Chris Lee & Partners Ltd

Market News 22 September 2025

Johnny Lee writes:

The bond market continues to face pressure in 2025, as high levels of investable funds, soft supply of new products, and increasingly cautious investors combine to create a complex investment environment.

One notable aspect of this year has been the lack of supply in both the primary (new issues) and secondary (existing bonds traded) markets.

New bond issuance for retail investors has been sparse. Green bonds have proven a popular choice for some issuers, although the yields on offer are occasionally less attractive for retail investors.

More specialised products, such as preference shares, convertible notes and securities where the interest rate resets during the term, continue to emerge from corporate issuers as they try to raise funds while retaining balance sheet flexibility. These types of securities are usually accompanied by a higher interest rate, but require investors to fully understand the unique risks associated with them.

The secondary market is not yet responding. It is increasingly common to find several buyers queued on screen, while sellers, especially those not under pressure, are demanding higher prices.

At the same time, the early repayment of Manawa bonds has led to an unexpected influx of money to bondholders. Contact Energy repaid hundreds of millions early to bondholders, at a time when term deposit rates are unfavourable and look likely to continue downwards in the short term

The term deposit market now offers around 4.00 – 4.20% for longer terms whilst shorter dated terms are now well below 4.00%. The deposit guarantee scheme may end up nudging investors away from the major banks, providing tension towards higher rates.

Another dynamic beginning to re-enter investor thoughts is the lessons from the COVID era.

The COVID environment, just five years ago, was a very challenging time for the world, including financial markets. Interest rates fell sharply, with economists pondering how low rates would need to go to convince people to spend.

One consequence of this was the ability of some corporates to borrow huge sums at what turned out to be poor rates for investors.

Chorus, for example, borrowed seven year money at 1.98 percent in December 2020. Investore, which last week completed its convertible issue, borrowed seven year money at 2.40 percent in August 2020. Auckland Council, notably, borrowed 500 million dollars of 30 year money in September 2020 at only 2.95 percent.

Today, such deals are highly unlikely to be repeated. As interest rates have fallen, investors are regularly expressing a preference for shorter dated terms, hoping to avoid locking in long at a time that they fear is the bottom of the interest rate cycle.

The exception may be bonds where the rate resets. Unlike a normal bond, these pay a fixed return until a specific date, when the rate changes based on underlying interest rates.

Infratil’s IFTHC, for example, is a bond repaying in December 2029. However, the interest rate updates each December. This is to investors’ benefit when rates are rising, and to Infratil’s benefit when rates are falling.

There is one other driver behind investment decisions worth raising: expectations.

Last week saw a shift in these expectations, following the release of particularly poor GDP data from Statistics New Zealand. GDP fell 0.9 percent for the quarter. The Reserve Bank had forecast a decline of 0.3 percent. Calls immediately began to cut interest rates by 0.75 percent by year end, bringing the Official Cash Rate to 2.25 percent.

Manufacturing and construction, in particular, are reporting difficult trading conditions. This aligns with the statements from listed companies, which continue to pin hopes on a 2027 recovery.

The Reserve Bank meets only twice in the final quarter of this year, on October 8 and November 26. The next scheduled meeting after that is February 18.

If we do see a 50 point cut at one of these meetings, the response from investors will not be straightforward. When rates are in decline, the typical response is to look long, locking in rates to shield them from future cuts.

However, the lack of supply and an increasing reluctance to invest for long periods is limiting investor choice. Those relying on a fixed income may be facing more limited options in the short term.

One new opportunity worth noting is Investore Property Limited’s (IPL) offer of four year convertible notes, maturing on 26 September 2029. The notes pay 6.25 percent quarterly. On maturity, they will either convert into Investore shares at a 2 percent discount to market price or be repaid in cash at the company’s discretion.

It may prove to be one of the last fixed interest opportunities at 6.25 percent for some time, particularly if the OCR is cut in coming weeks.

The minimum investment size is $5,000. No brokerage will be charged. Payment is due later this week. 

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

_ _ _ _ _ _ _ _ _ _

Infratil gave another hint as to its future, following its Investor Day presentation to shareholders last week. 

The underlying businesses continue to track favourably, with both CDC and Longroad expecting the next few years to see considerable growth. Longroad now has dozens of projects in its development pipeline, primarily in solar. Most of these include a BESS - Battery Energy Storage System - primarily around the southern United States. 

The electricity generated by these projects is normally contracted out for over a decade, providing guaranteed revenue and derisking the project. Recent regulatory uncertainty surrounding tax credits has largely been resolved, with Infratil confident its short term projects will qualify for the tax advantages. 

These developments will cost billions over the years ahead. Although debt will do much of the heavy lifting, Infratil will be investing significant sums into Longroad over the next decade, fuelled in part by the energy demand of new data centre developments in the US. 

Even locally, demand for data centres is not yet slowing. 

Infratil’s other major subsidiary, CDC, now has seven new data centres under construction, with land secured for a further eight across Australia, including the planned Perth expansion. The data centre business remains on track to double earnings over the next two years. 

The challenge may very well be ensuring funding for the rollout of these massive facilities. 

To this end, Infratil confirmed that the $1 billion divestment target remains in focus, and the company is planning to conduct a strategic review of its Australian medical imaging business, Qscan. 

Shareholders will recall that RetireAustralia underwent a strategic review in 2022, before ultimately deciding to retain the business. 

Three years later - last month - Infratil confirmed it was selling the business at a loss and using the proceeds to invest further into its other assets. Infratil’s stake in Qscan was last valued at approximately $460 million, and was acquired in 2020 for $310 million. 

At the time, Infratil viewed Qscan as “an opportunity to create a meaningful Australasian healthcare platform with a number of potential synergies and adjacent opportunities.” An exit would allow Infratil to redeploy capital elsewhere, particularly as Longroad, Gurin and CDC plan for large-scale growth. 

Of course, a strategic review does not guarantee a divestment. Infratil has already illustrated a willingness to delay its plans for more favourable timing when necessary. Infratil also hinted that a second divestment may be on the horizon, stating that another announcement is expected “this financial year” regarding its divestment goals. 

The progress update from Infratil confirms the company is still very confident in its strategy and will be committing billions more into both its renewable energy and data centre businesses. 

This may mean asset sales, and - ultimately - a more focused portfolio.

_ _ _ _ _ _ _ _ _ _

Bond Issues

Investore Property Limited’s (IPL) offer of four year convertible notes, maturing on 26 September 2029 set its interest rate at 6.25%, with interest paid quarterly. On maturity, they will either convert into Investore shares at a 2 percent discount to market price or be repaid in cash at the company’s discretion.

It may prove to be one of the last fixed interest opportunities at 6.25% percent for some time, particularly if the OCR is cut in coming weeks.

The minimum investment size is $5,000. No brokerage will be charged. Payment is due later this week. 

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

_ _ _ _ _ _ _ _ _ _

Travel Dates

24 September – Lower Hutt – Fraser Hunter

24 September – Napier (FULL) – 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)

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee

Johnny Lee

Chris Lee & Partners Ltd

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

Market News 8 September 2025

Johnny Lee writes:

Reporting season is over, and investors now have a clear picture of the trading environment for our listed companies.

Sky Network Television’s result highlighted an environment where consumers are looking to cut costs where possible.

The company reported a modest decline in revenue (down 1%) and profit (down 16%). Importantly, its focus on free cash flow paid off, allowing the company to meet its dividend guidance of 22 cents.

The “Sky Box” product, once the core engine of its growth, saw continued weakness. This decline was largely offset by continued interest in its Sky Sport Now, Broadband and Advertising units.

While Neon saw some overall weakness, this was largely due to subscribers moving from the Standard plan to the new Basic plan, which includes advertisements and introduces advertising revenue for the company. These are accounted separately and prove the value of a discount offering within the Sky TV brand.

Cost management remains a key focus for Sky as well. Cost savings, particularly within programming costs, is being used to off-set the declining revenue, and will continue to be a key driver of cash flow moving forward.

Guidance for 2026 sees further dividend uplift, with the company targeting a payout of 30 cents per share. Previously guided dividends were met.

A 30 cent dividend is a far cry from the company of 2020. With live sport decimated by the COVID-19 lockdowns, the company was forced to raise capital from shareholders at a hugely dilutive ratio and a price of 12 cents. A 10 for 1 consolidation soon followed, but the last 3 years has seen the share price almost double, as the company modernised and focused on shareholder returns.

The Sky TV story will not be a pleasant one for long-term investors. Streaming and the “competition for eyeballs” has changed the nature of personal entertainment. However, more recent history, under CEO Sophie Moloney, has so far been that of a turnaround story. Now, the company needs to embed the gains it has made, and find a sustainable footing, amidst a rapidly changing world.

_ _ _ _ _ _ _ _ _ _ 

Another turnaround story has been that of Channel Infrastructure, formerly New Zealand Refining.

The company reported 4% growth in revenue, 5% increase in earnings, and a 42% increase in dividends. This was partly funded by a change in the dividend payout ratio, with the company allocating more of its cash flows towards dividends. 

2026 will be an important year for the company, with a number of projects being completed, and a number of others being explored. 

This includes the Z Energy jet storage facility, which is ahead of schedule and now expected to complete next year. The proposed biorefinery project with Seadra is also nearing a final investment decision – if Seadra proceeds, this will open another avenue of revenue. 

Potential other projects – including the Governments announcements this year about fuel storage – could see further expansion. Recent media coverage of potential acquisitions within the jet fuel space highlights further opportunities.

All of this will require expenditure, which could mean an increase in debt or additional capital needed from shareholders.

The last four years have marked very impressive turnaround from Channel Infrastructure. After reaching a low of around 40 cents in 2021, the share price is now approaching $2.50, pays a 13 cent dividend, and the company has positioned itself well for predictable, inflation protected long-term earnings.

Ultimately, the company’s core market – fuel distribution – will not appeal to every investor, whether due to environmental reasons or fears of a sudden decline in fuel consumption. The company is taking steps to diversify from these risks, including the recent bitumen contract and the discussions around a biorefinery. 

With a share price up 28%, Channel’s result was further good news for shareholders.

 _ _ _ _ _ _ _ _ _ _ 

In contrast, EBOS Group’s financial results disappointed the market, with the company reporting a 7% decrease in revenue.

The results were separated between statutory results and an adjusted figure, which excludes the loss of the Chemist Warehouse contract. Once this revenue is removed, revenue rose 12%.

This distinction is important, as it provides a better insight as to the performance of the underlying company on an ongoing basis.

The dividend was maintained, marking the first time in decades that the company has failed to lift dividends. With the reduction in earnings from the lost Chemist Warehouse contract, the decision to maintain the dividend required an increase in payout ratio.

The company highlighted a difficult trading environment in the short-term, particularly in the pharmacy and hospital sectors. Guidance around 2026 earnings growth was lower than historical averages, with the company forecasting 7% growth.

EBOS also highlighted that capital expenditure, longer term, will see significant reductions. The distribution centre upgrades are now largely complete, which should see more room for debt reduction and shareholder distributions going forward.

On the acquisition front, the company announced the purchase of Next Generation Pet Foods, a Queensland based manufacturer and supplier of pet treats and dry pet food, operating in the “premium” sector. The acquisition is expected to add to earnings immediately.

The result led to a sharp selldown of the shares, down 15%, with the share price touching 2021 levels. With modest growth expectations over the next year or two, capital expenditure is now forecast to slow on a comparable basis. The company instead will focus on integrating the recent additions to the EBOS conglomerate – including Malex, Pacific Surgical and SVS – and search for longer term growth amidst a difficult trading environment.

_ _ _ _ _ _ _ _ _ _

One market result that received little market attention was that of Scales Group, which has quietly emerged as one of our best performing shares of the year. At time of writing, Scales is up 31% for the year.

Scales reported a 43% increase in earnings, driven be very strong growth from its horticulture division. Global proteins, by comparison, saw much more modest growth.

No dividend was declared. Scales currently pays its dividends outside of reporting periods: the company reports in August and pays in January.

Global Proteins continues to anticipate growth in the medium term. The company has another US facility opening next financial year, and is exploring more capacity in both Europe and New Zealand. 

Horticulture was undoubtedly the star this year, however. 2025 saw an increase in export volumes back towards pre-COVID levels, and the company’s recent strategy to invest in apple varieties popular in Asia and the Middle East is clearly paying off, with margins improving and demand for these “premium apples” (such as Dazzle and Posy) consistently strong.

Logistics, a much smaller part of the business, produced its best result in years, with earnings almost doubling. Previous investments by the company are beginning to pay off, with the new Auckland coolstore driving an uplift in air freight volumes. 

The strong half year result, coupled with a strong inventory remaining for sale, has led the company to forecast a full year net profit of up to $50 million, compared to last years result of $30 million. The company highlights that such a result would see dividends increase.

As with all horticulture stocks, there will always be unpredictable risks that could see this change. Cyclone Gabrielle was a major setback for the company, but Scales has rebounded and is now laying the foundation for significant growth longer term, particularly from its Global Proteins division. 

The share price has responded and now sits as one of the best performers of the year. February’s result is looking to be an impressive one and could lead to a meaningful uplift in dividends. 

New Issue

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

The notes will provide a quarterly interest payments at a rate that has yet to be determined and 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 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

Travel

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

24 September – Lower Hutt – Fraser Hunter

24 September – Napier – Edward Lee

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee (morning full - afternoon only)

3 October – Tauranga – Johnny Lee (morning full - afternoon only)

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee (full)

Chris Lee and Partners Limited