A new NZX listing to be managed by specialist real estate business Stride Property has some good fundamentals but also carries risks, say finance specialists.
Shane Solly of Harbour Asset Management said plans to list Investore Property, with assets valued at $641.4 million, would bring a new, focused, specialised fund.
"These [are common] in Australia. That has worked well for all investors as it lets them focus their investment at a risk level that works best for them, with differing income yield and capital growth outcomes," Solly said.
"The exposure to a long-weighted average lease term provides a degree of certainty for some investors. But concentrated tenant risk may be a question for some others," he said of Investore which plans to own many Countdown supermarkets.
Stride, headed by Peter Alexander, is a strong asset manager and would do a good job, he predicted.
Stride wanting to hold a 19.9 per cent stake meant an alignment between the two businesses, he said.
"Given the strong run in the New Zealand equity market it is a good time to be raising equity capital," Solly said.
Investore is to own 39 properties rented to 75 tenants: 25 existing retail assets owned by Stride and 14 Countdown supermarkets planned to be bought.
The properties have an asset valuation of $641.4 millon, according to Stride.
Nick Mar of Macquarie Capital said the Investore deal would cut Stride's gearing.
"Back of the envelope, this could reduce Stride's look-through gearing post-transaction to around 34 per cent to 39 per cent, from 41.7 per cent at FY16 but before settling of a few divestments," Mar said.
"The new listing will be a portfolio of significant national retailers, exposed to a non-discretionary sector and have a weighted average lease term of 14.8 years. Given the large exposure to supermarkets, growth is likely to be lower, but the lower-maintenance capex, and long-weighted average lease terms can allow for higher gearing and solid risk-adjusted returns," Mar said.
On Friday, Stride announced plans for an initial public offering as part of its strategy to retain its portfolio investment entity (PIE) tax status.
Stride will distribute Investore shares to its shareholders at a one-for-four ratio, at the same time as Investore lists on the NZX main board.
Stride will keep a 19.9 per cent stake in Investore, while Stride shareholders will collectively hold 33.4 per cent to 38.2 per cent.
In May, Stride proposed splitting its property-owning unit from its real estate investment management in a stapled structure, with each as a separate legal entity but effectively operating in lock-step, allowing it to expand the management arm while preserving its favourable tax status.
If the Investore deal goes ahead, Stride says it will have participated in three of the market's largest property deals during the last 12 months with a total value of around $1 billion.
Stride special shareholders meeting, 9am June 30, Rydges Hotel, Auckland.
• New NZX company float planned.
• Investore to own retail assets.
• Properties worth $641.4m in float.
• Large-format/supermarkets in float.
• 75 tenants renting 39 properties.
• Net lettable area: 173,503sq m.
• Stride shareholders meet June 30.
• Float planned for next month.