Investore Property's portfolio of 39 large format retail properties offers a defensive exposure to non-discretionary retail spending, something which is unique among its listed peers, Forsyth Barr broker Lyn Howe says.
Investore recently listed on the NZX and Forsyth Barr initiated coverage with a neutral rating and a target price of $1.62 per share.
Investore was formed through the combination of three portfolios: two were previously owned by Stride Property and a third was acquired from Shopping Centres Australasia.
Investore was externally managed by Stride Investment Management, the property management arm of Stride Property.
Ms Howe said Investore offered a stable dividend yield, backed by defensive rental income.
It intended to pay out 95% to 100% of distributable profit.
Based on the current share price of $1.62, Investore provided a cash yield of 4.8% and a gross yield (for a 30% taxpayer) of 6.8% which was in line with New Zealand-listed property averages, she said.
Investore's defensive earning profile allowed for higher gearing than would be possible with Stride Property's broader portfolio.
Investor's initial gearing of net debt/property assets of 41%, and a long-term target of 48%, compared with the New Zealand property sector average of 34%.
"In a low interest rate environment, Investore's higher gearing enhances the dividend yield to investors, offsetting its lower cap rate. However, it does increase Investore's risk to any future rise in interest rates.''
Among the key investment features of Investore was the strong credit quality of its tenants, including about 95% of the portfolio leased to stable non-discretionary supermarket operators, Ms Howe said.
Tenants included 37 supermarkets - 34 Countdown, one Fresh Choice, one New World, one Pak'n Save, one Mitre 10 and one The Warehouse store.
Investore's weighted average lease term of 14.8 years was significantly higher than the listed property sector average of five, and only 19% to 27% of contract rental was due to expire within the next 10 years to 15 years respectively.
There was potential for debt-funded acquisitions, she said.
The limited organic growth opportunities meant the key growth opportunity was from debt-funded acquisitions.
Investore had balance sheet capacity to fund about $70million of additional large format retail assets.
Investore became a listed PIE on July 12, limiting shareholders' tax liability to that paid by the company.
New Zealand shareholders benefited from the tax shield which effectively made dividends equivalent to 100% imputed, Ms Howe said.
Among the key risks for Investore was the concentration of the portfolio. General Distributors tenanted 35 of 39 properties and contributed 84% of rental revenue.
General Distributors was a 100%-owned subsidiary of Woolworths NZ Group and ultimate ASX-listed Woolworths Ltd.
But Forsyth Barr viewed the credit risk as low.
At a glance
Investore Property has a portfolio of 39 large-format retail properties, mainly supermarkets. The company has an attractive dividend yield underpinned by higher gearing and a lower growth profile than its peers. Investore is externally managed by Stride Investment Management.
