Archive | Argosy Property

Revaluation lifts Argosy half-year return

A revaluation just before the September half-year balance date lifted Argosy Property Ltd’s portfolio value by $34.6 million, resulting in a 5c/share gain in asset backing.

Chief executive Peter Mence said in the interim report yesterday the revaluation was undertaken following evidence of improved market conditions since the last valuation date of 31 March 2018, and desktop valuations performed by Colliers International during the period.

The $34.6 million gain lifted the portfolio 2.2% above previous book value.

Mr Mence said the post-revaluation contract yield on values was 6.63%, and 6.7% on fully let market rentals.

The company has been progressively selling non-core assets, and Mr Mence said 10% of the portfolio, worth $153 million, remained categorised as non-core. This includes 2 properties sold for a total $45.7 million, both with December settlements, and the Albany Lifestyle Centre, which is on the market.

“Argosy will continue its divestment programme over the next 12-18 months to take advantage of current market conditions,” Mr Mence said.

The company has a $650 million debt facility, and Mr Mence said Argosy would review its long-term debt funding options with a view to diversifying its debt funding base over the next 12 months.


  • Pretax profit $71.2 million ($27.4 million)
  • After-tax profit $66.8 million ($23.1 million)
  • Total portfolio value $1.62 billion ($1.51 billion)
  • Revaluation gain 2.2% on book value to $34.6 million (nil)
  • Disposal gains $2.9 million ($165,000)
  • Basic & diluted earnings/share 8.07c (2.8c)
  • Net tangible assets $1.17 ($1.12 in March)
  • Debt:total assets ratio, excluding capitalised borrowing costs, 36.8% (35.9% in March)
  • Borrowings $603.8 million ($552.8 million)
  • Weighted average lease term 5.6 years (6.6 years)
  • Weighted average interest rate 4.86% (4.98% in March)
  • Occupancy (by rent) 98.4% (98.8% in March)
  • Gross distributable income up 7.1% to $33.4 million
  • Gross distributable income/share up 6.6% to 4.04c (3.79c)
  • Net distributable income up 9.2% to $28.7 million
  • Net distributable income/share up 8.8% to 3.47c (3.19c)
  • Weighted average lease term 5.6 years (6.1 years in March), reflecting the adjusted arrangements with NZ Post at 7 Waterloo Quay in Wellington

The company completed 42 rent reviews on $15.5 million of existing rental income during the half-year, achieving 3.4% rental growth (3.1% annualised).

Argosy completed 24 lease transactions (16 new leases, 7 renewals, one extension) on 39,500m² of net lettable area.

These included:

  • East Tamaki, 320 Ti Rakau Drive, Bunnings Ltd 10 years
  • Albany, Albany Lifestyle Centre, E Road Ltd 9 years, Peterken Enterprises Ltd 6 years
  • Albany, Albany Mega Centre, Auckland Outdoor Holdings Ltd 6 years.

Mr Mence said the company had filled some of the vacancy at the Citigroup Centre, 23 Customs St East in downtown Auckland levels 2, 14 & part 13 leased, enquiry on the remaining floors 6, 7 & the balance of 13.

Interim report

Attribution: Company release, interim report.

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Argosy sells in Hastings & Palmerston North, buys Turners site

Argosy Property Ltd has sold 2 properties in Hastings & Palmerston North, reducing assets outside its core Auckland & Wellington markets to 3, and it’s added an industrial yard in Wiri (outlined in picture above) to the Auckland portfolio.


  • Hastings, 1478 Omahu Rd, sold for $10.2 million, a 12% premium over book value, settlement scheduled for March 2019
  • Palmerston North, 31 El Prado Drive, sold for $35.5 million, a 25% premium over book value, settlement scheduled for December
  • Wiri, 133 Roscommon Rd, 15,838m² industrial yard leased to NZX-listed Turners Automotive Group Ltd, acquired in September for $8.6 million; the 15-year lease provides a holding return of $430,000/year net + gst (5% yield) with fixed reviews of 2.5%/year and a market review in year 6.

Argosy chief executive Peter Mence said of the Turners deal: “We are pleased to have commenced what we envisage to be a mutually beneficial long-term relationship with an organisation that has a significant real estate footprint across New Zealand.”

Turners uses this property to store damaged & end-of-life cars. It also owns a large site at 160 Roscommon Rd, used for trucks & machinery.

Attribution: Argosy release.

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Argosy sells Greenlane office building

Argosy Property Ltd has unconditionally sold the office building at 626 Great South Rd, Greenlane, for $10.6 million, 8.2% over the current book value of $9.8 million. Settlement is scheduled for Friday 30 November.

Argosy chief executive Peter Mence said: “The property was held within our non-core pool of assets and we have taken the opportunity to continue divesting assets in an attractive vendors’ market. The settlement proceeds will initially be applied to reducing bank debt. While we still see the property market as being very firm, we continue to consider acquisitions & divestments where they fit within our long-term strategy.”

The 4-level office building has a net lettable area of 2647m², plus parking.

Attribution: Company release.

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Argosy buys Albany Warehouse

Argosy Property Ltd has unconditionally acquired The Warehouse property at 11 Coliseum Drive in Albany for $26.4 million. The property is next to the Argosy-owned Albany Mega Centre and comprises 7600m² of warehouse, 760m² of office, mezzanine & garden centre and 413 parking spaces.

Argosy chief executive Peter Mence said on Monday the acquisition price represented an initial passing yield of 5.0% and the pre-tax internal rate of return was 6.78%. The property has 6.5 years to run on the initial 12-year lease.

Mr Mence said the acquisition size was within Argosy’s investment policy criteria and the property had met all the necessary due diligence requirements: “We are very pleased to have secured a strategically important property and strengthened our relationship with a longstanding & valued partner in The Warehouse Group. The purchase allows us to now consider a range of organic growth options across the entire Albany Mega Centre site. Longer term, we are excited about the opportunity & value this acquisition can deliver for Argosy & its shareholders.”

Settlement is expected to occur on or around 7 September.

Attribution: Argosy release.

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Argosy profit slips as it repositions portfolio

When a company doesn’t tell you in the first line of its results announcement that it’s made a huge profit, it’s all too common to have to hunt for the score. Argosy Property Ltd didn’t mention the profit fall all the way through a long release on its performance on Wednesday, but I’ve tracked down the figures in the annual report and done some percentages (most of which were also not in the release, presentation or report).

In short: Income was steady, pretax profit fell 9.2%, after-tax profit fell 5.2%, earnings/share fell 6.2%.

Argosy has reasons for some complicated figures, especially the effect of the November 2016 Kaikoura earthquake on NZ Post House in Wellington, where reinstatement of 3 floors continues and insurance claims are still being worked through.

The company is also repositioning itself according to its view of the commercial & industrial property cycles, continuing to dispose of what it sees as non-core assets, but seeing less opportunity to acquire well.

Key financial & portfolio stats:

  • Net property income $101.0 million ($100.8 million)
  • Pretax profit down 9.2% to $109.3 million ($120.4 million)
  • Net profit after tax down 5.2% to $98.2 million ($103.6 million)
  • Total assets up 5.9% to $1.545 billion ($1.459 billion)
  • Debt:total-assets ratio 35.9% (36.3%)
  • Total equity up 5.9% to $926.9 million ($875.2 million)
  • Financial year total shareholder return of 9.8%, outperforming the sector by 2.8%
  • Basic & diluted earnings/share down 6.2% to 11.9c (12.69c)
  • Net tangible assets/share up 5.5% to $1.12 ($1.06)
  • Net distributable income/share up 1.1% to 6.62c (6.55c)
  • Cash dividend/share 6.2c (6.1c)
  • A final quarter dividend of 1.55c/share with imputation credits of 0.3744c attached, up 1.6%, has been declared for the March quarter
  • Dividend guidance 6.25c/share for 2019 financial year
  • Annualised rent review increase of 3.0%
  • Occupancy at 98.8% (98.6%) and a 6.1-year weighted average lease term
  • Portfolio revaluation gain 3.2% on book value, $47.3 million ($42.3 million)
  • Completion of $48.8 million of developments, including $33.8 million of green developments

The repositioning

Argosy chief executive Peter Mence said strong leasing & rent review activity underpinned a strong overall performance.

Chair Mike Smith said the management team had resolved key lease expiries & vacancies: “They have also repositioned the portfolio sensibly, with the combination of completed developments, revaluations & selected divestments resulting in a modest reduction in exposure to the retail sector. Over the next 12-18 months we will continue to divest non-core assets in an attractive vendors’ market. Generally, after this period, we expect that Argosy will be positioned towards the lower end of our retail band and at the higher end of our industrial band.”

Argosy’s board has amended the debt:total assets ratio target band to 30-40% from the previous target of 35-40%. Mr Smith said: “As we continue to divest non-core assets to take advantage of strong investor demand, the proceeds will be used to continue our tenant-led development programme and/or reduce gearing.
“As we begin the 2019 financial year there is greater political visibility over the near term and we continue to be optimistic around potential opportunities for Argosy. Our diversified investment approach brings strength & balance to our business.

“The increase reflects our wish for shareholders to share in the continued strong results but also allows us to maintain our momentum towards an adjusted funds from operations (AFFO)-based dividend policy in the medium term.”

Quake recovery

Mr Mence said reinstatement works were progressing well at the quake-damaged NZ Post House in Wellington. Work on levels 10-12 should be completed this financial year, and he expected strong demand for them. The other floors remain leased to NZ Post.

The company has included this interim works programme’s $41 million cost to complete as a capital deduction in the valuation for 7 Waterloo Quay and is working on a large insurance claim. It also has business interruption insurance and has received $11.8 million plus gst in progress payments.


An independent portfolio revaluation resulted in a full-year gain of $47.3 million, a 3.2% gain on the year-end book value – industrial up 6.5% ($39 million), office 1.0% ($5.6 million), retail 0.9% ($2.7 million). Adjusting the annual revaluation result for NZ Post House, the increase above book value would have been 4.5% ($61.6 million).

On current market value, Argosy’s portfolio has a passing yield of 6.88% and a 6.98% yield on market rental. The portfolio is 1.3% under-rented, excluding market rentals on vacant space.


The company completed 51 lease transactions on 150,000m² of net lettable area – 23 new leases, 20 renewals & 8 extensions.

The company completed 88 rent reviews on $48.5 million of existing rental income. It achieved 6.1% rental growth, or 3.0% on an annualised basis on all rents reviewed. The office portfolio accounted for 50% of the total rental uplift due to a large market review, industrial 29%, retail 21%.

50% (by income) of all rents reviewed were market reviews, 27% fixed reviews and 23% CPI or CPI+.

Acquisitions & value-add developments
Mr Mence said the market remained tight: “This, coupled with a surplus of capital & scarcity of quality real estate, means few opportunities have emerged during the period to make acquisitions which would add value. Despite this, we have continued to progress our development pipeline with 4 projects totalling $48.8 million now completed.”

The company is aiming for a 4 Green Star industrial built rating for its Highgate (Mighty Ape) development and 5 Green Star office built rating for 82 Wyndham St in the Auckland cbd. Its 143 Lambton Quay & 15 Stout St buildings in Wellington are both 5 Green Star.

Divestment of non-core assets 
Argosy completed the sale of Tunnel Grove, Wellington, for $2.8 million and the unconditional agreement to sell Wagener Place in Auckland for $31 million. This transaction will settle in July. These transactions follow the sale of Pandora Rd in Napier in the first half for $7.7 million.

Mr Mence said: “The Wagener Place sale was an opportunity to reduce Argosy’s retail exposure in an area where there will be increasing competition.”
At year end, Argosy has categorised about 7% ($110 million) of the portfolio as non-core. Argosy will continue its divestment programme over the next 12-18 months to take advantage of current market conditions.

On the value of green building, Mr Mence said: “Last year we established our environmental, social & governance framework to recognise the importance sustainable business practices have on the environment & long-term value creation for shareholders. Our environmental policy reflects our ambition to create vibrant & sustainable workplaces for our tenants and Argosy believes green buildings have potential to provide both environmental & business benefits.”

Mr Smith said the board considered the New Zealand property market to be near its cyclical peak, making it hard to acquire property: “We believe ongoing strength in the sector will provide opportunities to divest non-core assets at attractive prices and either reduce gearing or reinvest the proceeds into tenant-led development opportunities. We will continue to focus on our existing portfolio of value-add properties to create long-term value for shareholders and increase the quality & sustainability of our earnings.

“Argosy continued to deliver excellent results over the back half of 2018, but there is more work to do through the 2019 financial year & beyond. Argosy achieved excellent leasing success & rent review growth across the portfolio. As a result, the year-end portfolio metrics are in excellent shape. Reinforced by their Green Star ratings, a number of redevelopment projects were completed which increased our portfolio quality and will contribute towards sustainable earnings over time. We will continue to look at sustainability, given the environmental & business benefits that are likely to accrue.”

Attribution: Company release & annual report.

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Argosy gets 13% premium in St Lukes sale

Argosy Property Ltd has settled the sale of a Wellington property and entered into an unconditional agreement to sell the bulk retail centre it owns in St Lukes, Auckland.

The agreed price of $31 million for 7 & 7A Wagener Place, St Lukes, is a 13% premium on its 28 February book value of $27.4 million. Settlement is scheduled for July.

The St Lukes property – across Wagener Place from the Westfield St Lukes mall – has a net lettable area of 7056m². It began trading in 2006 in a converted 1960s industrial building. A new building for The Warehouse was added in 2010.

The sale of 14 Tunnel Grove in Wellington was for $2.825 million.

Argosy chief executive Peter Mence said of the St Lukes deal: “The market for commercial real estate remains attractive for long-term investors divesting real estate. The sale presents an opportunity to reduce our retail exposure in an area where there will be increasing competition. It allows us to keep delivering on our strategy and we will reinvest the proceeds into other brownfield development opportunities across the portfolio.”

Attribution: Company release.

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Argosy chief warns yield firming near end of cycle

Argosy Property Ltd chief executive Peter Mence warned yesterday that commercial property’s yield-firming cycle was coming to an end.

Mr Mence told shareholders at Argosy’s annual meeting that increasing construction costs, solid net absorption of vacant space and a decrease in developers were all factors which would benefit the environment for rental growth.

On the outlook, he said: “We are still faced with globally uncertain times. However, the economy, and thus the property market, in New Zealand remains solid with good economic growth expected to continue.

“There is potential for rental growth to be stronger than recent years. The improved quality of our diversified portfolio will allow us to make the most of the current market conditions. We will remain focused on addressing near-term expiries within the portfolio and ensuring that the tenant retention rate remains high and the fundamentals of the portfolio remain strong.”

Investment strategy amended

Argosy has amended its investment strategy, raising its industrial property target and lowering the office target range to take tighter conditions at the top of the property cycle into account.

“We have extended the permitted range of core properties to between 75-90% of the portfolio by value (increased from 75-85%). Our investment policy has also changed, with an amendment to the sector band parameters. Our industrial target will increase to 40-50% of the total portfolio by value (previously 35-45%) and office will reduce to 30-40% (previously 35-45%). Retail remains unchanged at 15-25%.”

The company paid 6.1c/share in dividends for the year just finished and expects to pay 6.2c/share for the 2018 financial year. It announced a 1.55c/share first-quarter dividend yesterday, with imputation credits of 0.366464c/share attached.

New measure coming in for dividends

Argosy will also move, “over the medium term”, to an amended dividend policy, based on adjusted funds from operations (AFFO) earnings. Company chair Mike Smith said the board expected, based on current projections, that the cash dividend would be at least maintained over the transition period.

US property entities have long expressed their earnings in funds from operations. Argosy told shareholders at its investor roadshow in May and at yesterday’s annual meeting, that the adjusted version is “an alternative performance measure used to assist investors in assessing the company’s underlying performance and to determine income available for distribution”.

What’s not clear from its presentations is how dividends will change, or why, beyond following guidelines from the Property Council of Australia for disclosing the measure, which didn’t jump out at my face from its website.

According to Investopedia, adjusted funds from operations is a more precise measure of residual cashflow available to shareholders than plain funds from operations, and therefore a better “base number” for estimating value – for example, applying a multiple or discounting a future stream of funds. Secondly, because it’s true residual cashflow, it is a better predictor of the entity’s future capacity to pay dividends.

Investopedia says AFFO doesn’t have a uniform definition, but the most important adjustment made to calculate it is the subtraction of capital expenditures.

Link: Investopedia on AFFO

Attribution: Annual meeting, company release, Investopedia.

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Argosy sells Napier warehouse

Argosy Property Ltd said on Monday it had sold the mostly vacant property at 1 Pandora Rd in Napier to an owner-occupier for $7.7 million.

Chief executive Peter Mence said this was a premium to the current book value of $7.5 million. Settlement was expected in August.

Mr Mence said the property had been partially occupied on monthly tenancies, yielding only a 1.2% return. The sale was in accordance with Argosy’s strategy of divesting non-core properties.

The medium-stud warehouse has a net lettable area of 18,269m². Fonterra Group was using part of it as a milk powder distribution facility.

Attribution: Company release.

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Argosy completes solid year

Argosy Property Ltd lifted its portfolio by $84 million to $1.46 billion in the year to March on a solid operating performance, a revaluation gain and with repositioning of the portfolio.


  • Earnings/share 12.78c (9.79c)
  • Gross distributable income/share increased up 5.7% to 8.03c(7.6c)
  • Net distributable income/share up 4.6% to 6.64c
  • Dividends for year up 1.2% to 6.1c/share
  • Net tangible assets up 6.7% to 106.4c/share
  • Valuation gain of 3% on book values to $42.3 million
  • Acquisitions totalling $32 million, including 240 Puhinui Rd and land at Highgate in Auckland
  • Divestment of non-core properties totalling $31.1 million (including properties yet to settle at balance date)
  • Net property income up 1.2% to $99.5 million
  • Weighted average lease term increased to 5.59 years
  • Occupancy (by rental) remains high at 98.6%.

Net property income increased 1.2% ($1.1 million) to $99.5 million ($98.4 million) due to increases in income from acquisitions, offset by lost income from sales of non-core assets.

Profit before finance costs, property revaluations & tax increased 0.9% to $90.2 million ($89.4 million).

Profit before tax increased 44.1% to $120.4 million ($83.6 million), after allowing for the non-cash impact of interest rate swaps & property revaluations.

Gross distributable income increased 7.1% to $65.6 million ($61.3 million), equating to a 5.7% gain/share to 8.03c/share (7.6c/share).

Net distributable income increased 4.6% to 6.64c/share (6.35c/share).
Argosy’s debt levels, excluding capitalised borrowing costs, were 36.3% of total assets (36.7%).

Argosy Property results pages

Attribution: Company release.

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Argosy restructures debt

NZX-listed Argosy Property Ltd has restructured its syndicated bank facility with ANZ Bank NZ Ltd, Bank of NZ Ltd and Hongkong & Shanghai Banking Corp.

Chief executive Peter Mence said today:

  • The expiry of tranche A ($275 million) has been extended to 31 October 2021
  • Expiry of tranche B (also $275 million) remains at 30 September 2020
  • An additional tranche (tranche C) of $25 million has been added to the facility with an expiry date of 31 October 2021. The total facility is now $575 million.

As at 31 May, Argosy’s weighted average cost of debt, including line fees, margin & interest rate swaps, is expected to be about 5.1%/year and the weighted average debt expiry will be 3.9 years.

Attribution: Company release.

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