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<br>FY22 Result —&nbsp;Developing the Pipeline</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Argosy&nbsp;(ARG) delivered a solid underlying result with abnormally high maintenance&nbsp;capex, resulting in a large decrease in adjusted funds from operations (AFFO). FY23 DPS guidance was in line with our expectations and will be the first under a new AFFO based payout policy. While FY22 saw the final completion of some large development projects (Stats House and 7WQ facade), ARG continues to progress further value-add opportunities within the portfolio.&nbsp;ARG is trading on an attractive gross yield of 7.7% with annual DPS growth of +1% over the next three years and a 29% discount to NTA.&nbsp;ARG's&nbsp;expanding development pipeline does present some execution risk. We retain our NEUTRAL rating.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;Our FY23 and FY24 DPS forecasts are unchanged but we lift our FY25 expectations +2.9% reflecting a higher payout</li>
<li><strong>Target price</strong>:&nbsp;Increased 2cps to NZ$1.31</li>
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<h3>Solid result excluding facade maintenance</h3>
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<p>ARG has delivered a solid FY22 result, with adjusted funds from operations (AFFO) of NZ$48.3m. While this was down -20% on the prior year, this was mostly due to façade maintenance at 7WQ. Portfolio metrics remained healthy at 98.7% occupancy, 5.7 year weighted average lease term (WALT) and like-for-like rental growth of 2.4%. ARG believes its industrial and Wellington office assets are c.5% under rented. ARG lifted its industrial portfolio target weight and lowered office. The development of brownfield industrial and the potential divestment of some office assets are the key moving parts to achieving this target.</p>
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<h3>Developments are the way forward</h3>
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<p>Stats House is now complete with first rent expected in a month. Current activity is in the smaller Bell Ave and Unity Drive projects. ARG has seen strong tenant demand for the upcoming 105 Carlton Gore Rd refurbishment which bodes well for 101 Carlton Gore Rd where planning is underway. Planning is also progressing on the large&nbsp;brownfield&nbsp;industrial redevelopments at&nbsp;Mt Richmond (end value NZ$250m) and&nbsp;Neilson&nbsp;St (c.NZ$100m). Gearing was broadly stable with revaluation gains offsetting development spend. Assuming the above projects complete we estimate gearing would lift to c.38%, the top end of&nbsp;ARG's&nbsp;30–40% target range.</p>
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<h3>DPS guidance in line, large discount, but capital recycling may be needed</h3>
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<p>FY23 DPS guidance was 6.65cps and in line with our expectations.&nbsp;ARG's&nbsp;share price is trading at a 29% discount to NTA which implies +120bp of cap rate expansion. As highlighted above, ARG has an ambitious&nbsp;development pipeline that lifts gearing, all else equal. To partly fund this we expect ARG to continue to recycle out of its lower quality assets, which will present a modest short term&nbsp;headwind to earnings growth.&nbsp;</p>
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Argosy FY22 Result —&nbsp;Developing the Pipeline

NEUTRAL
Argosy&nbsp;(ARG) delivered a solid underlying result with abnormally high maintenance&nbsp;capex, resulting in a large decrease in adjusted funds from operations (AFFO). FY23 DPS guidance was in line with our expectations and will be the first under a new AFFO based payout policy. While FY22 saw the final completion of some large development projects (Stats House and 7WQ facade), ARG continues to progress further value-add opportunities within the portfolio.&nbsp;ARG is trading on an attractive gross yield of 7.7% with annual DPS growth of +1% over the next three years and a 29% discount to NTA.&nbsp;ARG's&nbsp;expanding development pipeline does present some execution risk. We retain our NEUTRAL rating.


What's changed?&nbsp;



Earnings:&nbsp;Our FY23 and FY24 DPS forecasts are unchanged but we lift our FY25 expectations +2.9% reflecting a higher payout
Target price:&nbsp;Increased 2cps to NZ$1.31



Solid result excluding facade maintenance


ARG has delivered a solid FY22 result, with adjusted funds from operations (AFFO) of NZ$48.3m. While this was down -20% on the prior year, this was mostly due to façade maintenance at 7WQ. Portfolio metrics remained healthy at 98.7% occupancy, 5.7 year weighted average lease term (WALT) and like-for-like rental growth of 2.4%. ARG believes its industrial and Wellington office assets are c.5% under rented. ARG lifted its industrial portfolio target weight and lowered office. The development of brownfield industrial and the potential divestment of some office assets are the key moving parts to achieving this target.


Developments are the way forward


Stats House is now complete with first rent expected in a month. Current activity is in the smaller Bell Ave and Unity Drive projects. ARG has seen strong tenant demand for the upcoming 105 Carlton Gore Rd refurbishment which bodes well for 101 Carlton Gore Rd where planning is underway. Planning is also progressing on the large&nbsp;brownfield&nbsp;industrial redevelopments at&nbsp;Mt Richmond (end value NZ$250m) and&nbsp;Neilson&nbsp;St (c.NZ$100m). Gearing was broadly stable with revaluation gains offsetting development spend. Assuming the above projects complete we estimate gearing would lift to c.38%, the top end of&nbsp;ARG's&nbsp;30–40% target range.


DPS guidance in line, large discount, but capital recycling may be needed


FY23 DPS guidance was 6.65cps and in line with our expectations.&nbsp;ARG's&nbsp;share price is trading at a 29% discount to NTA which implies +120bp of cap rate expansion. As highlighted above, ARG has an ambitious&nbsp;development pipeline that lifts gearing, all else equal. To partly fund this we expect ARG to continue to recycle out of its lower quality assets, which will present a modest short term&nbsp;headwind to earnings growth.&nbsp;


Argosy: FY22 Result — Developing the Pipeline

Argosy Property

Argosy: FY22 Result — Developing the Pipeline