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</h2>
<p><strong>FY20 Result — Cashed up to go shopping</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>Investore (IPL) reported a steady FY20 result with distributable profit of NZ$21.1m, underpinned by solid rent growth and lower finance costs offsetting higher management fees. Distributable profit was slightly ahead of our expectations while adjusted funds from operations (AFFO) per share was -13.9% YoY to 6.5cps, largely due to higher tenant incentives and maintenance capex as well as capital raising dilution. FY21 DPS guidance of 7.6cps was unchanged although upside potential was tempered. IPL's appeal is its defensive supermarket based rental income which underpins its 4.5% cash yield was well as its low gearing (30% vs. maximum of 48%), providing headroom to drive better distribution growth via opportunistic acquisitions. We have made minor adjustments to our AFFO per share forecasts but our NZ$1.85 target price and OUTPERFORM rating remain unchanged.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/137/931/original/image_69578737621591229551276.png?1591229552" class="editor-image img-responsive" data-smartkarma-image-id="137931"></figure>
<p><strong>Balance sheet headroom for acquisitions</strong></p>
<div id="m_-588576758210265637iu546-2">
<p>The April 2020 capital raise reduced IPL's gearing to 30.4% and provides acquisition headroom of NZ$300m, based on its maximum LVR of 48% (covenant 65%) or NZ$148m based on current bank facilities. IPL's strategy remains acquiring and/or developing Large Format Retail (LFR) assets with a focus on tenants who provide everyday needs. While IPL's assets are typically standalone stores, the recent acquisition of two shopping centres with a higher proportion of specialty tenants suggests its mandate has broadened slightly. Furthermore, IPL has a goal to diversify its tenant base, with Countdown currently being 63% of contract rent. However, LFR assets remain in demand and vendor motivation to sell is low, potentially limiting near-term acquisition opportunities.</p>
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<p><strong>An&nbsp;uptick&nbsp;in lease expiry and potential vacancy</strong></p>
<div id="m_-588576758210265637ip8gv-2">
<p>Expires over the next two years are 4.3%/3.5% of contract rent (vs. 1.1%/2.1% in FY20) with key FY21 expiries being Johnsonville Warehouse (1.1% of contract rent) and Countdown Mt Wellington (2.3%). FY22 expiries include The Warehouse MacLaggan St, Dunedin (1.5%) and NZ Post at Bay Central (0.8%). This is the most significant forward leasing in IPL's short history. Management were confident of Countdown renewals but expected vacancy at both Warehouse sites.</p>
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<p><strong>FY21 guidance unchanged&nbsp;</strong></p>
<div id="m_-588576758210265637i6cue-2">
<p>FY21 DPS guidance of 7.6cps was unchanged and upside potential was tempered. While COVID-19 tenant support is tracking in line with management expectations (NZ$1–2m) and smaller tenant vacancy is yet to materialise, this slight change to guidance likely reflects a more cautious view on leasing up of vacancy and expiry as well as acquisition execution. Our earnings adjustments (FY21–23E AFFO per share -0.5%/-1.2%/-2.2%) are largely driven by vacancy at both Warehouse sites with 12 months downtime in our forecasts. Our modest DPS growth track reflects IPL tracking back to an AFFO covered payout over the next 4 years, FY20 payout was 117%.</p>
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<div>
<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>
<div></div>
</div>
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<div>
<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>
</div>
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Investore
FY20 Result — Cashed up to go shopping
OUTPERFORM
Investore (IPL) reported a steady FY20 result with distributable profit of NZ$21.1m, underpinned by solid rent growth and lower finance costs offsetting higher management fees. Distributable profit was slightly ahead of our expectations while adjusted funds from operations (AFFO) per share was -13.9% YoY to 6.5cps, largely due to higher tenant incentives and maintenance capex as well as capital raising dilution. FY21 DPS guidance of 7.6cps was unchanged although upside potential was tempered. IPL's appeal is its defensive supermarket based rental income which underpins its 4.5% cash yield was well as its low gearing (30% vs. maximum of 48%), providing headroom to drive better distribution growth via opportunistic acquisitions. We have made minor adjustments to our AFFO per share forecasts but our NZ$1.85 target price and OUTPERFORM rating remain unchanged.&nbsp;

Balance sheet headroom for acquisitions

The April 2020 capital raise reduced IPL's gearing to 30.4% and provides acquisition headroom of NZ$300m, based on its maximum LVR of 48% (covenant 65%) or NZ$148m based on current bank facilities. IPL's strategy remains acquiring and/or developing Large Format Retail (LFR) assets with a focus on tenants who provide everyday needs. While IPL's assets are typically standalone stores, the recent acquisition of two shopping centres with a higher proportion of specialty tenants suggests its mandate has broadened slightly. Furthermore, IPL has a goal to diversify its tenant base, with Countdown currently being 63% of contract rent. However, LFR assets remain in demand and vendor motivation to sell is low, potentially limiting near-term acquisition opportunities.

An&nbsp;uptick&nbsp;in lease expiry and potential vacancy

Expires over the next two years are 4.3%/3.5% of contract rent (vs. 1.1%/2.1% in FY20) with key FY21 expiries being Johnsonville Warehouse (1.1% of contract rent) and Countdown Mt Wellington (2.3%). FY22 expiries include The Warehouse MacLaggan St, Dunedin (1.5%) and NZ Post at Bay Central (0.8%). This is the most significant forward leasing in IPL's short history. Management were confident of Countdown renewals but expected vacancy at both Warehouse sites.

FY21 guidance unchanged&nbsp;

FY21 DPS guidance of 7.6cps was unchanged and upside potential was tempered. While COVID-19 tenant support is tracking in line with management expectations (NZ$1–2m) and smaller tenant vacancy is yet to materialise, this slight change to guidance likely reflects a more cautious view on leasing up of vacancy and expiry as well as acquisition execution. Our earnings adjustments (FY21–23E AFFO per share -0.5%/-1.2%/-2.2%) are largely driven by vacancy at both Warehouse sites with 12 months downtime in our forecasts. Our modest DPS growth track reflects IPL tracking back to an AFFO covered payout over the next 4 years, FY20 payout was 117%.



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: FY20 Result — Cashed up to Go Shopping

Investore Property

Investore: FY20 Result — Cashed up to Go Shopping