Ann: FLLYR: ARG: Argosy Annual Results Show Sound

• Release Date: 24/05/12 11:07
• Summary: FLLYR: ARG: Argosy Annual Results Show Sound Basis for Growth
• Price Sensitive: No
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ARG
24/05/2012 09:07
FLLYR

REL: 0907 HRS Argosy Property Limited

FLLYR: ARG: Argosy Annual Results Show Sound Basis for Growth

Summary

o Internalisation achieved in August 2011 with significant permanent cost
savings.
o Corporatisation achieved in February 2012.
o Bank facility restructured on more favourable terms.
o Net distributable income $33.4 million.
o Property revaluation has resulted in $3.7m lift in property values.
o Price performance has exceeded both the NZX50 and the NZX Gross Property
Index over the period.
o Dividend of 6.0 cents per share for the 12 months to 31 March 2012,
consistent with previous guidance.
o Dividend guidance for 2013 is 6.0 cents per share.
o Total portfolio value of $905 million.
o Portfolio occupancy at 31 March 2012 is 94.1% by rental.
o Weighted average lease term of 4.77 years.
o Average property value $13.9 million.
o Net property income $71.2 million.
o The Board is actively seeking growth opportunities.

Argosy Property Limited ("Argosy" or "the Company") has achieved a net
distributable income of $33.4 million which, despite the sale of 15
properties during the year, is comparable to the previous year's $33.5
million.

A number of milestones have been achieved over the past 12 months. The
successful internalisation of the management contract in August 2011 has
delivered significant savings which have improved earnings. The subsequent
corporatisation of the business, moving from a unit trust structure to a
company structure has delivered further savings and improved operating
efficiency while providing greater protection to investors, with the business
now subject to the controls of the takeover code.

The Company is pleased to report that for the second year in succession the
revaluation of the property portfolio has resulted in an increase in property
values. The increase this year is $3.7 million (2011: $2.1 million). Argosy's
strategic focus on risk mitigation and capital management has delivered
results for investors through this difficult period.

The Company's portfolio following the revaluation, including vacant land,
shows a passing yield on values of 8.02% and a yield on the assessed market
rentals of 8.24%.

Annual net property income of $71.2 million was slightly down on the $72.3
million achieved in the prior period, however the reduction in rental income
is primarily the result of the sale of 15 properties during the period.

As at 31 March 2012, Argosy's total assets were $929.3 million and debt
(excluding capitalised borrowing costs) was $384.6 million. The
debt-to-total-asset ratio of 41.4% compares favourably with the 42.3% at 31
March 2011. We expect this downward trend to continue following the receipt
of insurance proceeds from our impaired Christchurch property (refer below).
Argosy remains well within all bank covenants.

The Company achieved an audited profit after tax of $1.9 million (2011: $26.3
million) for the year to 31 March 2012. The reduced profit after tax reflects
significant one-off costs in relation to internalisation, an unsolicited
merger offer, corporatisation and the decision to accelerate the write-down
of an intangible asset, which was previously being amortised over a period of
10 years.

Offsetting these one-off costs is a net credit of $1.5 million resulting from
the permanent impairment of the Company's single Christchurch property and
the insurance receivable.

CEO Comment

Chief Executive Officer Peter Mence said, "During the year, Argosy has
successfully moved to an internalised management structure with significant
savings being achieved. The more demonstrable alignment between the interests
of management and investors has been well received. Following unit holder
approval at an Extraordinary General Meeting in February, the business moved
to a corporate structure and is now an internally managed, listed property
company."

"While we expect that there will continue to be challenges ahead, the Company
is now well-positioned to make the most of future opportunities for growth."

Dividends

Aided by savings generated from the internalised management, the Directors
have announced a final quarter dividend of 1.50 cents per share. This will be
paid on 27 June 2012 with a record date of 13 June 2012. A discount of 2.5%
will be applied to the share price for participants in the Dividend
Reinvestment Plan. The full-year dividend of 6 cents per share is in line
with guidance levels and the Boards new dividend policy.

Chairman of the Board Michael Smith said, "The full-year dividend of 6 cents
per share paid fully from distributable operating earnings is a good result
for the business, following a busy year for the company on internalisation
and corporatisation and challenging economic conditions.   Argosy's total
return to shareholders over the period demonstrates the benefits of the
Company's strategy to maintain an actively managed, diversified and liquid
portfolio of properties."

"The Board is pleased to confirm that, based on current projections for the
economy and the portfolio, a distribution at 6 cents per share is expected to
continue for the year to 31 March 2013."

Portfolio Management

Leasing

At year end, the vacancy within the portfolio was 5.93% by rental (2011:
3.69%). The vacancy by rental as at 23 May 2012 is 5.70%. The Board and
Management remains focused on improving the vacancy profile of the portfolio
and on addressing leases coming up for expiry. The weighted average lease
term (WALT) at 31 March 2012 was 4.77 years (2011: 4.92).

Constrained growth in the government sector has the potential to reduce the
relative contribution of the Wellington office portfolio. However, the new
6-year leases achieved with both Te Puni Kokiri and the Department of
Internal Affairs, who account for the majority of the Company's Wellington
office exposure, contribute significantly to securing this sector of the
portfolio.

During the year, 71 lease transactions were completed. This comprised 49 new
leases and 22 renewals or lease extensions. The Company's portfolio remains
well placed with a diversified portfolio of good quality properties in strong
locations. The income streams are diversified by use and by tenant, with the
largest tenant in the portfolio contributing 3.3% of total income. The
portfolio location weighting is centred on Auckland (74%) and does not
include any significant exposure in provincial centres (currently 12%).

Divestments

Fifteen properties were sold during the year, realising $56 million which was
in line with book value. At 31 March 2012, the Company had a portfolio of 65
properties worth $905m.

Development

Steady progress is being made at Manawatu Business Park. Subdivision works
are almost complete and titles are now only dependent on the Local Authority
and regulatory process.

The final calculation of development levies will have a significant effect on
the overall calculation of subdivision costs. The level of the development
levies are currently the subject of discussion and negotiation with the
Palmerston North City Council.

Christchurch property

Argosy owns one Christchurch industrial property, at 8 Foundry Drive. One of
the two cold stores and the warehouse portions of this property have been
permanently damaged by earthquakes. The Company has insurance in place for
the reinstatement cost of these buildings and is in the process of
negotiating a final settlement with NZI Insurance. The value of the property
has been permanently impaired by $8.45 million, while other income includes
$9.94m of estimated insurance proceeds. The residual buildings and land will
be marketed for sale.

Governance

At the 2011 Annual Meeting, Trevor Scott was reappointed as an independent
director of the former manager, a role in which he had served since the
inception of the Trust in 2002. Mr Scott is now a director of Argosy Property
Limited.

On 28 March 2012, the Board of Argosy Property Limited appointed Mr Mark
Cross as a Director of the company. He replaced the Honourable Philip Burdon
who resigned in February after many years of distinguished service to Argosy.

Capital Management

The Board's intention is to bring the debt-to-total-assets ratio to below 40%
in the medium term. The divestment of vacant land and under-yielding assets
will be the immediate strategy to reduce debt levels.

Bank Facility

In August 2011, Argosy successfully renegotiated its banking facilities on
improved terms. The existing Tranche A facility of $400m was extended to June
2015, achieving immediate savings in margin and line fees. The Tranche B
facility of $50m matures in June 2013 and will be reviewed this year.

Outlook

As advised to shareholders at the 2011 Annual General Meeting, the Board is
actively considering selective growth opportunities accretive to
shareholders.
End CA:00223200 For:ARG    Type:FLLYR      Time:2012-05-24 09:07:47