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 Super(market) revaluations</h2>
Investore (IPL) has announced a revaluation gain of NZ$85.3m (or +9.4%) to NZ$980.3m based on independent valuations as at 30 September 2020. This represents a decrease of 55bp IPL’s average portfolio cap rate to 5.53%. Low interest rates have driven strong demand for supermarket anchored assets with secure cash flows underpinned by long lease terms and high quality ‘essential’ tenants. Post-lockdown supermarket and bulk retail assets have been transacting on &lt;5% yields. With IPL trading at a &gt;30% premium to its 31 March NTA of NZ$1.70cps strong asset revaluations were already being priced in by the market. We estimate this revaluation lifts IPL’s NTA +14% to NZ$1.92cps as at 30 September which lowers the premium to NTA to 19%. A 19% premium to NTA suggests the market is pricing further cap rate compression of &gt;50bp which seems reasonable given recent transactions and current low cost of capital.
With one leg of our investment thesis playing out (specifically asset valuation growth due to demand for supermarket anchored property) IPL now needs to focus on deployment of its balance sheet capacity to drive distribution growth (particularly given higher asset values and strong share price performance increase management fees payable). 30 September gearing is 28.3% vs. maximum gearing of 48% which suggests balance sheet headroom of c.NZ$370m, although IPL is unlikely to fully gear its balance sheet in our view. We model NZ$100m of acquisitions in FY21 which is in line with company guidance provided with its recent retail bond issue. OUTPERFORM
Recent supermarket and large format transaction yields
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1680037455162307904&amp;th=1750b12a0c4cf540&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9D9r9QyXnfi8GwJzotstj-67C7RRvQ5fc5buAUC7ESPt9YfFRHt-s81owv2ZbrUgCvEE_4pUaAWNv7dtlxPTUU1Qs7DffG5ud6slpX_rYImmnxuOORHFqHpmU&amp;disp=emb" width="391" height="261" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1680037455162307904&amp;th=1750b12a0c4cf540&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_6lf3PM-pga_EFC1pRP39MJ2NR2AMDG9mdjzl45kZuJqOZ_mfABa_Mf2TLMfWQziXxpy1eORcfU-SPrBXbNErFq_STHWYA2yVwf28vm1szMs1aOpzc4vtNYXc&amp;disp=emb" class="editor-image img-responsive"></figure>
P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Investore Super(market) revaluations
Investore (IPL) has announced a revaluation gain of NZ$85.3m (or +9.4%) to NZ$980.3m based on independent valuations as at 30 September 2020. This represents a decrease of 55bp IPL’s average portfolio cap rate to 5.53%. Low interest rates have driven strong demand for supermarket anchored assets with secure cash flows underpinned by long lease terms and high quality ‘essential’ tenants. Post-lockdown supermarket and bulk retail assets have been transacting on &lt;5% yields. With IPL trading at a &gt;30% premium to its 31 March NTA of NZ$1.70cps strong asset revaluations were already being priced in by the market. We estimate this revaluation lifts IPL’s NTA +14% to NZ$1.92cps as at 30 September which lowers the premium to NTA to 19%. A 19% premium to NTA suggests the market is pricing further cap rate compression of &gt;50bp which seems reasonable given recent transactions and current low cost of capital.
With one leg of our investment thesis playing out (specifically asset valuation growth due to demand for supermarket anchored property) IPL now needs to focus on deployment of its balance sheet capacity to drive distribution growth (particularly given higher asset values and strong share price performance increase management fees payable). 30 September gearing is 28.3% vs. maximum gearing of 48% which suggests balance sheet headroom of c.NZ$370m, although IPL is unlikely to fully gear its balance sheet in our view. We model NZ$100m of acquisitions in FY21 which is in line with company guidance provided with its recent retail bond issue. OUTPERFORM
Recent supermarket and large format transaction yields

Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Investore Property

Investore: Super(Market) Revaluations