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).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Argosy<br>1H21 Result&nbsp;— Smooth Sailing</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Argosy's (ARG) 1H21 result was boosted by a number of one-offs, but underpinned by underlying distributable profit growth which we estimate to be +5–7%. The strong result saw ARG lift FY21 distribution guidance +0.10cps to 6.45cps, with management motivated to continue its streak of growing dividends. The highlight of yesterday's result was +4.3% revaluation gains leading to +8.5% net tangible assets (NTA) growth, attributable solid rental growth and capitalisation rate compression. With ARG trading on undemanding metrics versus peers we lift our rating to OUTPERFORM.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp; AFFO per share -15.3%/+2.0%/+0.9% in FY21/FY22/FY23</li>
<li><strong>Target price</strong>:&nbsp;Lifted +7cps to NZ$1.55</li>
<li><strong>Rating</strong>:&nbsp;Upgraded to OUTPERFORM</li>
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<h3>Solid result, boosted by one-offs</h3>
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<p>ARG's result was slightly messy due to one-offs with the NZ$4.5m forfeited deposit received for the Albany Lifestyle Centre (ALC) and NZ$3.4m of tax deductions offsetting NZ$3.9m of rental abatements, with NZ$0.5m of ongoing earthquake expenses. We estimate underlying distributable profit growth was +5–7% and underpinned by +5.2% like-for-like rent growth as well as the reintroduction of depreciation on structure. The portfolio maintained its strong metrics, with occupancy lifting +60bps to 99.4% while WALT shortened by 0.4 years to 5.7.</p>
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<h3>Revaluation gains lower gearing</h3>
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<p>Desk top valuations performed by Colliers saw ARG's portfolio lift by NZ$79.8m (+4.3%) in value, with valuers backing out rent relief assumptions, lowering capitalisation rates by -27bps, and accounting for the +3.8% lift in rents achieved from rent reviews in the period. The revaluation gains were broad based with industrial +5.7%, large format retail +5.3% and office +2.7%, lifting ARG's NTA +11cps (+8.5%) to $1.41 per share. This lowers gearing by c.-150bps to 36.6%. We estimate pro-forma gearing of 35.0% following announced net divestments (including ALC).</p>
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<h3>Earnings lift, upgrade to OUTPERFORM</h3>
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<p>We revise our AFFO per share -15.3%/2.0%/+0.9% in FY21/FY22/FY23, with FY21 being impacted by higher maintenance capex at 7 Waterloo Quay, while higher rent growth in outer years flows to a marginal lift in earnings. We upgrade our rating to OUTPERFORM with ARG trading at a +3.5% premium to its NTA backing versus the sector average of +13.8%, and on a gross yield of 6.3% versus the sector average of 5.4%. While DPS growth will be minimal as ARG moves to an AFFO based payout, we believe it currently offers relative value in an expensive sector.&nbsp;</p>
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<div><strong>Rohan Koreman-Smit CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Ashton Olds</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
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Argosy 1H21 Result&nbsp;— Smooth Sailing

OUTPERFORM
Argosy's (ARG) 1H21 result was boosted by a number of one-offs, but underpinned by underlying distributable profit growth which we estimate to be +5–7%. The strong result saw ARG lift FY21 distribution guidance +0.10cps to 6.45cps, with management motivated to continue its streak of growing dividends. The highlight of yesterday's result was +4.3% revaluation gains leading to +8.5% net tangible assets (NTA) growth, attributable solid rental growth and capitalisation rate compression. With ARG trading on undemanding metrics versus peers we lift our rating to OUTPERFORM.


What's changed?&nbsp;



Earnings:&nbsp; AFFO per share -15.3%/+2.0%/+0.9% in FY21/FY22/FY23
Target price:&nbsp;Lifted +7cps to NZ$1.55
Rating:&nbsp;Upgraded to OUTPERFORM



Solid result, boosted by one-offs


ARG's result was slightly messy due to one-offs with the NZ$4.5m forfeited deposit received for the Albany Lifestyle Centre (ALC) and NZ$3.4m of tax deductions offsetting NZ$3.9m of rental abatements, with NZ$0.5m of ongoing earthquake expenses. We estimate underlying distributable profit growth was +5–7% and underpinned by +5.2% like-for-like rent growth as well as the reintroduction of depreciation on structure. The portfolio maintained its strong metrics, with occupancy lifting +60bps to 99.4% while WALT shortened by 0.4 years to 5.7.


Revaluation gains lower gearing


Desk top valuations performed by Colliers saw ARG's portfolio lift by NZ$79.8m (+4.3%) in value, with valuers backing out rent relief assumptions, lowering capitalisation rates by -27bps, and accounting for the +3.8% lift in rents achieved from rent reviews in the period. The revaluation gains were broad based with industrial +5.7%, large format retail +5.3% and office +2.7%, lifting ARG's NTA +11cps (+8.5%) to $1.41 per share. This lowers gearing by c.-150bps to 36.6%. We estimate pro-forma gearing of 35.0% following announced net divestments (including ALC).


Earnings lift, upgrade to OUTPERFORM


We revise our AFFO per share -15.3%/2.0%/+0.9% in FY21/FY22/FY23, with FY21 being impacted by higher maintenance capex at 7 Waterloo Quay, while higher rent growth in outer years flows to a marginal lift in earnings. We upgrade our rating to OUTPERFORM with ARG trading at a +3.5% premium to its NTA backing versus the sector average of +13.8%, and on a gross yield of 6.3% versus the sector average of 5.4%. While DPS growth will be minimal as ARG moves to an AFFO based payout, we believe it currently offers relative value in an expensive sector.&nbsp;



Rohan Koreman-Smit CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Ashton Olds
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Argosy Property

Argosy: 1H21 Result — Smooth Sailing