Argosy posts $20m 1H loss after internalising management contract

Tuesday 22nd November 2011

Argosy Property Trust's bottom line turned to a $20 million loss for the six months ended September from a $6 million profit in the same six months a year earlier mainly because of the $21.6 million cost of internalising its management contract.

Chief executive Peter Mence said the 11.4% to $15.6 million fall in Argosy's distributable profit reflected higher finance costs from higher average debt levels, capitalised interest in the year-earlier period and higher line fees as well as an $0.5 million incentive fee paid to the previous manager.

Net profit income for the six months was unchanged at $35.6 million despite lower occupancy and the sale of seven properties, three in Auckland and four in Palmerston North, for a small gain on their March 31 valuations.

Internalising the management contract and restructuring Argosy's bank facilities on improved terms should mean significant cost savings in the second half, Mence said.

Occupancy fell to 93.9% at September 30 from 96.8% at March 31 with the weighted average lease term at 4.84 years.

Mence said 38 lease transactions were completed in the six months including 24 new leases and 14 lease renewals and extensions.

Major refurbishments are underway at Argosy's two largest Wellington office buildings, Te Puni Kokiri on Lambton Quay and TSB Tower in Waring Taylor Street with new six-year leases agreed with their tenants.

Argosy is currently marketing two further properties for sale. Mence said Argosy is committed to improving occupancy by year end which, if successful, will improve earnings.

A corporatisation proposal to change Argosy from a unit trust to a listed company, which will further reduce costs as well as providing unitholders with the protection of the Takeovers Code, is well advanced and will be presented to unitholders in early 2012, he said.

Argosy will pay 1.5 cents per unit for the second quarter, the same as for the first quarter, with no imputation credits attached. Unitholders can participate in the reinvestment plan at a 2.5 discount to the trading price.

Mence said the board has confirmed its guidance that distributions will total 6 cents per unit for the year ending March 31, 2012.

“At this point, and with current economic projections, a similar distribution level is expected for the year to March 2013.”

Argosy units are trading at 82 cents, down half a cent from yesterday, up from their recent low at 77 cents last month and down from the year-high at 86 cents in May.

BusinessDesk.co.nz

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