Ann: FLLYR: ARG: Argosy Annual Result and Dividen

• Release Date: 23/05/13 10:30
• Summary: FLLYR: ARG: Argosy Annual Result and Dividend Announcement
• Price Sensitive: No
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ARG
23/05/2013 08:30
FLLYR

REL: 0830 HRS Argosy Property Limited

FLLYR: ARG: Argosy Annual Result and Dividend Announcement

FOR THE YEAR ENDING 31 MARCH 2013

Highlights:
- Distributable income increased to 6.90 cents per share
- Occupancy increased to 96.2%
- Debt to total assets, as at 31 March 2013, lowered to 33.1%
- Weighted average lease term ("WALT") increased to 5.24 years
- Guidance to FY 14 dividend of 6.0 cps, payable quarterly
- Acquisition of New Zealand Post building in Wellington
- Conditional acquisition of Stout St building in Wellington
- Oversubscribed capital raise of $100m
- Bank facility restructured on improved terms

Argosy Property Limited (Argosy) is pleased to report its results for the
year ending 31 March 2013.

It is pleasing to report that the momentum generated by internalisation and
corporatisation in the prior period has continued this year. As well as the
savings achieved from these changes, the strong focus on leasing in the
period has improved occupancy, increased the weighted average lease term and
significantly improved the Company's leasing profile.

The Board has continued to pursue opportunities accretive to earnings and the
acquisition of the New Zealand Post building and conditional acquisition of
15 Stout St in Wellington, along with the associated $100 million capital
raising, was a major highlight of the year.

The Company's strong performance this year has demonstrated the benefits of a
well-diversified portfolio. Argosy is, and will remain, invested in a
portfolio that is diversified by primary sector, grade, location and tenant
mix. The portfolio will be primarily located in the Auckland and Wellington
markets with modest tenant-driven exposure to provincial markets.

Financial Results

Profit before tax
Net property income for the year was $69.9 million (2012: $71.2 million), a
decrease of 1.9% primarily due to the flow-through impact of the sale of
fifteen properties in the previous
financial year.

Profit before tax, after allowing for the non-cash impact of interest rate
swaps, was $38.7 million compared to a loss of ($3.0) million for the
previous period. The previous period included one-off items amounting to
$29.0 million relating to the management rights buy-out and associated
expenses, corporatisation, an unsolicited merger proposal and the write-down
of a previous management contract.

Interest expense was $7.4 million lower than in the previous period due to
lower average debt and improved margins following the restructure of our
banking facility. Interest of $4.1 million relating to development activities
has been capitalised.

Distributable income
Net distributable income for the year was $40.4 million (2012: $33.4
million), an increase of 21% on the prior period.

Profit before tax and distributable income are alternative performance
measures used to assist investors in assessing the Company's underlying
operating performance and to determine income available for distribution to
shareholders. Please refer to Note 26 of the financial statements released
today for a full reconciliation between the two measures.

Taxation
As disclosed previously, Argosy has been in discussions with the Inland
Revenue Department over the classification of its leasehold payment for
Albany E Block. As announced to the market on 16 April 2013, Inland Revenue
has confirmed that a deduction of $24.4 million will be allowed for the
payment.

Capital Management

Current leverage
Argosy's debt levels, excluding capitalised borrowing costs, have reduced to
33.1% of total assets (31 March 2012: 41.4%). The debt to total assets ratio
increases to 34.8% when allowance is made for the settlement of two
unconditional vacant land sales and the conditional acquisition of 15 Stout
St. The divestment of vacant land and under-yielding assets will continue to
be a key strategy for the Company.

The intention of the Board is to maintain the ratio of debt to total assets
between 35-40% (post upgrade of the two Wellington acquisitions) in the
medium term.

Bank facility
In August 2012, Argosy restructured its syndicated bank facility with ANZ
Bank New Zealand, Bank of New Zealand and the Hongkong and Shanghai Banking
Corporation on improved terms.
The facility amount was increased from $450 million to $500 million and is
now split into two even tranches of $250 million.

Subsequent to balance date, the Company has further restructured and extended
its syndicated bank facility. The expiry of the first tranche is now 30 June
2016 and the second tranche on 30 June 2018. The Company will also receive
further margin and line fee savings averaging 14 basis points per annum
(after including upfront fees). For the first time the facility also provides
for a 45/55 line fee, margin split. This will result in further savings for
Argosy in the future.

Argosy remains well within all bank covenants.

Dividends
The Directors have announced a final quarter dividend of 1.50 cents per
share. There are no imputation credits attached to the dividend and the
dividend reinvestment plan ("DRP") will continue with a discount of 1%
applied to the price at which shares will be issued under the DRP. The record
date is 12 June 2013 and the payment date will be 26 June 2013.

The Board is pleased to confirm that, based on current projections for the
portfolio, a distribution of 6 cents per share, paid fully from distributable
income, is expected to continue for the year to 31 March 2014.

Portfolio Activity

Leasing Environment
In general, the leasing environment has improved over the past year:

- Net absorption has been positive in the industrial and commercial sectors
in Auckland,
where the majority of Argosy's portfolio is located, and vacancy rates have
fallen, particularly in office space outside the CBD.
- Occupancy enquiry from potential tenants has been more positive than
previously (and has been particularly strong in the first four months of 2013
following the holiday period).
- The retail sector continues to have challenges; however the total volume of
retail sales rose 3.7% in the year to December 2012.

Leasing
The management team has continued to focus on occupancy and near-term lease
expiries with pleasing results. Occupancy (by rental) has improved to 96.2%
from 94.1% at March 2012. Outstanding lease expiries for the period to 31
March 2014 were only 7.2% as at 31 March 2013.

During the year 65 lease transactions were completed, including 30 new leases
and 35 lease renewals and extensions. The weighted average lease term
improved to 5.24 years from 4.77 years at 31 March 2012. This is the highest
weighted average lease term for the Company since 2003, when Argosy had only
two properties in its portfolio.

Acquisitions
In December 2012, Argosy announced the accretive acquisitions of the New
Zealand Post Building in Waterloo Quay, Wellington and the former Ministry of
Defence building at 15 Stout St, Wellington. The New Zealand Post building
settled on 28 March 2013. The initial acquisition cost for the New Zealand
Post Building was $60 million with further estimated upgrade expenditures of
$40 million. The documentation of the acquisition and redevelopment of the
Stout St property has now been completed, subject only to final approval of
the documentation by the Crown (as tenant). Settlement of the acquisition
will occur following the Crown's final approval. The initial acquisition cost
for the Stout St building is $33 million with further estimated upgrade
expenditures of $47 million.

In order to provide the Company with sufficient funds to settle and develop
the property acquisitions, Argosy successfully raised $100 million of
additional capital, comprising $80 million by way of a Placement to
institutional and other qualified investors and $20 million under a Share
Purchase Plan.

The Company also acquired a small property at 252 Dairy Flat Highway, Albany
in February for $4.8 million. The tenant of this building is Albany Toyota.

Valuations
The Company is pleased to report that for the third year in succession the
revaluation of the property portfolio has resulted in an increase in property
values. The increase this year is $9.3 million (2012: $3.7 million) or 1% on
book value immediately prior to valuation. The Company's portfolio following
the revaluation, including vacant land, shows a passing yield on values of
7.96% and a yield on the assessed market rentals of 8.22%.

Market activity since the completion of the valuations indicates further
firming in values and the Company is well placed to benefit in the future
from the firming momentum in yields across all sectors in the Auckland
market.

Seismic ratings
Initial evaluation assessments by structural engineers have been undertaken
for 24 properties (including the New Zealand Post and Stout St buildings).
The only issue relates to the facade at Stewart Dawson Corner in Wellington
and the Company has elected to complete a structural upgrade of the building,
in addition to the required works, in the next financial year at an estimated
combined cost of $1 million.

Strategic Review

Following the successful completion of the internalisation and
corporatisation processes, the Board and management conducted a strategic
review to reaffirm the company's mission, values, strategy and portfolio.
This strategic review process clarified, confirmed and in some cases reshaped
the company's strategy including sector exposures and acquisition criteria.
The process also involved a review of individual properties by sector and
location.

In the medium term, Argosy's portfolio will consist of Core and Value Add
properties. Core properties are well constructed, well located assets which
are intended to be long-term investments (>10 years). Core properties will
make up 75-85% of the portfolio by value.

Core properties enjoy strong long term demand (well located and generic), a
preferred leasing profile that provides for rental growth of at least CPI and
good seismic integrity with minimal maintenance capital expenditure required.
Core properties currently make up 80% of the Argosy portfolio.

Value Add properties are assets which, through skilled asset management, can
increase future earnings and provide capital growth. Value Add properties
will already be well-located with the potential for strong long term tenant
demand. These properties are available for near to medium term repositioning
or development with the view to moving into the Core category. Value Add
properties currently make up 8% of the Argosy portfolio.

Following the strategic review of the entire portfolio, 12% of the portfolio
(including vacant land) is considered neither Core nor Value Add.

Governance

The Board is pleased to advise the appointment of Mr Chris Hunter to the
Board. Chris has many years senior experience in the property and
construction sectors, most recently as Chief Executive Officer of Hawkins
Construction Limited.

Outlook

The Company's diversified portfolio is well-placed with quality properties in
good locations and the outlook is positive. The management team is actively
managing current leases to meet the requirements of tenants to ensure that
retention rates are high.

Along with the continued focus on leasing, the Board will continue to
actively monitor the market and will actively pursue growth opportunities
where these are consistent with the Company's investment strategy and
accretive to shareholders.
End CA:00236523 For:ARG    Type:FLLYR      Time:2013-05-23 08:30:05