ARG
21/05/2014 08:30
FLLYR
REL: 0830 HRS Argosy Property Limited
FLLYR: ARG: Argosy Annual Result
FOR THE YEAR ENDING 31 MARCH 2014
Argosy Property Limited ("Argosy" or the "Company") is pleased to report its
results for the year ending 31 March 2014.
Argosy has continued its momentum with improved operating results and
stronger portfolio metrics. Occupancy by rental increased to 98.7%, the
weighted average lease term ("WALT") at 5.68 years is the highest in eleven
years and the leasing profile continues to be well managed.
Highlights:
o Valuation gain of $33.5 million, up 2.8% on book values
o Net distributable income increased to $50.0 million (increase of 18.4%)
o Net property income increased to $82.2 million (increase of 17.7%)
o Net profit after tax increased to $85.6 million (increase of 118%)
o Occupancy increased to 98.7%, up from 96.2% in prior year
o WALT increased to 5.68 years
o Acquisition of 4 high quality buildings in Auckland and Wellington
o Divestment of vacant land and building in Palmerston North as well as under
yielding property in Auckland
o Successful completion of a 1-for-7 renounceable rights issue, raising $86.9
million
o Bank facility restructured on improved terms
o Debt-to-total-assets within target range at 36.5%
o Guidance to FY15 dividend of 6.0 cps, payable quarterly
Financial Results
Profit before tax
Net property income for the year was $82.2 million (2013: $69.9 million), an
increase of 18% primarily due to the extra income generated from the
acquisitions throughout the year.
Profit before tax, after allowing for the non-cash impact of interest rate
swaps and property revaluations, was $98.8 million compared to $38.7 million
for the previous period.
Interest expense has increased by $1.7 million compared to the previous
period. However, after removing capitalised interest of $2.3 million (2013:
$4.1 million) relating to development activities, non-capitalised interest
expense was $0.1 million less than the previous period. This reduction is
partly due to the improved margins following the restructure of the Company's
banking facility.
Distributable income
Net distributable income for the year was $50.0 million (2013: $42.2
million), an increase of 18% on the prior period.
Distributable income is a non-GAAP alternative performance measure 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 24 of the financial statements released today for a full
reconciliation between the two measures.
Capital Management
Capital raising
During the year, Argosy successfully raised $86.9 million of additional
capital in a 1-for-7 pro-rata renounceable rights issue at a price above NTA.
The funds were used to repay bank debt as well as providing the financial
flexibility to pursue future opportunities.
Current leverage
Argosy's debt levels, excluding capitalised borrowing costs, were 36.5% of
total assets (31 March 2013: 33.1%). The debt-to-total-assets ratio is within
the targeted 35 to 40% gearing range.
Bank facility
In June 2013, the Company restructured and extended its syndicated bank
facility. Following the restructure the expiry of the first tranche ($250
million) is 30 June 2016 and the second tranche ($250 million) is 30 June
2018. As a result of this restructure, Argosy is receiving margin and line
fee savings (after including upfront fees) of $0.7 million per annum.
Argosy is currently in advanced discussions with its lenders to extend each
tranche of the facility by a further year. It is expected that further margin
and line fee savings of approximately $0.7 million (after upfront fees) will
be achieved from June 2014.
Argosy continues to maintain strong relationships with its banking partners
and remains well within all bank covenants.
Dividends
The Directors have announced a final quarter dividend of 1.50 cents per share
plus imputation credits of 0.14 cents per share. 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 10 June 2014
and the payment date will be 24 June 2014.
The Board is pleased to confirm that, based on current projections for the
portfolio, a dividend of 6 cents per share is expected to continue for the
year to 31 March 2015. It is anticipated that this will marginally exceed
net distributable income in the 2015 year as Argosy returns to a tax paying
position. While projections beyond that date are heavily dependent on the
market and legislative environment, based on current conditions, it is
envisaged that the current 6 cents per share dividend, paid from net
distributable income, will be a minimum level for the years following the
2015 financial year.
Portfolio Activity
In general, the leasing environment has improved over the past year:
-net absorption has again been positive in the industrial and office sectors
in Auckland, where the majority of Argosy's portfolio is located, and vacancy
rates have fallen to levels that suggest potential for solid rental growth.
-occupancy enquiry from potential tenants has continued to be strong and
incentive levels have reduced.
-the retail sector has improved and while this sector will continue to be
challenged by increased internet sales and additional supply, current
turnover levels are at encouraging levels.
Leasing
The management team has continued to focus on occupancy and near-term lease
expiries with pleasing results. Occupancy (by rental) has improved to 98.7%
from 96.2% at 31 March 2013. Outstanding lease expiries for the period to 31
March 2015 were 9.4% at 31 March 2014. This has since improved to 7.5% as at
30 April 2014.
During the year, 59 lease transactions were completed, including 39 new
leases and 20 lease renewals and extensions. The WALT continues to improve
and was 5.68 years at 31 March 2014, up from 5.24 years at 31 March 2013.
Acquisitions
The 2014 financial year has seen a number of successful acquisitions by
Argosy.
In June 2013, the Company purchased the Auckland distribution centre at 80
Favona Road, Mangere for $74.0 million. This property is tenanted to
Progressive Enterprises on an 11-year lease.
In July 2013, Argosy settled the purchase of 15 Stout Street, Wellington, for
$33.2 million. This property is being extensively redeveloped. The property
is leased to The Ministry of Business, Innovation and Employment on a 12-year
lease.
In September 2013, Argosy settled the purchase of the Vector Centre at 101
Carlton Gore Road, Newmarket, Auckland, for $22.25 million. Vector Limited
is the major tenant of this building on a 7.5-year lease.
Finally, in December 2013, Argosy settled the purchase of a brand new 20,677
square metre distribution centre at 19 Nesdale Avenue, Wiri, Auckland, for
$38.0 million. The property is tenanted to Cardinal Logistics Limited on a
15-year lease.
Capital projects
Argosy has two major capital projects occurring at present.
The redevelopment of the newly acquired building at 15 Stout Street,
Wellington is nearing completion and is expected to be officially opened in
July 2014. The property was purchased for $33.2 million and has an upgrade
cost of $46.6 million. A case study of this property can be found on pages 30
and 31 of the 2014 Annual Report.
New Zealand Post House, Wellington is also being upgraded by Argosy. This
building was purchased in March 2013 for $60 million and has an upgrade cost
of $40 million. New Zealand Post and Kiwibank tenant the building and will
continue to do so throughout the course of the project. Argosy receives a
return of 8% (in arrears) of its share of the upgrade costs until completion.
Divestments
In December 2013, Argosy divested the underperforming building at 56 Cawley
Street, Ellerslie, Auckland for $10.375 million. The property had suffered
from a long-term vacancy factor and had provided an unsatisfactory total
return. The sale price represented 92% of its book value at the time.
Argosy sold 1.15 hectares of vacant land in Palmerston North for $1.27
million, which was above its book value. This sale settled in April 2014.
Subsequent to financial year end, the Company announced the sale of the
vacant property at 537 Main Street, Palmerston North, for $2.2 million, which
represented 99.4% of current book value. This property has underperformed
relative to the rest of the portfolio. Settlement is due at the end of May.
Argosy also announced the unconditional sale of 8 Pacific Rise, Mt
Wellington, Auckland, for $10.4 million, a 2.7% premium to the book value as
at 31 March 2014. The property had suffered from long-term vacancy issues
and a short WALT. Settlement is expected to occur in July 2014.
Following the settlement of these sales, 9% of the portfolio is considered
neither Core nor Value Add and will be divested as market conditions allow.
Valuations
For the fourth year in succession the revaluation of the property portfolio
has resulted in an increase in property values. The increase this year is
$33.5 million, a 2.8% increase on book values (2013: $9.3 million). Argosy's
portfolio, following the revaluation and including vacant land, shows a
passing yield on values of 7.96% and a yield on the assessed fully let market
rentals of 7.93%.
Strategic Review
Our portfolio investment strategy remains unchanged. 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 to 85% of the
portfolio by value.
Core properties enjoy strong long-term demand (well-located and generic), a
leasing profile that provides for rental growth of at least CPI and good
structural integrity with minimal maintenance capital expenditure required.
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.
Governance
At the August 2013 Annual Meeting, Michael Smith and Peter Brook were
re-elected as Independent Directors and new Directors Chris Hunter and Jeff
Morrison were also elected as Independent Directors.
Outlook
As the country remains in a period of economic growth, the Board and
Management consider that Argosy's prospects are equally positive.
The Company has a well-diversified portfolio of good quality and well located
properties and a clear investment strategy that enables the Company to make
the most of current economic conditions.
Argosy is, and will remain, invested in a portfolio that is diversified by
sector, grade, location and tenant mix. The portfolio will be located in the
Auckland and Wellington markets with modest tenant-driven exposure to
provincial markets.
The outlook for the property market is positive. Rates of enquiry are at
levels that Argosy has not experienced since prior to the global financial
crisis and there are signs of rental growth ahead. The management team will
continue to focus on the leasing fundamentals as well as positioning the
portfolio for the future.
Along with the continued focus on leasing, Management and 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:00250679 For:ARG Type:FLLYR Time:2014-05-21 08:30:13
