Investore earnings, dividends to get boost from Bunnings acquisition
Investore Property will pay just below book value to buy three Bunnings stores from manager Stride Property Group in a deal which will boost earnings and dividends, says the independent adviser.
Shareholders of Investore will vote on whether to approve the transaction at a special meeting in Auckland on Feb. 8, which needs their backing because of the related party nature. Independent adviser Northington Partners' report on the deal found the terms and conditions were fair to shareholders not associated with Stride, in that the properties fit the company's strategic goals, the $78.5 million price tag is a 1.3 percent discount, it will increase distributable earnings 5.8 percent and allow for bigger dividends, and adds a new high-quality tenant to the portfolio and reducing its reliance on its biggest tenant.
Stride has been keen to exit large format retail properties since carving out Investore in 2016, but couldn't agree to new lease terms with Bunnings in time for the initial public offering. Stride agreed to pay $18 million to Bunnings to terminate the old leases and enable this deal.
"The proposed transaction is consistent with Investore's existing strategy of sourcing an investment pipeline of large format retail properties through SIML's (Stride Investment Management Ltd) market coverage," the report said. "Had appropriate lease terms with Bunnings been agreed at the time of Investore's IPO, it is likely the acquisition properties would already form part of Investore's portfolio."
Investore's independent directors Kate Healy and Mike Allen managed the deal to avoid conflicts of interest and have recommended shareholders approve the transaction.
"The independent directors consider the acquisition of the Bunnings Properties to be consistent with Investore's strategy to acquire large format retail properties that deliver total returns to shareholders over the medium to long term and that are typically highly resilient across a wide range of market conditions," chair Allen said in the notice of meeting.
Northington Partners notes Investore's gearing ratio will increase to 46 percent from 39 percent, which limits the property firm's capacity for more acquisitions or development. The company's debt is expected to rise to $339.7 million from $261 million.
"However, we note that Investore has signalled the potential to divest up to three existing properties to provide balance sheet capacity for future activities, and a potential share buy-back scheme," the report said. "We would expect any material asset disposal and potential share buy-back to further enhance Investore's distributable profit per share."
Investore shares were unchanged at $1.46, while Stride's stock was unchanged at $1.78.