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>
Super Essential
OUTPERFORM
Investore Property (IPL) has benefited in recent weeks from its defensive qualities and its exposure to its 'essential' supermarket businesses. While IPL has arguably less upside in a recovery scenario than some of the other more retail and office focused NZ LPVs that have been heavily sold off, we remain with an OUTPERFORM rating and continue to like the strongly defensive characteristics given the level of economic and property valuation uncertainty.&nbsp;&nbsp;
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<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">IPL</td>
<td style="width: 48pt;">Financials:Mar/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$1.62</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">20.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">21.6</td>
<td style="text-align: left; width: 43.2pt;">25.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">26.2&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">18.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">16.9</td>
<td style="text-align: left; width: 48pt;">13.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.9&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target price</td>
<td style="width: 48pt;">NZ$1.85</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">8.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">7.8&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">8.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">8.6&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">18.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">16.9&nbsp;</td>
<td style="text-align: left; width: 48pt;">13.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.9&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">Low</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">2.1</td>
<td style="text-align: left; width: 42.6pt;">-2.2</td>
<td style="text-align: left; width: 43.2pt;">6.1</td>
<td style="text-align: left; width: 48pt;">3.6&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">20.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">20.7&nbsp;</td>
<td style="text-align: left; width: 48pt;">19.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">18.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">260.1m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">7.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">7.6&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">7.6&nbsp;</td>
<td style="text-align: left; width: 48pt;">7.6&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">1.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">0.9&nbsp;</td>
<td style="text-align: left; width: 48pt;">0.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">0.9&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$421m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">4.7</td>
<td style="text-align: left; width: 42.6pt;">4.7</td>
<td style="text-align: left; width: 48pt;">4.7</td>
<td style="text-align: left; width: 42.6pt;">4.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">210.5k (NZ$373k)</td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">6.7</td>
<td style="text-align: left; width: 42.6pt;">6.7</td>
<td style="text-align: left; width: 48pt;">6.7</td>
<td style="text-align: left; width: 42.6pt;">6.9&nbsp;</td>
</tr>
</tbody>
</table>
Defensive&nbsp;tenant base limits downside
Compared to NZ REIT sector, IPL has performed relatively well, down -12% YTD, and trading broadly in line with NTA. The tenant base of IPL's large format retail assets is relatively well insulated from COVID-19, with majority of rental income derived from Supermarkets. While headline retail sales have reduced significantly over the past few weeks, data from Paymark points to a meaningful increase in food sales. A sustained increase in food sales is supportive to IPL's rental income with supermarket leases typically including a turnover component.
Asset purchases lift gearing, lowers Supermarket exposure
IPL&nbsp;has committed to purchasing&nbsp;three large format retail (LFR) assets from Stride Property Group (SPG) for $141m, with expected settlement in 1Q21 (ie in the current quarter). This transaction was partially funded via an NZ$85m equity raise in Nov-19, as such&nbsp;IPL&nbsp;will have lower than normal gearing at its FY20 result (FB estimate 29%), however, we expect this to lift to typical levels upon settlement.&nbsp; Whilst these asset purchases are&nbsp;accretive&nbsp;(EPS&nbsp;+c.2.5%) we note they decrease portfolio exposure to Supermarkets (78% to 69% of gross rent) and increase the number of smaller&nbsp;specialty&nbsp;tenants (5% to 11% of gross rent).
In a strong position
IPL's appeal remains its defensive supermarket based rental income. While IPL will have higher gearing post settlement of asset purchases, we see asset-revaluation risk as more limited than other retail assets given long lease terms and potential for turnover driven rent growth. We do note that IPL's gearing is high vs. the sector; however, its small average asset size ($19m) is helpful for balance sheet management and it has a maximum gearing covenant of 65% versus the 50% typical in the sector.&nbsp;
​​​​​​​We have adjusted our earnings estimates for the Nov-20 capital raise and the purchase of the three LFR assets from SPG. We assume settlement for the LFR divestment occurs at the end of 1Q21. The timing mismatch between capital raise and asset settlement impacts our FY20 EPS estimates (-4.5%) but the transaction is accretive longer term (FY21-22E +0.8%/+2.8%). No change to our target price of NZ$1.85.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Investore
Super Essential
OUTPERFORM
Investore Property (IPL) has benefited in recent weeks from its defensive qualities and its exposure to its 'essential' supermarket businesses. While IPL has arguably less upside in a recovery scenario than some of the other more retail and office focused NZ LPVs that have been heavily sold off, we remain with an OUTPERFORM rating and continue to like the strongly defensive characteristics given the level of economic and property valuation uncertainty.&nbsp;&nbsp;
         


NZX Code
IPL
Financials:Mar/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$1.62
NPAT* (NZ$m)
20.9&nbsp;
21.6
25.3&nbsp;
26.2&nbsp;
EV/EBITDA
18.2&nbsp;
16.9
13.4&nbsp;
12.9&nbsp;


Target price
NZ$1.85
EPS* (NZc)
8.0&nbsp;
7.8&nbsp;
8.3&nbsp;
8.6&nbsp;
EV/EBIT
18.2&nbsp;
16.9&nbsp;
13.4&nbsp;
12.9&nbsp;


Risk rating
Low
EPS growth* (%)
2.1
-2.2
6.1
3.6&nbsp;
PE
20.2&nbsp;
20.7&nbsp;
19.5&nbsp;
18.8&nbsp;


Issued shares
260.1m
DPS (NZc)
7.6&nbsp;
7.6&nbsp;
7.6&nbsp;
7.6&nbsp;
Price/NTA
1.0&nbsp;
0.9&nbsp;
0.9&nbsp;
0.9&nbsp;


Market cap
NZ$421m
Imputation (%)
100
100
100
100
Cash div yld (%)
4.7
4.7
4.7
4.8&nbsp;


Avg daily turnover
210.5k (NZ$373k)
*Based on normalised profits


Gross div yld (%)
6.7
6.7
6.7
6.9&nbsp;



Defensive&nbsp;tenant base limits downside
Compared to NZ REIT sector, IPL has performed relatively well, down -12% YTD, and trading broadly in line with NTA. The tenant base of IPL's large format retail assets is relatively well insulated from COVID-19, with majority of rental income derived from Supermarkets. While headline retail sales have reduced significantly over the past few weeks, data from Paymark points to a meaningful increase in food sales. A sustained increase in food sales is supportive to IPL's rental income with supermarket leases typically including a turnover component.
Asset purchases lift gearing, lowers Supermarket exposure
IPL&nbsp;has committed to purchasing&nbsp;three large format retail (LFR) assets from Stride Property Group (SPG) for $141m, with expected settlement in 1Q21 (ie in the current quarter). This transaction was partially funded via an NZ$85m equity raise in Nov-19, as such&nbsp;IPL&nbsp;will have lower than normal gearing at its FY20 result (FB estimate 29%), however, we expect this to lift to typical levels upon settlement.&nbsp; Whilst these asset purchases are&nbsp;accretive&nbsp;(EPS&nbsp;+c.2.5%) we note they decrease portfolio exposure to Supermarkets (78% to 69% of gross rent) and increase the number of smaller&nbsp;specialty&nbsp;tenants (5% to 11% of gross rent).
In a strong position
IPL's appeal remains its defensive supermarket based rental income. While IPL will have higher gearing post settlement of asset purchases, we see asset-revaluation risk as more limited than other retail assets given long lease terms and potential for turnover driven rent growth. We do note that IPL's gearing is high vs. the sector; however, its small average asset size ($19m) is helpful for balance sheet management and it has a maximum gearing covenant of 65% versus the 50% typical in the sector.&nbsp;
​​​​​​​We have adjusted our earnings estimates for the Nov-20 capital raise and the purchase of the three LFR assets from SPG. We assume settlement for the LFR divestment occurs at the end of 1Q21. The timing mismatch between capital raise and asset settlement impacts our FY20 EPS estimates (-4.5%) but the transaction is accretive longer term (FY21-22E +0.8%/+2.8%). No change to our target price of NZ$1.85.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Investore Property

Investore: Super Essential