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>Top of the Food Chain</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>Investore (IPL) has been the best performing listed property vehicle (LPV) in New Zealand this year. In our view, this is a reflection of IPL's rent collection certainty as highlighted by the COVID lockdown but also against a recessionary economic backdrop. Despite its strong run, we believe IPL retains some positives being 1) recent transactions have highlighted investor demand for Large Format Retail (LFR) assets in the current low interest rate environment and 2) deployment of IPL's balance sheet capacity is highly accretive supporting distribution growth ahead of peers. We lift our target price +20cps to NZ$2.05 and maintain an OUTPERFORM rating.</p>
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<h3>Fulfilling the growth mandate will drive&nbsp;EPS/DPS&nbsp;growth</h3>
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<p>April's NZ$100m capital raise provided IPL with balance sheet capacity to acquire assets and grow earnings. Post-capital raising, IPL's gearing was 30.9% and it has capital headroom of NZ$148m based on current bank facilities, or c.NZ$300m based on its maximum LVR of 48% (covenant 65%). We have incorporated NZ$50m of assumed acquisitions in FY21 into our forecasts which is the key driver of the +2%/+4%/+4% increase in FY21-23 EPS expectations. This also drives better medium term distribution growth of +3% per annum in our FY22/23 forecasts vs. broadly flat expectations for the NZ LPV sector.</p>
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<h3>Supermarket sales remain resilient, keeping an eye on online</h3>
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<p>Supermarket sales growth has remained robust post-lockdown, running at +9% yoy, likely reflecting a shift towards cooking at home versus eating out. IPL benefits from supermarket sales growth as it captures a portion of these sales in turnover rent in about half of its supermarkets (or c.40% of its portfolio). We model turnover resulting in rent growth c.1% a year and given continued solid grocery sales we lift our FY21 rent growth +25bp. We also highlight the increasing adoption of online supermarket sales which is a potential headwind for IPL's turnover rents/income growth particularly if sales are fulfilled from 'dark stores'.&nbsp;</p>
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<h3>Underlying asset values to remain robust</h3>
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<div id="m_774067802501658828iuja6">
<p>Recent transactional evidence has suggested assets in the LFR sub-sector remain highly sought after, particularly by syndicates and private investors. We have heard anecdotes that capitalisation rates for LFR properties have likely firmed versus where they were before the outbreak of COVID-19, attributable to lower interest rates and the proven resilience of LFR through lockdown. IPL's FY20 actual valuations were 0-7.5% below drafts that were received in early March. We expect that IPL's asset values to be well supported by transactional activity and see potential cap rate compression and upward revaluations, potentially at the September half-year result as valuers revisit below the line COVID-19 rent abatements and tenant support adjustments.</p>
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<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>
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<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>
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Investore
Top of the Food Chain
OUTPERFORM
Investore (IPL) has been the best performing listed property vehicle (LPV) in New Zealand this year. In our view, this is a reflection of IPL's rent collection certainty as highlighted by the COVID lockdown but also against a recessionary economic backdrop. Despite its strong run, we believe IPL retains some positives being 1) recent transactions have highlighted investor demand for Large Format Retail (LFR) assets in the current low interest rate environment and 2) deployment of IPL's balance sheet capacity is highly accretive supporting distribution growth ahead of peers. We lift our target price +20cps to NZ$2.05 and maintain an OUTPERFORM rating.


Fulfilling the growth mandate will drive&nbsp;EPS/DPS&nbsp;growth


April's NZ$100m capital raise provided IPL with balance sheet capacity to acquire assets and grow earnings. Post-capital raising, IPL's gearing was 30.9% and it has capital headroom of NZ$148m based on current bank facilities, or c.NZ$300m based on its maximum LVR of 48% (covenant 65%). We have incorporated NZ$50m of assumed acquisitions in FY21 into our forecasts which is the key driver of the +2%/+4%/+4% increase in FY21-23 EPS expectations. This also drives better medium term distribution growth of +3% per annum in our FY22/23 forecasts vs. broadly flat expectations for the NZ LPV sector.


Supermarket sales remain resilient, keeping an eye on online


Supermarket sales growth has remained robust post-lockdown, running at +9% yoy, likely reflecting a shift towards cooking at home versus eating out. IPL benefits from supermarket sales growth as it captures a portion of these sales in turnover rent in about half of its supermarkets (or c.40% of its portfolio). We model turnover resulting in rent growth c.1% a year and given continued solid grocery sales we lift our FY21 rent growth +25bp. We also highlight the increasing adoption of online supermarket sales which is a potential headwind for IPL's turnover rents/income growth particularly if sales are fulfilled from 'dark stores'.&nbsp;


Underlying asset values to remain robust


Recent transactional evidence has suggested assets in the LFR sub-sector remain highly sought after, particularly by syndicates and private investors. We have heard anecdotes that capitalisation rates for LFR properties have likely firmed versus where they were before the outbreak of COVID-19, attributable to lower interest rates and the proven resilience of LFR through lockdown. IPL's FY20 actual valuations were 0-7.5% below drafts that were received in early March. We expect that IPL's asset values to be well supported by transactional activity and see potential cap rate compression and upward revaluations, potentially at the September half-year result as valuers revisit below the line COVID-19 rent abatements and tenant support adjustments.



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 Property

Investore: Top of the Food Chain