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>
Stocking the Shelves
Investore (IPL) has announced the conditional purchase (and associated capital raise of NZ$80m) of the three remaining large format retail properties owned by Stride Property Group (SPG), the owner of the management contract for IPL. The deal is in line with IPL’s strategy and provides earnings accretion, greater tenant and geographic diversification; although it will reduce the WALT from 11.9 years to ~10 years while still maintaining very high occupancy at 99.7%. Settlement is not expected until 1 April 2020. FY20 dividend guidance is unchanged at 7.60cps and we have not changed our forecasts at this stage. Our rating remains OUTPERFORM.
Acquisition and capital raise
The three properties are being purchased at recent (30 September 2019) valuations totalling NZ$140.8m with an associated capital raise of up to NZ$80m: being an NZ$65m underwritten placement and an NZ$15m retail offer. The underwritten floor price for the book build is NZ$1.75, slightly above IPL’s NZ$1.70 NTA. IPL has indicated the transaction will be around +2.5% EPS accretive in FY21 in terms of distributable profit. The capital raise will drop gearing to ~30%, with gearing then increasing to ~41%, the same gearing as at 30 September and pre the capital raise.
Not just a grocer
IPL at its recent 1H20 result indicated its intention to continue to look to broaden and diversify its tenant base and asset mix. The properties add an additional 48 tenants and 23 new major retailers to the mix with the properties well located in Auckland and Tauranga. The transaction, while maintaining very high occupancy (and there is a two year rental underwrite from the vendor on four leases), drops the WALT considerably from 11.9 years to ~10 years but is still sector leading for commercial property LPVs, excluding the very high Vital Healthcare WALT. Two of the properties, Mt Wellington Shopping Centre, Auckland and Bay Centre Shopping Centre, Tauranga, in addition to large format tenants have a range of specialty tenants. This naturally shortens the WALT and makes the property more management intensive and less defensive. However, overtime the specialty retailer tenants have moved towards more defensive categories such as everyday needs and general merchandise.
More from Stride
These are the only remaining large format retail assets currently owned by SPG. We expect that SPG could in future still sell down these types of assets to IPL as it could purchase them as part of a diversified portfolio acquisition. The transaction is conditional on signoff from the Board of IPL, shareholder approval (given it is a material transaction) and OIO approval, with settlement likely on 1 April 2020.&nbsp;
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Investment View
IPL offers a stable medium-term dividend yield backed by a defensive portfolio of large format retail properties. Long lease terms and structured reviews mean near-term risks are low. However, we remain conservative on the medium-term outlook for rental growth with the majority of IPL’s rent reviews linked to turnover over the medium term (albeit these include hard ratchets and are very defensive). IPL looks attractively priced relative to its peers in terms of yield and P/NTA. OUTPERFORM.
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Jeremy Simpson Jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Investore
Stocking the Shelves
Investore (IPL) has announced the conditional purchase (and associated capital raise of NZ$80m) of the three remaining large format retail properties owned by Stride Property Group (SPG), the owner of the management contract for IPL. The deal is in line with IPL’s strategy and provides earnings accretion, greater tenant and geographic diversification; although it will reduce the WALT from 11.9 years to ~10 years while still maintaining very high occupancy at 99.7%. Settlement is not expected until 1 April 2020. FY20 dividend guidance is unchanged at 7.60cps and we have not changed our forecasts at this stage. Our rating remains OUTPERFORM.
Acquisition and capital raise
The three properties are being purchased at recent (30 September 2019) valuations totalling NZ$140.8m with an associated capital raise of up to NZ$80m: being an NZ$65m underwritten placement and an NZ$15m retail offer. The underwritten floor price for the book build is NZ$1.75, slightly above IPL’s NZ$1.70 NTA. IPL has indicated the transaction will be around +2.5% EPS accretive in FY21 in terms of distributable profit. The capital raise will drop gearing to ~30%, with gearing then increasing to ~41%, the same gearing as at 30 September and pre the capital raise.
Not just a grocer
IPL at its recent 1H20 result indicated its intention to continue to look to broaden and diversify its tenant base and asset mix. The properties add an additional 48 tenants and 23 new major retailers to the mix with the properties well located in Auckland and Tauranga. The transaction, while maintaining very high occupancy (and there is a two year rental underwrite from the vendor on four leases), drops the WALT considerably from 11.9 years to ~10 years but is still sector leading for commercial property LPVs, excluding the very high Vital Healthcare WALT. Two of the properties, Mt Wellington Shopping Centre, Auckland and Bay Centre Shopping Centre, Tauranga, in addition to large format tenants have a range of specialty tenants. This naturally shortens the WALT and makes the property more management intensive and less defensive. However, overtime the specialty retailer tenants have moved towards more defensive categories such as everyday needs and general merchandise.
More from Stride
These are the only remaining large format retail assets currently owned by SPG. We expect that SPG could in future still sell down these types of assets to IPL as it could purchase them as part of a diversified portfolio acquisition. The transaction is conditional on signoff from the Board of IPL, shareholder approval (given it is a material transaction) and OIO approval, with settlement likely on 1 April 2020.&nbsp;

Investment View
IPL offers a stable medium-term dividend yield backed by a defensive portfolio of large format retail properties. Long lease terms and structured reviews mean near-term risks are low. However, we remain conservative on the medium-term outlook for rental growth with the majority of IPL’s rent reviews linked to turnover over the medium term (albeit these include hard ratchets and are very defensive). IPL looks attractively priced relative to its peers in terms of yield and P/NTA. OUTPERFORM.

Jeremy Simpson Jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Investore Property

Investore: Stocking the Shelves