Market News 15 September 2025

Johnny Lee writes:

THE new convertible note issue from Investore has prompted some to seek a refresher on how convertible notes are structured, and the possible outcomes for noteholders.

These notes, which intend to be quoted as “IPLHA”, function similarly to the existing Precinct convertible notes, PCTHB and PCTHC. Both of these trade above par.

Until the conversion date, 26 September 2029, IPLHA noteholders will be paid a fixed rate of return, to be determined next Friday, 19 September. In this way, it does not differ from a regular vanilla bond.

On the conversion date, Investore can elect to repay noteholders in either Investore shares, or the cash equivalent of what these shares would be worth at the time.

A share allotment would be priced at a 2% discount to the average price over the 20 days preceding the Conversion Announcement Date – 19 September 2029. In theory, this means investors will receive a small bonus upon conversion that incentivises the transaction.

In practice, factors like brokerage and price spread could diminish this bonus. The conversion is also likely to prompt some amount of selling, especially amongst those who urgently need access to the proceeds. 

There is also a price conversion cap, which offers potential for a capital gain.

If the share price of Investore in September 2029 is at a level above $1.592, the notes will convert at a fixed price of $1.56, with noteholders pocketing any difference above this. Investore’s most recently published NTA was $1.60.

Precinct Properties’ first convertible note issue, PCTHA, followed a similar structure and converted noteholders to shares in much the same manner. These converted into shares at the cap of $1.40, when the shares were happily trading at $1.66. A noteholder with 10,000 of the notes received 7,142 shares, then worth $11,800, and walked away with a tidy sum.

Of course, with Investore’s current share price of $1.16, $1.592 would represent a significant increase. It has not reached that level since 2022.

The benefits for Investore are obvious. Assuming the company redeems in the form of new shares, this is effectively a delayed equity raising.

For noteholders, the benefits are a fixed rate of return, with downside protection (2% discount) and upside potential ($1.56 cap). If the property market struggles over the four-year period and Investore shares fall in value, noteholders will receive more shares. If the share price recovers substantially, noteholders stand to receive a tidy gain, much like the PCTHA noteholders.

Potential investors could also weigh up the option of buying IPL shares directly, which currently pay a gross yield above 7%. Dividends, of course, are fully at the discretion of the company. Indeed, the dividends were reduced last year, to provide greater balance sheet resilience.

The notes rank behind secured creditors – including the listed IPL020 and IPL030 bonds – but ahead of shareholders. Investore’s market capitalisation is approximately $430 million.

The IPLHA offer closes on Friday. A special, smaller priority offer is also available for existing IPL shareholders, for those wanting to bid for the notes.

_ _ _ _ _ _ _ _ _ _ _ _ 

THE purpose of the $62.5 million raise is to part-fund the acquisition of the Silverdale Centre on the Hibiscus Coast. The total acquisition cost is $114 million.

The Silverdale Centre is fully leased. The main tenants are Woolworths and The Warehouse, but the complex includes Chemist Warehouse and Noel Leeming. One of the benefits of Large Format Retail is that such tenants rarely fail to renew tenancies, as the cost of re-establishing themselves elsewhere can exceed the cost of lease renewal. Investore expects continued population growth in the area long term.

The transaction will require shareholder approval. Investore and the vendor, Stride Property Group, are managed by the same entity – Stride Investment Management Limited. SIML is part of the stapled security listed on our exchange under SPG. 

Stride also owns 19% of Investore.

These related party deals often lead to unease among investors. Investore justifies the transaction as enhancing long-term earnings – noting the 6.8% initial yield, compared to the company’s existing 6.5% yield – while Stride locks in a 20% capital gain since March 2020 and pays off a significant amount of debt.

The purchase and terms have been independently assessed as “fair” to shareholders by Northington Partners, while the property has been inspected and valued by Jones Lang LaSalle Limited, with valuations supporting the acquisition price. The deal itself was negotiated by the Independent Directors of the company.

At the same time as the acquisition, Investore shareholders are being asked to vote on an amendment to its management fee schedule with SIML, and an expansion of its mandate to allow the company to increase its exposure to Convenience-Based Retail (CBR).

The fee increase may be a tough sell. Shareholders would need to be convinced that increasing the cost – or making the fee structure “more equitable” as described by Investore – was in their best interests. The fee increase is not considered material at this stage, with a forecast change of $64,000 from distributable profit in the short term.

This is not to suggest the fee change is unreasonable. A flat, non-inflation adjusted fee regardless of the actual complexity of an underlying asset would make sense for a portfolio of equally simplistic assets. However, Investore’s portfolio now ranges from a Tauranga shopping centre to a Kaiapoi Woolworths. 

The issue may be in the timing of the move. Shareholders tend to be more generous when the share price has not fallen 50% over the past five years and seen reductions to their dividend. 

The move into CBR is designed to give the company more flexibility. At the moment, the company looks for assets where anchor tenants occupy 50% of the net lettable area of the property and provide 50% of the rental income. This rule will give comfort to some investors, as these anchor tenants (Woolworths, Briscoes, Mitre 10, etc) provide reliable income, and an incentive for other tenants to lease, hoping to leverage from the foot traffic.

By removing the rule, Investore can consider a broader range of potential investments. Assuming shareholders approve the mandate change, this would be tacit approval for the company to look into more varied assets.

Shareholder votes rarely fail. A shareholder who lacks confidence in his or her company does not tend to remain a shareholder for long, and the team at Investore are confident the fee increase and strategic change into new property types is the best way to increase shareholder value long term.

Investore’s shareholder vote is currently scheduled for October 20th. If the vote fails, the proceeds from the Convertible Note issue will be used to pursue other opportunities.

New Issue

Investore Property Limited (IPL) has launched an offer of 4-year convertible notes maturing on 26 September 2029.

The notes will provide quarterly interest payments at a rate that has yet to be determined but is forecast in the vicinity of 5.50%.

On maturity, the Notes will either: convert into Investore shares at a 2% discount to the market price at that time, subject to a cap of $1.56 per share, or be repaid in cash at Investore's discretion.

Noteholders will receive a minimum value of approximately $1.02 for every $1.00 invested, with potential to benefit further if the share price is above $1.56 at conversion.

The minimum investment size is $5,000.

Clients will not be charged brokerage.

The General Offer closes on Friday, 19 September 2025 and the Shareholder Priority Offer (open to existing IPL shareholders) closes on Tuesday, 23 September 2025.

If you would like an allocation of these notes, please contact us with your CSN and an amount.

Travel

24 September – Lower Hutt – Fraser Hunter

24 September – Napier – Edward Lee

25 September – Wellington – Fraser Hunter

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee (full)

3 October – Tauranga – Johnny Lee (full)

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee (full)

22 October – Wellington – Fraser Hunter

22 October - Blenheim - Edward Lee

24 October - Nelson - Edward Lee

Johnny Lee

Chris Lee & Partners