Ann: HALFYR: ARG: Argosy Interim Result and Divid

• Release Date: 29/11/12 10:30
• Summary: HALFYR: ARG: Argosy Interim Result and Dividend Announcement
• Price Sensitive: No
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ARG
29/11/2012 08:30
HALFYR

REL: 0830 HRS Argosy Property Limited

HALFYR: ARG: Argosy Interim Result and Dividend Announcement

FOR THE PERIOD ENDING 30 SEPTEMBER 2012

Highlights:
o Distributable income increased to 3.6 cents per share
o Net property income maintained at $35.4 million
o Occupancy increased to 96.3%
o Debt to total assets lowered to 40.7%
o Weighted average lease term (WALT) increased to 5.3 years
o 6 cents per share guidance to annual dividend maintained, payable quarterly

o 29 lease transactions completed
o Bank facility restructured on improved terms
o The Board continues to actively seek growth opportunities

Argosy Property Limited (Argosy) is pleased to report its interim results for
the six-month period to 30 September 2012.

It is pleasing to report that the momentum generated by internalisation and
corporatisation in the prior period has continued over the first six months
of this year. The cost savings from internalisation have been considerable
and are in line with that originally indicated to shareholders. In addition,
the strong focus on leasing activity in the period has improved occupancy,
increased the weighted average lease term and significantly reduced pending
2013 expiries. Proactive and hands-on management of tenant relationships has
translated directly into improved shareholder returns.

Argosy continues to maintain a well-balanced, diversified portfolio of
quality properties by sector. The Company has delivered a strong performance
over the first six months of this financial year, demonstrating the benefits
of a well-diversified portfolio. The strategy of selling non-core assets
during the global financial crisis has ensured that the Argosy portfolio is
stronger now than it was pre crisis.

Interim Result
Net distributable income for the six months was $20.2 million (2011: $15.7
million) an increase of 29% on the interim period to 30 September 2011.

Net property income for the six months was comparable to the previous interim
period at $35.4 million (2011: $35.6 million), despite the sale of fifteen
properties in the year ended 31 March 2012, and a further two this period.

The operating surplus before tax for the six months, after allowing for the
non-cash impact of interest rate swaps, was $5.5 million compared to a loss
of $23.8 million for the previous interim period. The previous interim period
included one-off items amounting to $28.2 million relating to the management
rights buy-out and associated expenses, an unsolicited merger proposal and
the write-down of a previous management contract.

Interest expense was $3.6 million lower than in the previous interim period
due to the restructure of our banking facility and treasury initiatives
undertaken during the last twelve months as well as capitalised interest of
$2.1 million related to development activities.

Dividends
The Board confirms its previous guidance that the full-year dividend is
expected to be 6.0 cents per share.

A cash dividend of 1.50 cents per share, consistent with the first quarter,
has been declared for the September quarter. There are no imputation credits
attached to the dividend and the dividend re-investment 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 13 December 2012 and the payment
date will be 21 December 2012.

Governance
At the Annual Meeting, Andy Evans was reappointed as an Independent Director
and Mark Cross was elected as a Director. The Board has determined that Mark
Cross is not an Independent Director because he is an associated person of
MFL Mutual Fund Limited, which holds 15.96% of the shares in the Company (as
at 23 November 2012).

Capital management
Argosy's debt levels have reduced to 40.7% of total assets (31 March 2012:
41.4% and 30 September 2011: 43.6%). When allowance is made for the
settlement of unconditional contracts in respect of vacant land and the two
buildings in Palmerston North, the debt to total assets ratio reduces further
to 39.5%. The divestment of vacant land and under-yielding assets will
continue to be a key strategy for the Company.

Bank facility
In August Argosy restructured its syndicated bank facility with ANZ National
Bank, 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.  The first tranche expires
on 30 June 2015 and the second on 30 June 2017.  The Company received
immediate margin and line fee reductions on both tranches averaging 25 basis
points (after including upfront fees).

Taxation
As reported last year, Argosy is in discussions with Inland Revenue over the
classification of its leasehold payment for Albany E Block as depreciable
intangible property. Should the outcome be successful, a deduction will be
available. The Board has determined not to recognise any deduction in respect
of the leasehold payment until the outcome is certain.

Portfolio activity
The property market in general is starting to show signs of improvement,
particularly in the Auckland market with the potential for future growth
improving.  Net effective rents in the Wellington market have continued to
suffer mainly as a result of insurance increases over the past few years.

Leasing
The Management team has continued to focus on occupancy and near-term lease
expiries with pleasing results. Occupancy (by rental) has improved to 96.3%
from 94.1% at March 2012. Outstanding lease expiries for the period to 31
March 2013 have reduced to 7.0% from 17.9% at 31 March 2012.
During the interim period, 29 lease transactions were completed, including 16
new leases and 13 lease renewals and extensions. The weighted average lease
term improved to 5.30 years from 4.77 years at 31 March 2012.

Capital projects
Major refurbishment projects, resulting from solid leasing commitments, are
nearing completion at Argosy's two largest Wellington office towers, Te Puni
Kokiri (143 Lambton Quay) and TSB Tower (46 Waring Taylor Street). Works are
expected to be completed by 31 March 2013 and are on budget.

Divestments
Two properties were sold at less than book value during the interim period
(221 Bush Rd, Albany which was sold vacant and 221 Wakefield St, Wellington
which was cash flow negative). A small parcel of land at 211 Albany Highway
was also sold during the interim period.

As noted in the last Annual Report, one of Argosy's key strategies is to
divest vacant land and under-yielding assets in the near-term. Since
reporting date, the Company has announced the unconditional sale of part of
the vacant land on Oteha Valley Rd in Albany and three vacant sites in the
Manawatu Business Park subdivision in Palmerston North. The Company has also
announced the sale of two smaller buildings located in the Manawatu Business
Park. The unconditional sales total $19.2m ($15.5m for land and $3.7m for the
two buildings) reflecting 98% of the current book value.

Manawatu Business Park
It is pleasing to report that progress is being made at the Manawatu Business
Park. The subdivision is substantially complete and titles have been issued.
It is also pleasing to report an increase in activity with three sales since
reporting date.

Christchurch property
Argosy owns one Christchurch industrial property, at 8 Foundry Drive. During
the interim period an insurance claim was settled for the sum of $10 million
with the proceeds used to repay bank debt. The value of the residual land and
buildings was assessed at $4.05 million by CB Richard Ellis Limited as part
of the 31 March 2012 asset valuations. The property, which represents the
sole remaining asset of the business in Christchurch, is being marketed for
sale.

Valuations
The Board and Management have reviewed the portfolio using available market
information and consider that there has been no significant change to the
valuation completed at 31 March 2012. Independent property revaluations will
be completed at year-end as normal.

Seismic ratings
Initial evaluation assessments by structural engineers have been undertaken
on a number of properties (including Wellington and other assets that were
considered to present a seismic risk) with no significant issues identified.

Outlook
The property market remains challenging; however the Company's portfolio is
well-placed with quality properties in good locations. The Management team is
actively managing current leases to meet the requirements of tenants to
ensure that retention rates are high.

The movement in leased space has been positive in the Auckland industrial and
commercial markets, 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 robust during the
interim period than previously and this, along with increased investor
demand, is likely to be reflected in future capital values.
End CA:00230380 For:ARG    Type:HALFYR     Time:2012-11-29 08:30:21