for-like rental income was down NZ$0.4m with lower turnover rent partly offset by modest growth from rent reviews. IPL's key rent growth exposure is supermarket sales/food prices which influence both base and turnover rents. Base rents&nbsp; are largely reset every c.5 years (based on the prior 3 years turnover) and turnover rent is earned when sales pass a store specific threshold (broadly 1/3 of supermarkets in the portfolio are currently paying turnover rent) resulting in slower capture of rent growth than other sectors.&nbsp;


Deploying the balance sheet


IPL has deployed its balance sheet, approving the acquisition of two stabilised assets and some development land (Waimak&nbsp;Junction) in 1H22. IPL&nbsp;also has a number of small projects within the portfolio that provide a solid yield on cost (Highland Park&nbsp;Countdown in Auckland NZ$8m spend 5.15% yield,&nbsp;Bunnings&nbsp;Rotorua&nbsp;NZ$2m spend 6.25% yield,&nbsp;Bunnings&nbsp;Carr Rd expansion NZ$14m c.5% yield, and the rebuild of the old NZ Post building at Bay Central). Including all of these projects we calculate committed gearing to be 33.3%.


Discount to NTA presents an opportunity to buyback stock


IPL is trading at a 15% discount to NTA, one of the largest in the sector. IPL is confident in its NTA given recent transactional evidence and is geared towards the lower end of its target range (30–40%). We estimate a 5% share buyback at current levels (NZ$35m) would be c.2-4% accretive to distributable earnings, which presents a relatively high hurdle to alternative capital allocation. We estimate IPL has NZ$135m of headroom to the top end of its gearing target but would also want to maintain some capital flexibility.


Investore: 1H22 Result —On the Shopping List

Investore Property

Investore: 1H22 Result —On the Shopping List