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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Argosy Property</h2>
FY20 Result – Initial thoughts
Argosy (ARG) has reported a solid FY20 result with net distributable income of NZ$59.6m, up +3.8% on pcp and ahead of our forecast NZ$54.3m. The beat vs. our forecast was driven by lower interest (due to higher capitalised interest than we forecast) and tax (likely due to greater development related deductions than we expected) with EBITDA being slightly below our expectations. AFFO per share was 6.27cps, flat yoy but ahead of our forecast of 6.0cps with better distributable income partially offset by higher tenant incentives and leasing costs. ARG has declared a 4Q20 dividend of 1.5875cps delivering a FY20 dividend of 6.35cps. ARG guided to FY21 DPS of 6.35cps vs. our current estimate of a COVID-19 impacted 4.70cps.
Key take-outs
<ul>
<li>COVID-19 impact: ARG highlighted that it is offering a mix of deferrals and abatements to some tenants. Thus far, ARG has provided NZ$2.8m in abatements to tenants most in need. ARG previously guided to rent relief impacting net distributable income of between NZ$5-8m (or ~NZ$7-11m reduction in gross rent). Our FY21 forecast current assumes NZ$9m of rent relief being provided.</li>
<li>Maintenance of strong portfolio metrics: Overall occupancy remained high with industrial at 97.8%, office 99.4% and retail 100% and the WALT was maintained at 6.1 years on the back of solid leasing outcomes in the period. Market reviews delivered +2.8% increase over the year and ARG believe the portfolio was 3.4% under-rented at 31 March 2020. ARG does have 10.8% of leases expiring in FY21 and 9.4% in FY22.</li>
<li>Gearing at top end of range: With the sale of Albany Lifestyle Centre not progressing, ARG’s gearing remains near the top end of its range (38.8% versus target of 30-40%). As at 31 March, Argosy had approximately NZ$140.6m or 7.5% (across four assets) of its portfolio classified as non-core. Argosy is targeting the divestment of these assets, including the Albany Lifestyle Centre, in FY21. Successful divestment of these properties at book value would reduce pro forma gearing by approximately 5%.</li>
<li>NTA lifts to NZ$1.30: ARG’s March 2020 revaluation saw its NTA lift +6.6% yoy to NZ$1.30. This positive revaluation reflects higher weightings to industrial and office properties.</li>
</ul>
Conference call: 10am (NZ time) dial NZ 0800 122 367, conference ID 10003722, webcast <a href="https://s1.c-conf.com/diamondpass/10003722-invite.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10003722-invite.html&amp;source=gmail&amp;ust=1590021644184000&amp;usg=AFQjCNHIMg5dqnjX32SdMIom9EQm7KE6hQ" rel="noopener">https://s1.c-conf.com/diamondpass/10003722-invite.html</a>
FY20 result summary (NZ$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:1667155825791876416&amp;th=1722ed63fd8c3d40&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_PhwN4JyDI6cF0OQRI-ZoeSe86JbJRfJ_iCjuAq6ANU2EcgFGi7bRLDF5P2EVP4kNji-xCKkXIRxyFF4XCrqS1rgo3lrZmpBqVJe5kCDjaWLtQy-DsXuRWoFE&amp;disp=emb" width="643" height="416" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities Forsyth Barr Limited
P:+64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Argosy Property
FY20 Result – Initial thoughts
Argosy (ARG) has reported a solid FY20 result with net distributable income of NZ$59.6m, up +3.8% on pcp and ahead of our forecast NZ$54.3m. The beat vs. our forecast was driven by lower interest (due to higher capitalised interest than we forecast) and tax (likely due to greater development related deductions than we expected) with EBITDA being slightly below our expectations. AFFO per share was 6.27cps, flat yoy but ahead of our forecast of 6.0cps with better distributable income partially offset by higher tenant incentives and leasing costs. ARG has declared a 4Q20 dividend of 1.5875cps delivering a FY20 dividend of 6.35cps. ARG guided to FY21 DPS of 6.35cps vs. our current estimate of a COVID-19 impacted 4.70cps.
Key take-outs

COVID-19 impact: ARG highlighted that it is offering a mix of deferrals and abatements to some tenants. Thus far, ARG has provided NZ$2.8m in abatements to tenants most in need. ARG previously guided to rent relief impacting net distributable income of between NZ$5-8m (or ~NZ$7-11m reduction in gross rent). Our FY21 forecast current assumes NZ$9m of rent relief being provided.
Maintenance of strong portfolio metrics: Overall occupancy remained high with industrial at 97.8%, office 99.4% and retail 100% and the WALT was maintained at 6.1 years on the back of solid leasing outcomes in the period. Market reviews delivered +2.8% increase over the year and ARG believe the portfolio was 3.4% under-rented at 31 March 2020. ARG does have 10.8% of leases expiring in FY21 and 9.4% in FY22.
Gearing at top end of range: With the sale of Albany Lifestyle Centre not progressing, ARG’s gearing remains near the top end of its range (38.8% versus target of 30-40%). As at 31 March, Argosy had approximately NZ$140.6m or 7.5% (across four assets) of its portfolio classified as non-core. Argosy is targeting the divestment of these assets, including the Albany Lifestyle Centre, in FY21. Successful divestment of these properties at book value would reduce pro forma gearing by approximately 5%.
NTA lifts to NZ$1.30: ARG’s March 2020 revaluation saw its NTA lift +6.6% yoy to NZ$1.30. This positive revaluation reflects higher weightings to industrial and office properties.

Conference call: 10am (NZ time) dial NZ 0800 122 367, conference ID 10003722, webcast https://s1.c-conf.com/diamondpass/10003722-invite.html
FY20 result summary (NZ$m)

Source: Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities Forsyth Barr Limited
P:+64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Argosy Property: FY20 Result – Initial Thoughts