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Argosy annual profit climbs 36% on revaluation gains, pays slightly bigger dividend

Thursday 23rd May 2019

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Argosy Property lifted annual profit 36 percent as it benefited from a sharp increase in the value of its property portfolio, and paid a slightly bigger dividend than expected. 

Net profit rose to $133.7 million in the 12 months ended March 31, from $98.2 million a year earlier. That included a $70.5 million gain the value of its 60 industrial, office and retail buildings, up from $47.3 million increase a year earlier. Distributable income, on which Argosy bases its dividend payments, increased 5 percent to $57.4 million, or 6.94 cents a share.

The board declared a fourth-quarter dividend of 1.5875 cents per share, payable on June 26 with a June 12 record date. That takes the annual return to 6.275 cents a share, up from 6.2 cents a year earlier. 

"The increase above guidance reflects our ongoing belief that investors should share in the continued strength of the business," Argosy said in a statement. 

The real estate company plans to base future dividends on adjusted funds from operations - which were up 4 percent at $51.7 million. And the board said it expects to pay an unchanged dividend in the 2020 financial year. 

Chair Mike Smith said low interest rates and the soft inflation environment are expected to continue for the next 12-24 months. Both factors are supportive for real estate pricing. And while economic growth is seen slowing, it's still going to be positive over the medium term. 

"Lower migration, weaker business confidence and changing bank capital requirements, together with a weakening residential housing market are all economic headwinds which need to be carefully navigated," Smith said in the annual report. 

Listed property investment companies have been in vogue among investors as the low interest rate environment makes stocks paying reliable dividends an attractive option relative to bonds, where yields are low. Argosy's shares are trading near a record - last at $1.375 - and have gained 15 percent so far this year. 

The company's portfolio consists of 37 industrial properties, 16 office buildings, and seven retail sites. It was valued at $1.67 billion as at March 31, up from $1.51 billion a year earlier, when it owned 61 properties. Net tangible assets rose to $1.22 per share from $1.12 a year earlier. 

Argosy's weighted average lease term was unchanged at 6.1 years, while the occupancy rate dipped to 97.7 percent from 98.8 percent. 

The company said there are some attractive long-term opportunities in the Wellington office market. At the same time, it's looking to sell what it deems to be non-core assets over the next 12-18 months. 

Argosy said it's waiting for a response from insurers on its cost estimate for the damage to NZ Post House in Wellington. The total claimed for reinstatement work was $39.6 million and $14.2 million for lost rent. It's received progress payments for its interim claims of $20.9 million, of which $10.8 million was for reinstatement work. $8.5 million for lost rent, and $1.6 million for expense recoveries. 

The company expects seismic strengthening work will cost $27 million and be done by November this year. 

Argosy issued a $100 million bond in the year to diversify its debt profile, and lowered bank debt to $496.2 million as at March 31, from $554.2 million a year earlier. Its debt-to-assets ratio was 35.6 percent, down from 35.9 percent. Its target gearing ratio is 30-40 percent. 


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