New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Argosy 1H21 Result – Initial thoughts</h2>
Argosy (ARG) has reported a solid 1H21 result with net distributable income +22% to NZ$36m. It was a messy result with a number of one-offs including the forfeited deposit from the incomplete Albany Life Style Centre sale (NZ$4.5m), rental abatements (NZ$3.9m), ongoing earthquake related expenses (NZ$0.5m), and asbestos removal tax deductions (NZ$3.4m). Normalising for these we estimate distributable income was +c.5% to c.NZ$31m. The beat vs. our forecast was 1) higher net rental income with better leasing up of vacancy and solid rent reviews, 2) lower tax with higher than expected deductions, partially offset by 3) higher interest costs. Tenant incentives paid were up significantly vs. the pcp. ARG has declared a 2Q20 dividend of 1.6375cps and lifted FY21 DPS guidance +1.6% to 6.45cps.
Key take-outs
<ul>
<li>COVID-19 impact: ARG provided NZ$3.9m of tenant support in 1H21 split NZ$3.3m rent abatements and NZ$0.6m of deferrals of which is expects to collect half in 2H21.</li>
<li>Maintenance of strong portfolio metrics: Overall occupancy remained high with industrial at 100% (FY20 was 97.8%), retail 100% (was 100%), but with a slight decrease in the office portfolio 98.7% (was 99.4%) Portfolio WALT decreased to 5.7 years (was 6.1 years) despite solid leasing outcomes in the period. Rent reviews delivered an annualised rent increase of 3.8% and ARG believe the portfolio was 1% under-rented at 30 September 2020. ARG has 4.3% of leases expiring in 2H21 and 9.1% in FY22.</li>
<li>Gearing ticks down: ARG’s LVR fell to 36.6% (FY20: 38.8%) with strong revaluations and asset divestments offset the purchase of a large industrial estate and development activity. This will likely tick down further, assuming the sale of the NZ$85m Albany Lifestyle Centre in 2H21. The property is currently subject to a sale and purchase agreement, but remains subject to purchaser due diligence.</li>
<li>NTA lifts to NZ$1.41: ARG’s portfolio saw strong revaluation gains in 1H21, with NTA lifting +8.5% to NZ$1.41 per share (FY20: NZ$1.30). The desktop revaluations saw industrial values lift +5.7%, LFR +5.3%, and office +2.7%. ARG’s portfolio yield is now 6.14% on a fully-let market basis.</li>
<li>FY21 DPS guidance was lifted +1.6% to 6.45cps</li>
</ul>
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1H21 result summary (NZ$m)
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1684366782784227742&amp;th=176012aa2f52499e&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9DKm5J3hMXRuovnoAun96oE6qMQI9Vih2FD9p7YsBlPO58nlxdOp8T6mGXuR-Cs4Z5SpLoULNVwQEiABzI532-ksGKZWyLZpVHi24ZFg6CKcCIVp3fFKa7gK4&amp;disp=emb" width="582" height="537" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.3&amp;permmsgid=msg-f:1684366782784227742&amp;th=176012aa2f52499e&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9tSusrnFZD_93Rv2H9f4d5PAmZN3a-IGhURvZMB135rJmfKw0X4ogSFEuBi3LeBaEZvRAa6f34EafDir2lozyp9Zz5gNe06DsXsGj1Gjdkg6M18dThnRU9ZU0&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Argosy 1H21 Result – Initial thoughts
Argosy (ARG) has reported a solid 1H21 result with net distributable income +22% to NZ$36m. It was a messy result with a number of one-offs including the forfeited deposit from the incomplete Albany Life Style Centre sale (NZ$4.5m), rental abatements (NZ$3.9m), ongoing earthquake related expenses (NZ$0.5m), and asbestos removal tax deductions (NZ$3.4m). Normalising for these we estimate distributable income was +c.5% to c.NZ$31m. The beat vs. our forecast was 1) higher net rental income with better leasing up of vacancy and solid rent reviews, 2) lower tax with higher than expected deductions, partially offset by 3) higher interest costs. Tenant incentives paid were up significantly vs. the pcp. ARG has declared a 2Q20 dividend of 1.6375cps and lifted FY21 DPS guidance +1.6% to 6.45cps.
Key take-outs

COVID-19 impact: ARG provided NZ$3.9m of tenant support in 1H21 split NZ$3.3m rent abatements and NZ$0.6m of deferrals of which is expects to collect half in 2H21.
Maintenance of strong portfolio metrics: Overall occupancy remained high with industrial at 100% (FY20 was 97.8%), retail 100% (was 100%), but with a slight decrease in the office portfolio 98.7% (was 99.4%) Portfolio WALT decreased to 5.7 years (was 6.1 years) despite solid leasing outcomes in the period. Rent reviews delivered an annualised rent increase of 3.8% and ARG believe the portfolio was 1% under-rented at 30 September 2020. ARG has 4.3% of leases expiring in 2H21 and 9.1% in FY22.
Gearing ticks down: ARG’s LVR fell to 36.6% (FY20: 38.8%) with strong revaluations and asset divestments offset the purchase of a large industrial estate and development activity. This will likely tick down further, assuming the sale of the NZ$85m Albany Lifestyle Centre in 2H21. The property is currently subject to a sale and purchase agreement, but remains subject to purchaser due diligence.
NTA lifts to NZ$1.41: ARG’s portfolio saw strong revaluation gains in 1H21, with NTA lifting +8.5% to NZ$1.41 per share (FY20: NZ$1.30). The desktop revaluations saw industrial values lift +5.7%, LFR +5.3%, and office +2.7%. ARG’s portfolio yield is now 6.14% on a fully-let market basis.
FY21 DPS guidance was lifted +1.6% to 6.45cps

Conference call: 10:00am NZT, register here:&nbsp;https://s1.c-conf.com/diamondpass/10009790-invite.html
1H21 result summary (NZ$m)

Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Argosy Property

Argosy: 1H21 Result – Initial Thoughts