ARG
28/05/2015 08:35
FLLYR
PRICE SENSITIVE
REL: 0835 HRS Argosy Property Limited
FLLYR: ARG: Argosy Annual Result
FOR THE YEAR ENDING 31 MARCH 2015
Argosy Property Limited ("Argosy" or the "Company") is pleased to report its
results for the year ending 31 March 2015.
The 2015 financial year has been another successful year for Argosy. Through
a combination of strategic asset management and prudent capital management,
Argosy has continued to deliver on its strategy and produced another solid
operating result.
Operating results have improved with increases in both net property income
and gross distributable income. Portfolio metrics have been maintained at
high levels with occupancy by rental at 99.2% and the weighted average lease
term at 5.54 years, while the leasing profile continues to be well managed.
Total Shareholder Return was 34.5% for the 12 months to 31 March 2015 and
ranked among the top three New Zealand listed property vehicles over the past
year. Argosy outperformed both the NZ Property Gross Index and the NZX 50
Gross Index over the same time period.
Highlights:
o Gross distributable income increased to 7.07 cents per share
o Net distributable income of 6.02 cents per share
o Net property income increased to $90.9 million
o Occupancy (by rental) increased to 99.2%
o Weighted average lease term at 5.54 years
o Acquisition of 5 quality industrial buildings in Wellington
o Divestment of non Core properties, including the Waitakere Mega Centre in
Auckland
o Valuation gain of $38.6 million, up 3.0% on book values
Financial Results
Profit before tax
Net property income for the year was $90.9 million (2014: $82.2 million), an
increase of 10.5% due primarily to the extra income generated from
acquisitions that took place over the last two years and the July
commencement of a 12 year lease to the Ministry of Business, Innovation and
Employment at Stout Street, Wellington.
Earnings before finance costs, property revaluations and tax was $83.0
million, an 11.0% increase on $74.8 million in 2014.
Interest expense has increased by $1.5 million compared to the previous
period. However, after adjusting for capitalised interest of $1.3 million
(2014: $2.3 million) relating to the development at Stout Street, gross
interest expense was only $0.5 million more than the previous period. This
increase reflects increased debt levels, partly offset by margin savings
following the restructure of the Company's banking facilities in June 2014
and February 2015.
Profit before tax, after allowing for the non-cash impact of interest rate
swaps and property revaluations, was $68.6 million, compared to $98.8 million
for the previous period. The main reason for the decrease was due to the
revaluation loss on interest rate swaps, which reflects lowering of the
interest rate curve during the period.
Distributable income
Gross distributable income for the year to 31 March 2015 was $56.3 million, a
13.6% increase on the prior year. However, while gross distributable income
has increased, net distributable income has decreased from 6.69 cents per
share to 6.02 cents per share as Argosy has returned to a tax paying
position. It is particularly pleasing that Argosy has been able to earn
above the 6 cents per share that is being paid out in dividends, a better
result than we had forecast at the commencement of the year.
Capital Management
Current leverage
Argosy's debt levels, excluding capitalised borrowing costs, were 37.8% of
total assets (31 March 2014: 36.5%). The debt-to-total-assets ratio is within
the Company's targeted 35 to 40% gearing range.
Bank facility
Argosy restructured its syndicated bank facility in June 2014 and February
2015. Following the restructures, the expiry of the first tranche ($275
million) is 30 November 2017 and the second tranche ($275 million) is 30
November 2019. As a result of these restructures, Argosy is receiving further
margin and line fee savings (after including upfront fees) of $0.9 million
per annum.
Argosy continues to maintain strong relationships with its banking partners
and remains well within all bank covenants.
Dividends
The Board is pleased to make a full year cash distribution of 6 cents per
share which is in line with guidance. The final quarter dividend of 1.50
cents per share, with imputation credits of 0.2274 cents per share attached,
will be paid to shareholders on 26 June 2015. The record date will be 12
June 2015. 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 Board can 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 2016. It is expected that this will also be marginally less than net
distributable income per share. While projections beyond that date are
heavily dependent on the market and legislative environment, based on current
conditions, it is expected that the dividend will increase from the 2017
financial year.
Portfolio activity
Leasing Environment
Expectations of rental growth remain in 2015 and this is being underpinned by
strong leasing activity and low vacancy rates, especially in Auckland.
Occupancy enquiry from potential tenants has continued to be solid and
incentive levels have reduced.
Rental growth in Wellington has been constrained as the growth in net
effective rents in high demand areas is being offset by stagnating or falling
rents for similar stock in less desirable areas. Where net effective rents
have increased, it has been more to do with falling insurance costs than an
increase in achievable market rents.
Leasing
The management team has continued to focus on occupancy and near-term lease
expiries with excellent results. Occupancy (by rental) has improved to 99.2%
from 98.7% at 31 March 2014. Outstanding lease expiries for the period to 31
March 2016 were 11.8% at 31 March 2015.
During the year 41 lease transactions were completed, including 19 new leases
and 22 lease renewals and extensions. The weighted average lease term remains
at a high level at 5.54 years at 31 March 2015, compared with 5.68 years at
31 March 2014.
Acquisitions
The property investment market is strong and there remains a large volume of
capital seeking investment opportunities in an environment of limited supply
and low interest rates.
As mentioned above, the office and industrial portfolios are a focus for the
Company and key parts of Argosy's strategy. Therefore, it was pleasing to
announce the acquisition of five industrial properties in Lower Hutt for
$59.0 million in February 2015. The five properties were purchased at an
initial passing yield of 8.18% and had a combined weighted average lease term
of 5.19 years. This strategic acquisition has given Argosy its first
presence in the Wellington industrial market which hasn't reached the price
levels of the Auckland market, but still has good prospects for growth ahead.
Subsequent to the financial year end, Argosy acquired a vacant lot at 15
Unity Drive, Albany, Auckland for $3.1 million with a four year holding
return of 6.75%.
Divestments
Another of Argosy's key strategies continues to be to divest vacant land and
non Core assets in the near-term and we have continued to make steady
progress on this strategy during the 2015 financial year.
In August 2014, Argosy announced the sale of the Waitakere Mega Centre in
Henderson, Auckland, for $45.8 million. The sale settled in March 2015 and
has helped Argosy reduce its retail holdings to 24% of the portfolio at year
end, in line with strategy.
Subsequent to the financial year end, Argosy settled the sale of the property
at 1 Allens Road, East Tamaki, Auckland for $3.3 million, which represented a
10.7% premium to its book value, as well 5,733 square metres of vacant land
at the Manawatu Business Park for $563,000.
Argosy also entered into an unconditional agreement to dispose of the Porirua
Mega Centre for $11.5 million, with settlement to take place in October 2015,
and an agreement that is subject to title only for a further 5,000 square
metres of vacant land at the Manawatu Business Park for $552,000.
Following these disposals, 5% of the portfolio is considered neither Core nor
Value Add and will be divested in the future as market conditions allow.
Major projects
The redevelopment of the Stout Street building was successfully completed on
time and was opened officially by the Honorable Steven Joyce in July 2014.
The property was purchased for $33.2 million in July 2013 and had an upgrade
cost of $46.6 million.
New Zealand Post House, Wellington continues to be redeveloped by Argosy.
This building was purchased in March 2013 for $60 million and has an upgrade
cost of $40 million. New Zealand Post and its subsidiary, Kiwibank,
currently lease the building and will continue to do so throughout the course
of the project. Argosy receives a return of 8% (quarterly in arrears) of its
share of the development cost until completion, which is now expected to be
late 2017.
Valuations
The Company is pleased to report that for the fifth year in succession the
revaluation of the property portfolio has resulted in an increase in property
values. The year-end increase was $13.7 million. This, combined with the
half year revaluation gain of $24.9 million, has given a total revaluation
gain of 3%, or $38.6 million (2013: $33.5 million). The Company's portfolio,
following the revaluation and including vacant land, shows a passing yield on
values of 7.58% and a yield on fully let market rentals of 7.55%.
Strategy
Our 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.
More detail on Argosy's strategy can be found on pages 10 and 11 of the 2015
Annual Report that was released today.
Governance
At the Annual Meeting in August 2014, Andrew Evans and Mark Cross were
re-elected as independent Directors and Trevor Scott, one of the Company's
original directors, retired from the Board. At the date of this release, the
Board comprises six Directors who are all independent.
Long Term Incentive Scheme
Subsequent to year end, the Board approved the implementation of a long term
incentive scheme for its senior executives. The incentive scheme aligns
closely with the Company's strategic objectives, which aim to provide an
above average relative return to shareholders. Initially, the Chief
Executive Officer and Chief Financial Officer have been invited, and have
elected, to participate in the scheme.
Outlook
As we head into the 2016 financial year, the New Zealand economy is still
reasonably robust, with forecasts of continuing good economic growth. The
low interest rate and inflation environment is expected for the foreseeable
future. The outlook for the New Zealand property market is similarly
positive with rental growth being achieved along with good levels of enquiry
for space.
The Company has a well diversified portfolio of good quality and well located
properties and a clear investment strategy that enables us to make the most
of current economic conditions.
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 pursue growth opportunities where these are consistent
with the Company's investment strategy.
End CA:00264916 For:ARG Type:FLLYR Time:2015-05-28 08:35:29
