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</h2>
<p><strong>Steady 2H Revaluation</strong></p>
<p><strong>NEUTRAL</strong></p>
<p>Argosy Property's (ARG) March 2020 valuations have resulted in an +NZ$61.7m (or +3.6%) increase over book value. This increase (vs. peers who have recently reported declines) reflects large weightings to Industrial (+6.8%) and Office (+2.9%). ARG's NTA increases +2% to NZ$1.30 but gearing increases to c.39% (towards top of its 30–40% range). ARG remains a useful member of an LPV portfolio given its diversified portfolio centred on the industrial segment, and is trading at a large discount to NTA which offsets some near-term uncertainties. Our earnings and target price are unchanged. NEUTRAL.</p>
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<p><strong>Portfolio value increases +3.6%&nbsp;yoy&nbsp;and was flat in 2H20</strong></p>
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<p>ARG's March 2020 valuations have resulted in a +$61.7m (+3.6%) lift in asset values over the past 12 months. The desktop valuations reported at ARG's 1H20 result account for +$50.8m of the revaluation, meaning that ARG's portfolio value increased +$10.9m (+0.6%) over the 6 months ending 31 March 2020. As shown in Figure 1, ARG's industrial portfolio saw the largest value uplift in FY20, up +$53.4m (+6.8%). Office held up relatively well, up +$21.3m (+2.9%), while Large Format Retail (LFR) valuations fell -$13.0m (-6.5%). LFR is ARG's smallest segment, making up only ~10% of ARG's total portfolio.</p>
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<p><strong>Balance sheet remains tight vs. target</strong></p>
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<p>ARG's NTA increased +2% to NZ$1.30 (versus our NAV of NZ$1.02) and gearing increases to 39% (towards the top of its 30–40% target range vs. 50% covenant). ​​​​​​​While ARG is one of the highest geared in the LPV sector and has committed development expenditure, receipt of NZ Post insurance proceeds and an eventual sale of the Albany Lifestyle Centre will lower gearing in time. Furthermore, its relatively smaller average asset size was a helpful source of liquidity during the last recession.&nbsp;</p>
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<p><strong>Read through&nbsp;for other&nbsp;LPVs: Industrial and Office holding up well</strong></p>
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<p>ARG's positive valuation movement reflects its portfolio being more weighted to industrial and office vs. peers Kiwi Property Group (KPG, UNDERPERFORM) and Asset Plus (APL, UNDERPERFORM) both of which are more exposed to retail. On each sub-sector, 1) Retail asset valuation decline was in line with our expectations reflecting the mix being LFR vs. the shopping mall heavy portfolios of KPG and APL; <strong>we continue to view Investore’s (IPL, OUTPERFORM) supermarket focused LFR portfolio as attractive</strong>, 2) Office held up better than expected particularly given ARG's mix of short and long WALT assets, <strong>we believe this is supportive for Stride’s (SPG, NEUTRAL) office portfolio as well as Precinct’s (PCT) lower WALT assets</strong>, 3) Industrial was the standout suggesting <strong>Property for Industry (PFI, OUTPERFORM) and Goodman (GMT, NEUTRAL) valuations will remain solid near-term.</strong></p>
<p><strong>Depending on the extent of the economic slowdown, the office and retail segments in particular remain at risk of further valuation downside over the next 12 months.</strong></p>
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<div><strong>Jeremy Simpson CFA</strong></div>
<div><a href="mailto:jeremy.simpson@forsythbarr.co.nz" target="_blank" rel="noopener">jeremy.simpson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0022</div>
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Argosy
Steady 2H Revaluation
NEUTRAL
Argosy Property's (ARG) March 2020 valuations have resulted in an +NZ$61.7m (or +3.6%) increase over book value. This increase (vs. peers who have recently reported declines) reflects large weightings to Industrial (+6.8%) and Office (+2.9%). ARG's NTA increases +2% to NZ$1.30 but gearing increases to c.39% (towards top of its 30–40% range). ARG remains a useful member of an LPV portfolio given its diversified portfolio centred on the industrial segment, and is trading at a large discount to NTA which offsets some near-term uncertainties. Our earnings and target price are unchanged. NEUTRAL.

Portfolio value increases +3.6%&nbsp;yoy&nbsp;and was flat in 2H20

ARG's March 2020 valuations have resulted in a +$61.7m (+3.6%) lift in asset values over the past 12 months. The desktop valuations reported at ARG's 1H20 result account for +$50.8m of the revaluation, meaning that ARG's portfolio value increased +$10.9m (+0.6%) over the 6 months ending 31 March 2020. As shown in Figure 1, ARG's industrial portfolio saw the largest value uplift in FY20, up +$53.4m (+6.8%). Office held up relatively well, up +$21.3m (+2.9%), while Large Format Retail (LFR) valuations fell -$13.0m (-6.5%). LFR is ARG's smallest segment, making up only ~10% of ARG's total portfolio.

Balance sheet remains tight vs. target

ARG's NTA increased +2% to NZ$1.30 (versus our NAV of NZ$1.02) and gearing increases to 39% (towards the top of its 30–40% target range vs. 50% covenant). ​​​​​​​While ARG is one of the highest geared in the LPV sector and has committed development expenditure, receipt of NZ Post insurance proceeds and an eventual sale of the Albany Lifestyle Centre will lower gearing in time. Furthermore, its relatively smaller average asset size was a helpful source of liquidity during the last recession.&nbsp;

Read through&nbsp;for other&nbsp;LPVs: Industrial and Office holding up well

ARG's positive valuation movement reflects its portfolio being more weighted to industrial and office vs. peers Kiwi Property Group (KPG, UNDERPERFORM) and Asset Plus (APL, UNDERPERFORM) both of which are more exposed to retail. On each sub-sector, 1) Retail asset valuation decline was in line with our expectations reflecting the mix being LFR vs. the shopping mall heavy portfolios of KPG and APL; we continue to view Investore’s (IPL, OUTPERFORM) supermarket focused LFR portfolio as attractive, 2) Office held up better than expected particularly given ARG's mix of short and long WALT assets, we believe this is supportive for Stride’s (SPG, NEUTRAL) office portfolio as well as Precinct’s (PCT) lower WALT assets, 3) Industrial was the standout suggesting Property for Industry (PFI, OUTPERFORM) and Goodman (GMT, NEUTRAL) valuations will remain solid near-term.
Depending on the extent of the economic slowdown, the office and retail segments in particular remain at risk of further valuation downside over the next 12 months.




Jeremy Simpson CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022




Argosy Property

Argosy: Steady 2H Revaluation