Privately owned by a UK investor for several years, the supermarket portfolio includes the Countdown supermarket in Cumberland St, Dunedin, and Queenstown's Fresh Choice.
When initially marketed in late July, the entire 19 property portfolio's annual rental was almost $18.9million, ranging from $430,000 to $1.7million.
Australian giant Woolworth's operates Countdown and Fresh Choice brands in New Zealand through a subsidiary, with 177 outlets and 18,000 employees; the 19 sold all being leased.
The 4200sqm Cumberland St supermarket, built in 1991, had a rateable value of $12.8million and annual rental of $1.2million, plus GST, while Queenstown's rental was $600,000.
DNZ chief executive Peter Alexander said, ''We anticipate that the combined portfolio will deliver very reliable returns.''
The portfolio has a long weighted average lease term of 18 years, 100% occupancy and an initial yield of 6.5%.
Craigs Investment Partners broker Peter McIntyre said the increased retail exposure and long dated secure income for the listed DNZ, and continued dividend growth prospects for shareholders, were all positives.
''The increased surety of income is a positive in a yield seeking environment,'' Mr McIntyre said.
He noted aside from truncation costs, he expected an additional 35 basis point management expense, taking the initial yield down to 6.1%.
''We also suspect that Woolworths will have written themselves a lease on very good terms with little rental growth, certainly in the near term,'' Mr McIntyre said.
Forsyth Barr broker Suzanne Kinnaird said the purchase was ''a tidy deal'' at a ''fairly full purchase price'', and the capital raising announced yesterday was a good opportunity for investors.
Forsyth Barr was reviewing its ''underperform'' rating, depending on where the share price settled after the transaction, and because of the share price pull back since an earlier downgrade, she said.
The acquisition lifted debt gearing from 34% to 42%, which was at the high end for the property sector, but Mrs Kinnaird was not concerned.
DNZ had notionally split its debt between large format retail assets totalling $455.1million and the portfolio balance, of $778.5million, she said.
DNZ, which is rebranding to Stride Property Ltd at the end of the week, intends to fund the acquisition through a mix of debt and equity funding, starting yesterday with an underwritten placement to eligible shareholders and investors to raise about $114million.
The placement will be followed by a share purchase plan offer to New Zealand shareholders of up to $15,000 per shareholder to raise up to $15million, closing on October 28.
The balance of the $161.4million funds required to complete the supermarkets' acquisition was coming from bank debt from existing lenders, on similar terms to current facilities.
DNZ chairman Tim Storey said the purchase provided the opportunity for DNZ to grow its Real Estate Investment Management business with a separate, specialised investment product, which would deliver shareholders an increased dividend.
DNZ increased its cash dividend guidance for its full year to March 2016 from 10.5c per share to 10.75c per share, and for full year 2017 is targeting a cash dividend ''of at least'' 11.25c.
The shares allocated under the placement will be allotted on the settlement date, on October 7.
DNZ was granted an NZX waiver so a second quarter dividend of 2.625c per share can be paid to existing shareholders, before allotment of shares under the new placementThe supermarket portfolio joins DNZ's $168million portfolio of large format retail assets, including supermarkets, hardware outlets and a discount department store.
• DNZ's interim report for the six months to September 2015 is scheduled for release on November 12. Net property income for the six month period is expected to be about $28million, while the range of distributable profit is expected to be between $15million and $15.6million.
