NZX-listed supermarket owner Investore Property Ltd said in an update on Friday it was in an unusual position in the listed property sector because almost all its tenants are “essential businesses” under the Government’s classification for Covid-19 alert level 4.
The company laid out its much happier state of business than most others are experiencing, added in 3 related-party acquisitions it’s in the process of making, revised its debt level and concluded it would have about $40 million of available headroom after the acquisitions.
Investore still expects earnings for the financial year finishing this Tuesday, 31 March, will be materially in line with previous guidance.
The company said it was still working with valuers & auditors on its property valuations.
Investore’s share price, around $1.60 a year ago, rose steadily to $1.90 from May to early July and hit $1.97 in August. The price stayed around $1.90 until November, then in the range $1.75-1.85 until 21 February. Over the next month it declined, reaching $1.39 on 23 March, then rose steeply to close at $1.64 on Friday.
Investore raised $77.7 million of capital in December from an institutional placement & retail offer to support the $140.75 million of acquisitions above, which still have to get Overseas Investment Office approval. The company expects to complete the acquisitions in the June quarter.
Investore said in its Friday update it occupied a unique position in the listed property sector by focusing on large format retail, which included not just supermarkets but hardware stores, pet stores & pharmacies.
In a portfolio review as the country moved to Covid-19 alert level 4, Investore said:
- Around 90% of its portfolio by gross contract rental is categorised as essential businesses, and accordingly are permitted to remain open & trading during the alert level 4 shutdown. Some of these tenants may choose to operate reduced hours or have restricted access, but are permitted to remain open & operational
- A few leases provide a contractual right to suspend rental payments in the situation where their premises are inaccessible, including because of the Government shutdown order. Excluding essential businesses, which are permitted to remain open, those leases where the tenant has a contractual right to suspend rental payments would represent a loss of rental income of $20,000 over the 4-week shutdown period, representing about 0.03% of gross rental income. Annualised, these tenants comprise only $200,000, or about 0.4%, of gross rental income
- The Investore portfolio had a weighted average lease term of 11.5 years as at 29 February 2020.
Investore agreed in November to acquire 3 large format retail assets from Stride Property Ltd & its wholly owned subsidiary, Stride Holdings Ltd, for $140.75 million. This transaction remains conditional only on the consent of the Overseas Investment Office, and Investore expects to complete the acquisition of these properties during the next quarter.
- Investore said the 3 acquisitions would increase its loan:value ratio (LVR) from 40.6% at 30 September 2019 to about 42% (before any valuation adjustment as at 31 March 2020) – well below the board’s stated maximum of 48% and Investore’s bank & bond covenant limits of 65%.
- The company’s calculation:
- It took current drawn facilities of $240 million plus the $140.75 million required to settle the 3 acquisitions
- It adjusted the 30 September 2019 portfolio valuation of $750.6 million (excluding land lease liability of $7.6 million) for the purchase price of the 3 properties and the purchase price ($1.2 million) of land acquired during the period since 30 September 2019
- Investore currently has $370 million of debt facilities available, including bank facilities & bonds, of which $240 million is drawn, leaving $130 million of undrawn headroom available
- In addition, Investore has a committed credit-approved $50 million, 5-year facility and is currently finalising documentation for this facility with its banking group; Investore has no indications that the term facility will not proceed as expected; this will take Investore’s total available debt facilities to $420 million, leaving about $40 million of available headroom following settlement of the acquisition from Stride
- Investore has a weighted debt maturity of 2.5 years, including the additional 5-year facility, with no banking facilities expiring in the next financial year.
20 November 2019: Investore raises capital to buy 3 more assets from Stride
Attribution: Company release.