Argosy 2019 Interim Result – Building Momentum
MARKET RELEASE
FOR THE 6 MONTHS TO 30 SEPTEMBER 2018
Argosy will present the 2019 interim results via a teleconference and webcast at 10am today.
Please visit https://services.choruscall.com.au/diamondpass/argosy-880125-invite.html or dial 0800 122
360 and quote the conference ID 880125. It is recommended that you dial in or log in a few minutes
before the start time. A copy of the webcast will be available on Argosy’s website later in the day.
Argosy Property Limited (“Argosy” or the “Company”) has reported its results for the 6 months to 30
September 2018.
Highlights
- Net property income up 4.7%
- Net distributable income up 9.2%
- Net distributable income per share up 8.8%
- Revaluation gain of $34.6 million, an increase of 2.2% on book value
- Continued divestment of non Core assets significantly above book value
- Strong progress at 7 Waterloo Quay with very good enquiry from the Government sector for space in
the building
- Acquisition of 11 Coliseum Drive, Albany and 133 Roscommon Road, Wiri
- Balance sheet is in good shape and we are considering longer term debt funding options
- Full year dividend of 6.25 cents per share expected in line with previous guidance
- Lift in NTA to $1.17 from $1.12 at the end of March.
Peter Mence, Argosy’s Argosy Chief Executive Officer said “ With a strong FY18 platform as our base, we
have started the first six months of the FY19 year very well. In the first six months of the financial year,
Argosy has continued to improve the quality of the portfolio through acquisitions, tenant-led
developments and the divestment of non Core assets. We are pleased to report that the metrics of the
portfolio remain strong with occupancy at 98.4% and a weighted average lease term of 5.6 years.
We can also announce further progress at New Zealand Post House at 7 Waterloo Quay, Wellington. The
reinstatement works for levels 1-4 and 7 are largely complete (apart from some further seismic work), with
the balance of the damaged floors expected to be completed this financial year (except for level 12).
Further details on this building are provided below.”
Chairman Mike Smith said “ We have commenced the 2019 year well. The management team has
continued to reposition the portfolio and work hard on the operational elements of the business including
resolution of lease expiries and addressing key vacancies. Strategic acquisition and divestment
opportunities for Argosy have materialised and we have also continued to focus on organic growth
opportunities. As signalled in May, we expect the full year dividend to be 6.25 c ents per share for this
financial year.”
Financial Results
Statement of Comprehensive Income
Argosy reported net property income of $50.8 million for the period, which includes rental loss recoveries
from insurers, and is 4.7% higher than the previous interim period. Lost revenue from divestments in the
period has been more than compensated for by strong rental growth and leasing up of vacant space,
notably at 82 Wyndham Street, Auckland.
20 November
2018
ARGOSY 2019 INTERIM RESULT – BUILDING MOMENTUM
Administration expenses were up $0.4 million on the previous interim period primarily due to restructuring
costs and additional resourcing costs across the business.
Profit before interest, other gains/losses and taxes was $45.6 million, up 4.2% on the previous interim
period.
Interest expense of $12.2 million was down $0.4 million on the previous interim period as the interest on
higher average debt was offset by higher capitalised interest on developments.
An interim revaluation was undertaken by Argosy following evidence of improved market conditions
since the last valuation date of 31 March 2018, and desktop valuations performed by Colliers
International during the period. A revaluation gain of $34.6 million or 2.2% on previous book value, has
subsequently been recorded.
The sale of Wagener Place, St Lukes, resulted in a significant gain of $2.9 million over book value.
Net profit after tax was $66.8 million for the period, compared to $23.1 million in the previous interim
period.
Distributable Income
For the period ending 30 September g ross distributable income
1
was $33.4 million which was 7.1% higher
than the previous interim period. Gross distributable income per share for the period was 4.04 cents per
share, compared to 3.79 cents per share in the previous interim period (up 6.6%).
Net distributable income increased by 9.2% to $28.7 million compared to the previous interim period, due
primarily to improved net property income. Net distributable income per share increased 8.8% to 3.47
cents per share from 3.19 cents per share in the previous interim period.
Interim revaluations
The independent work performed and interim revaluation resulted in an uplift of $34.6 million, a 2.2%
increase on book values immediately prior to the interim revaluation. As a result of the revaluation,
Argosy’s NTA has lifted to $1.17, up from $1.12 at the end of March.
The Company’s portfolio following the revaluation shows a contract yield on values of 6.63% and a yield
on fully let market rentals of 6.70%.
Portfolio Activity
Leasing and Rent Reviews
Underpinned by continued strength in Auckland and Wellington property market fundamentals, Argosy
has delivered strong leasing and rent review results over the first half of the year. During the interim
period, 24 lease transactions were completed on 39,500sqm of net lettable area, including 16 new
leases, seven renewals and one extension.
Significant leasing transaction successes over the first half of the financial year include:
320 Ti Rakau Drive, East Tamaki, Auckland Bunnings Limited 10 years
Albany Lifestyle Centre, Albany, Auckland E Road Limited 9 years
Albany Lifestyle Centre, Albany, Auckland Peterken Enterprises Limited 6 years
Albany Mega Centre, Albany, Auckland Outdoor Holdings Limited 6 years
There has been some progress in leasing the vacant floors at 23 Customs Street, Auckland. Levels 2, 14
and part 13 are now leased and there is strong enquiry on the remaining floors (levels 6, 7 and part 13).
Argosy’s weighted average lease term at 30 September decreased to 5.6 years compared to the 6.1
years at the end of March 2018. This movement reflects the adjusted arrangements with New Zealand
Post at 7 Waterloo Quay which are discussed in more detail in the 7 Waterloo Quay update below.
1
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. Note 14 of the financial statements released today
provides a full reconciliation between profit before tax and distributable income.
Argosy has maintained a very high occupancy level over the interim period and occupancy was 98.4%
at 30 September 2018 compared to 98.8% at the end of March.
During the first six months, a total of 42 rent reviews on $15.5 million of existing rental income were
completed. Rental growth of 3.4% was achieved or 3.1% on an annualised basis on all rents reviewed.
Across the rental increase, the industrial portfolio accounted for 57% of the total rental uplift on 50% of
the rent reviewed (9 reviews). This continued strong rental growth has been a key contributor to the
improvement in net property income in the interim period.
Approximately 57% of all rents reviewed (by income) were fixed reviews, 14% were market reviews and
29% were CPI based.
Acquisitions and Value Add Developments
Ongoing tightness across the property market continued in the first half of this financial year. Despite this,
opportunities have emerged during the period to make strategic acquisitions.
In September, Argosy acquired 11 Coliseum Drive in Albany (The Warehouse), for $26.4 million. This
property is contiguous to the Argosy owned Albany Mega Centre and comprises 7,600sqm of
warehouse, 760sqm of office, mezzanine and garden centre and 413 carparks. The lease had 6.5 years
to run on the initial 12-year lease. The purchase allows us to now consider a range of organic growth
options across the entire Albany Mega Centre site. Longer term, we are optimistic about the opportunity
and value this acquisition can deliver for Argosy and its shareholders.
Argosy also acquired a freehold 15,838 sqm industrial yard in September on Roscommon Road, Wiri for
$8.6 million. The site is leased to NZX listed Turners Automotive Group on a 15- year lease, providing a
holding return of 5% with fixed reviews of 2.5% per annum, with a market review in year six.
Argosy also continued to progress its development pipeline with a $10.3 million upgrade of the
Placemakers property in Hutt Road, Kaiwharawhara now underway. This project will be another green
development for Argosy and the Company is targeting a 4-Star Green Built Industrial rating. Argosy will
continue to pursue these value-add opportunities to improve overall portfolio quality and add value to
shareholders.
Divestment of non-Core Assets
With the continued strength in property markets over the first half of the financial year, Argosy successfully
completed the sale of Wagener Place in Auckland for $31.0 million. This transaction settled in July 2018.
The Wagener Place sale was an opportunity to reduce Argosy’s retail exposure in an area where there
will be increasing competition.
In September, Argosy announced that it had unconditionally sold the non Core property at 626 Great
South Road, Greenlane. The property was sold at a price of $10.6 million, 8% over the book value of $9.8
million. S ettlement is scheduled for 30 November 2018.
Subsequent to period end, Argosy announced the sale of two non Core regional assets, 1478 Omahu
Road in Hastings and 31 El Prado Drive in Palmerston North. 1478 Omahu Road has been sold for $10.2
million which represents a 12% premium over book value immediately preceding the September
valuation. Settlement will take place in March 2019. The property at 31 El Prado Drive has been sold for
$35.5 million, which represents a 25% premium over book value immediately preceding the September
valuation. Settlement will take place in December 2018. The divestment of these regional assets means
that Argosy has only 3 properties outside its core Auckland and Wellington markets.
At year end, Argosy has categorised approximately 10% or $153.4 million of the portfolio as non Core. This
number includes the two assets noted above as well as the Albany Lifestyle Centre which is currently on
the market. Argosy will continue its divestment programme over the next 12-18 months to take
advantage of current market conditions.
7 Waterloo Quay
Earthquake Damage and Insurance Claim
Argosy’s 14 level property at New Zealand Post House at 7 Waterloo Quay in Wellington sustained
damage in the 7.5 magnitude Kaikoura earthquake on 14 November 2016. Independent engineers
confirmed that the building is structurally sound, but it suffered damage to fit out and services. Argosy has
material damage insurance and we are working with our insurers to progress a significant insurance
claim. Argosy expects that, as with many earthquake insurance claims, there may be debate with
insurers over the extent of damage, the appropriate method of reinstatement and the extent of cover.
Argosy commissioned a comprehensive damage survey of 7 Waterloo Quay, and detailed damage
assessment reports were provided to insurers earlier in the year. We envisage that the damage reports
may be updated, based on our advisors’ experience that additional earthquake damage may become
apparent. More recently, detailed reinstatement scope reports were completed by our expert
consultants and these have been provided to our insurers. We are now engaged in an exercise to
quantify the cost to repair the damage. We expect that this process will be completed in early 2019 to
enable a material damage claim to be submitted to insurers.
Argosy also has business interruption insurance, which is expected to cover loss of rents and certain
additional expenses until mid-November 2018, being a period of two years from the date of the
earthquake.
Argosy has made six interim claims under its material damage and business interruption insurance and
received progress payments from insurers (to 31 October 2018) of $14.9 million plus GST (after a $4.8
million deductible). In the interim period to 30 September 2018, $2.3 million has been allocated by Argosy
to loss of rents, and $2.8 million to material damage reinstatement. Further interim claims will be
presented for the remainder of the two-year business interruption indemnity period, and for material
damage.
Reinstatement and Leasing
Demand for space from late calendar 2019 has dictated a desired delivery in this timeframe. With recent
changes in the method of measurement for seismic resilience, some upgrade to the building is
considered desirable to maximise the potential from the current strong leasing environment. It is
expected that these works will cost between $15-20 million and be complete in September 2019.
Argosy has proceeded with its interim works programme to make damaged levels in the building
available for occupation (including levels 10-12). T he reinstatement project is on program to be
completed (apart from level 12) by March 2019.
Damaged levels 1-4 and 7 were leased to New Zealand Post (Post) to December 2025. As part of a lease
termination agreement, Post has agreed to pay a termination fee of $2.9 million to Argosy effective 30
November 2018 and relinquish these floors. This amount, although calculated based on the previous rent
from levels 2-4 and 7 through to 31 August 2019, is required by accounting standards to be fully
recognised in the second half of this financial year. Post will remain on the ground floor (part) and levels
5, 6, 8 and 9. Management is working with Post on longer term accommodation options.
The office leasing environment in Wellington is very favourable at present and we are currently in
negotiations for the remaining space in this building.
Capital Management
Current Leverage
At 30 September 2018, Argosy’s debt-to -total-assets ratio, excluding capitalised borrowing costs, was
36.8% versus 35.9% at 31 March 2018 year end. The increase reflects the net impact of acquisitions and
developments during the period largely offset by divestments and revaluation gains. Argosy’s target
gearing band is 30 to 40% providing flexibility depending on financial and property market conditions.
Argosy currently sits in the middle of the target band and remains well within all bank covenants.
At period end, Argosy’s weighted average interest rate was 4.86% versus 4.98% at 31 March 2018. In
October 2018, Argosy added $25 million to its banking facilities with ANZ Bank New Zealand Limited, Bank
of New Zealand Limited and The Hongkong and Shanghai Banking Corporation.
Argosy’s total debt facility is now $650 million ($625 million at 30 September 2018). Argosy is reviewing its
long term debt funding options with a view to diversifying its debt funding base over the next 12 months.
Dividends
Consistent with the first quarter dividend, a second quarter dividend of 1.5625 cents per share with
imputation credits of 0.3890 cents per share attached has been declared for the September quarter. The
dividend will be paid to shareholders on 19
December 2018 and the record date will be 5 December
2018. The dividend reinvestment plan remains suspended.
Argosy has started the 2019 financial year in a very solid financial and portfolio position. We remain
focused on delivering sustainable dividends to our shareholders. Based on current projections for the
portfolio, the Board expects a full year 2019 cash dividend of 6.25 cents per share, an increase of 1% on
the prior year. The increase reflects our wish for shareholders to share in the continued strong results but
also allows us to maintain our momentum towards an AFFO
2
based dividend policy in the medium term.
Governance – ex Annual Meeting results and appointments
At the August 2018 Annual Meeting, Jeff Morrison was re-elected as an independent Director. Chris
Hunter retired as an independent director at the meeting and did not seek re-election. Subsequently
Stuart McLauchlan was appointed as an independent director.
Stuart is a Senior Partner of GS McLauchlan & Co Business Advisors and Accountants, a prominent
businessman and company director. Stuart is a Director of Scenic Hotels Limited, Dunedin Casinos
Limited, Ngai Tahu Tourism Limited and several other companies. He is also Chairman of the NZ Sports Hall
of Fame, Chairman of AD Instruments Pty Limited, Chairman of Scott Technology Limited, Chairman of
UDC Finance Limited and a member of the Otago Southland Branch of the Institute of Directors. Stuart is
also a past President of the New Zealand Institute of Directors.
The Board has also recently appointed Chris Gudgeon as an independent Director of the Company.
Chris has been involved in property investment, development and construction in New Zealand for more
than 25 years. He was previously Chief Executive of Kiwi Property Group and is a past President of
Property Council New Zealand
.
2
AFFO (Adjusted Funds From Operations) is considered by some investors to represent a measure of dividend sustainability. The interim results
presentation released today provides a reconciliation between net distributable income and AFFO.
Outlook
The Company continues to operate in a low interest rate and low inflation environment, although the
possibility of rising interest rates has caused some nervousness around the world’s stock markets. The
economy, and thus the property market, in New Zealand however remains solid with good economic
growth expected to continue. Argosy remains in a strong position with a quality, resilient portfolio that is
diversified by sector, location and tenant mix.
Ongoing strength in the sector should continue to provide opportunities to divest non Core assets at
attractive prices and either reduce gearing or reinvest the proceeds into tenant led development
opportunities.
Argosy will remain as focused as ever on addressing near term lease expiries within the portfolio and
ensuring that the tenant retention rate remains high. Argosy will continue to focus on the existing portfolio
of value add properties to create long term value for shareholders and increase the quality and
sustainability of our earnings.
– ENDS –
Enquiries
Peter Mence
Chief Executive Officer
Argosy Property Limited
Telephone: 09 304 3411
Email: pmence@argosy.co.nz
Dave Fraser
Chief Financial Officer
Argosy Property Limited
Telephone: 09 304 3469
Email: dfraser@argosy.co.nz
Stephen Freundlich
Head of Investor Relations
Argosy Property Limited
Telephone: 09 304 3426
Email: sfreundlich@argosy.co.nz
---
FY19
Interim Results
Presentation
Argosy Property Limited
20 November 2018
www.argosy.co.nz
AGENDA
2
HighlightsPage 4
Strategy / PortfolioPage 6
FinancialsPage 13
Leasing UpdatePage 22
Looking AheadPage 26
PRESENTED BY:
Peter Mence CEODave Fraser CFO
Note: This result should be read in conjunction with the NZX release dated 20
November 2018. Due to rounding, numbers presented in this presentation may
not add up exactly to the totals provided and percentages may not reflect
exactly absolute figures.
Our strength lies in the diversity of our
properties across sectors, location and
sizes allowing us to adapt to the
changing needs of our tenants.
Peter Mence
CEO
3
HIGHLIGHTS
4
Change image
FY19 Interim Highlights
5
4.7%
Increase in Net
Property Income
3.1%
98.4%
Annualisedrental growth
on rents reviewed
Occupancy (by rental)
1.5625
5.6 years
Q2 dividend cents per
share
WALT
9.2%
Uplift in Net Distributable
Income
Strategy / Portfolio
6
Strategy
7
Shareholder
return focus
Diversified
approach
Investment Strategy
underpinned by
Core and Value
Add properties
Ongoing
commitment to
corporate
governance best
practice
Continue to invest in a diverse range of properties across sectors, locations and
sizes.
Core properties between 75-90% of the portfolio by value.
Investment Policy sector bands well established. Industrial 40-50%, Office 30-40%,
Retail 15-25%.
Experienced Board with a proven track record.
Renewal process underway with appointment of Stuart McLaughlanand Chris
Gudgeon.
More changes pending over the next 12 months.
Transition Value Add properties to drive earnings and capital growth with an
environmental focus.
Streamlined tenant led development process and execution.
AFFO based dividend policy by 2021.
Portfolio at a Glance
8
Data as at 30 September 2018
TOTAL PORTFOLIO VALUE
BY SECTOR
TOTAL PORTFOLIO VALUE
BY REGION
PORTFOLIO MIX
BY VALUE
71%
24%
5%
Auckland
Wellington
Regional North Island
& South Island
83%
7%
10%
Core properties
Value Add properties
Properties and land to divest
41%
37%
22%
Industrial
Office
Retail
Divestment of non Core assets continuing with recent sales of 31 El Prado Drive, Palmerston North
and 1478 OmahuRoad, Hastings (both included in 10% above).
Expect to move towards the higher end of the industrial band and lower end of the retail band
over the medium term.
Sector Summary
9
NUMBER OF BUILDINGS
37
MARKET VALUE OF ASSETS ($M)
$670.0
OCCUPANCY (BY INCOME)
100%
WALT (YEARS)
7.0
CONTRACT YIELD
6.5%
NUMBER OF BUILDINGS
16
MARKET VALUE OF ASSETS ($M)
$596.8
OCCUPANCY (BY INCOME)
96.4%
WALT (YEARS)
3.7
CONTRACT YIELD
6.9%
NUMBER OF BUILDINGS
9
MARKET VALUE OF ASSETS ($M)
$356.2
OCCUPANCY (BY INCOME)
100%
WALT (YEARS)
6.6
CONTRACT YIELD
6.5%
Data as at 30 September 2018. Contract yields exclude NZ Post and Stewart Dawson Corner.
INDUSTRIAL
OFFICE
RETAIL
Value Add
10
The following properties have been designated as Value Add
and make up ~7% of the total portfolio:
As at 30 September 2018
PropertySectorLocationValuation $m
90 -104 Springs Road, East TamakiIndustrialAuckland
5.6
80 Springs Road, East TamakiIndustrialAuckland
10.7
211 Albany Highway, AlbanyIndustrialAuckland
22.4
960 Great South Road, PenroseIndustrialAuckland
6.3
99-107 Khyber Pass Road, GraftonOffice / RetailWellington
9.0
8-14 Willis StreetRetailWellington
15.1
180-202 Hutt Road, KaiwharawharaRetailWellington
16.3
Stewart Dawsons CornerRetailWellington
17.7
TOTAL $m (excl. land)103.1
56 Jamaica DriveLandWellington1.1
15 Unity DriveLandAuckland4.4
246 PuhinuiRoadLandAuckland3.4
133 Roscommon Road, WiriLandAuckland8.7
TOTAL $m120.7
7 Waterloo Quay Update
11
Damage Assessment
Interim damage assessment reports and reinstatement scope reports with insurers.
Next stage is cost assessment which should be completed by early 2019.
Insurance Claim
Six interim claims made under Argosy’s material damage and business interruption insurance.
Total received to 31 October is $14.9m (after deductible).
In the interim period $2.3m has been allocated to loss of rents and $2.8m to material damage reinstatement.
Reinstatement
Reinstatement of affected floors will be complete by March 2019 (apart from level 12).
Recent changes in the method of measurement for seismic resilience has meant an upgrade is required to
bring the building up to required standard for long term government occupation.
Cost is not final but estimated at $15-20m to complete this work.
All works to enable leasing expected to be complete by September 2019.
Leasing
NZ Post to pay Argosy a termination fee of $2.9m on 30 November 2018.
Calculated based on previous rent for levels 2-4 and 7 from 30 November through to 31August 2019.
Office leasing environment in Wellington is favourable and currently in negotiations for the remaining space.
Revaluations
12
Solid revaluation gain 2.2%
above book value
Regionally, Auckland biggest
contributor
Wellington office: Stout Street
recorded $4m increase but
overall result offset by 7
Waterloo Quay
Big increases for two
Auckland retail assets in
Albany and 320 TiRakauDrive
following leasing successes
there.
Portfolio market yield¹ firmed
28bps with Auckland firming
25bps and Retail 57bps
1
Yields exclude Waterloo Quay and Stewart Dawson Corner.
Due to rounding, numbers presented in this presentation may not add up exactly to the totals provided and percentages may notexactly reflect absolute figures.
30 Sep 18
Book Value
($m)
30 Sep 18
Valuation
($m)
Δ
$m
Δ
%
Market Yield *
30 Sep 1831 Mar 18
Auckland1,121.21,151.330.12.7%6.50%6.75%
Wellington393.5392.8(0.8)-0.2%7.32%7.60%
North Island Regional & South Island73.678.95.37.2%7.47%7.96%
Total1,588.3 1,623.0 34.6 2.2%6.70%6.98%
30 Sep 18
Book Value
($m)
30 Sep 18
Valuation
($m)
Δ
$m
Δ
%
Market Yield *
30 Sep 1831 Mar 18
Industrial656.3670.013.72.1%6.54%6.74%
Office597.5596.8(0.7)-0.1%7.23%7.37%
Retail334.5356.221.76.5%6.23%6.80%
Total1,588.3 1,623.0 34.6 2.2%6.70%6.98%
FINANCIALS
13
Change image
Income Reconciliation
14
Financial Performance
15
Like-for-like growth of 5.5%
driving increase in net
income
Expenses up due to mixture
of restructuring and
additional resourcing costs
across the business
Interim revaluation gains
largely driven by cap rate
firming
Solid realisedgains in
favourablevendor market
Note: Due to rounding, numbers presented in this presentation may not add up exactly to the totals provided and percentages may not exactly reflect the
absolute figures.
1H191H18
$m$m
Net property income50.848.5
Administration expenses(5.1)(4.7)
Profit before financial income/(expenses), other
gains/(losses) and tax
45.643.8
Interest expense(12.2)(12.6)
Gain/(loss) on derivatives(1.5)(2.7)
Revaluation gains34.6 -
Realised gains/(losses) on disposal2.9 0.2
Net: Insurance proceeds & earthquake expense1.7 (1.3)
Profit before tax71.227.4
Taxation expense(4.5)(4.3)
Profit after tax66.823.1
Basic and diluted earnings per share (cents)8.072.80
Distributable Income
16
Current tax slightly lower due to
disposal write-downs at 7
Waterloo Quay and Wyndham St
Net distributable income per
share up by 8.8%
1H191H18
$m$m
Profit before income tax
71.227.4
Adjusted for:
Revaluations gains
(34.6)-
Realised losses/(gains) on disposal
(2.9)(0.2)
Derivative fair value loss/(gain)
1.5 2.7
Earthquake expense net of recoveries
-1.71.3
Gross distributable income
33.431.2
Depreciation recovered
0.2 0.4
Current tax expense
(4.9)(5.3)
Net distributable income
28.726.3
Weighted average number of ordinary shares (m)
827.0823.6
Gross distributable income per share (cents)
4.043.79
Net distributable income per share (cents)
3.473.19
Investment Properties
17
Portfolio growth driven by a combination of capital projects, acquisitions and revaluation gains.
Movement in NTA per share
18
Interim revaluation gain strong driver of ~4.5% uplift for the period.
Gearing
19
The asset held for sale is 626 Gt South Rd (Auckland), sold for $10.6m and which settles in November
2018.
The sale of 626 Great South Road and further divestments recently announced totalling ~$46m will
reduce gearing by approximately 2.2%.
Target policy gearing range is between 30-40%.
1H19FY18
$m$m
Investment properties1,623.01,513.1
Assets held for sale9.827.4
Other assets10.34.3
Total assets1,643.11,544.8
Bank debt (excl. capitalised borrowing costs)605.0554.2
Debt-to-total-assets ratio36.8%35.9%
36.8%
Debt-to-total assets ratio
Funding & Interest Rate
Management
20
Argosy maintains strong relationships with its banking partners ANZ Bank New Zealand Limited, Bank
of New Zealand and The Hongkong and Shanghai Banking Corporation Limited, and remains well
within its banking covenants.
Argosy restructured its syndicated bank facility in October 2018, by adding a further tranche of $25
million, expiring October 2020 (Tranche E).
Argosy is reviewing its long term debt funding options with a view to diversifying its debt funding
base over the next 12 months.
1H19FY18
Weighted average duration of bank facility2.6 years3.1 years
Weighted average interest rate
1
4.86%4.98%
Interest Cover Ratio3.3x3.3x
% of fixed rate borrowings57%62%
Average fixed interest rate
2
4.56%4.56%
¹ Including margin and line fees
2
Excluding margin and line fees
3.3x
Interest Cover Ratio
Dividends
21
6.25c
FY19 dividend guidance
A second quarter cash dividend of 1.5625 cents per share has been declared, with imputation
credits of 0.3890 cents per share attached, and will be paid on 19 December 2018.
FY19 dividend guidance of 6.25 cents per share remains unchanged, an increase of ~1.0% on the
previous year.
The FY19 dividend reflects the Board’s wish for shareholders to share in the continued strong results
whilst allowing Argosy to maintain its momentum towards an AFFO based dividend policy by 2021.
19 Dec
2
nd
quarter dividend paid
Leasing Update
22
Change image
Leasing Success
23
Strong results over the first half of the year, maintaining a high portfolio WALT of 5.6 years.
24 leasing transactions completed during the period, totalling ~39,500m² of NLA.
Notable leasing successes include:
Some larger FY19 lease expiries to address include:
PropertyTenant
NLA
(sqm)
Status
147 GracefieldRoad, WellingtonThe Information Management Group8,018In discussions with tenant
8-14 Willis Street, WellingtonReserve Bank of New Zealand3,234In discussions with tenant
Albany Mega Centre, AucklandNorth Beach Trading Limited1,085In discussions with tenant
PropertyTenantNLA (sqm)Lease Term
320 TiRakauDrive, East Tamaki, AucklandBunnings Limited12,37410 years
Albany Lifestyle Centre, Albany, AucklandE Road Limited1,6909 years
Albany Lifestyle Centre, Albany, AucklandPeterkenEnterprises Ltd1,2256 years
Albany Mega Centre, Albany, AucklandOutdoor Holdings Ltd5926 years
Lease Maturity
24
Normalised lease maturity profile relatively stable over the medium term. Government tenants
showing strong interest in 7 Waterloo Quay space.
Levels 2-4 and 7 of 7 Waterloo Quay paid
through to 31 August 2019.
NZ Market Update
25
Office
Flexible working environments driving disconnect between employment growth and net absorption. Structural
trend is occupiers relocating taking ~10% less space per person than they had previously.
Rental growth impacted by new supply and there has been an increase in incentives to reflect this.
The 2016 earthquake created structural change in the Wellington market, strong demand, low vacancy and
stock levels. There is a shortage of large floor plate/high quality stock with upward rental growth pressure as a
result. Prime vacancy is minimal given pending new supply. Market vacancy is mostly C grade stock.
Industrial
Steady economic growth driving occupier demand. Offshore capital flows driving yields/cap rates lower.
Continued low supply forecast with 1.4% new supply expected per annum between 2018-2022.
Land values are at historic highs.
New rental benchmarks being set with ~$130-140m2 for prime warehouse.
Vacancy at historic lows for both prime and secondary (< 2%).
Retail
Generally a more negative retail spending outlook. Waning migration, increasing fuel prices and flat housing
prices are providing headwinds.
However, some offset from rising minimum wage and a booming tourism sector.
Approximately 200,000m2 of retail space to be added by 2022.
Continued increase in online retailing.
Large format retail expected to see biggest rental growth.
Looking Ahead
26
Change image
Looking ahead
27
Income and
earnings
sustainability
Sound capital
position
Improve portfolio
metrics and quality
Corporate
governance
Earnings per share growth
AFFO based dividend policy in medium term
Liquid, flexible and diverse capital base
Longer term debt options being considered
Maintain appropriate Board composition to deliver strategy
Ongoing commitment to corporate governance best practice
Reduce key vacancies and proactive management of expiry profile
Undertake Value Add projects to enhance portfolio quality
Appendices
28
Adjusted Funds from Operations (AFFO)
29
Note: Due to rounding, numbers presented in this presentation may not add up exactly to the totals provided and percentages may not exactly reflect absolute figures. AFFO is an
alternative performance measure used to assist investors in assessing the Company’s underlying performance and to determine income available for distribution. This reconciliation is based
on guidelines for disclosing AFFO as provided by the Property Council of Australia.
+9.2%
1H191H18
$m$m
Net distributable income28.726.3
Amortisation of tenant incentives and leasing costs2.02.1
Funds from operations (FFO)30.728.5
Capitalisation of tenant incentives and leasing costs(3.0)(1.8)
Maintenance capital expenditure(2.5)(3.6)
Tax effected maintenance capital expenditure recovered 0.10.2
Adjusted funds from operations (AFFO)25.323.2
Weighted average number of shares on issue (m)827.0823.6
AFFO per share (cents)3.062.82
Dividends paid/payable in relation to period3.133.10
Dividend payout ratio (to AFFO)102%110%
+8.1%
+9.0%
Rent Reviews
30
Type#
Previous
Rent
(000's)
New rent
(000's)
$ Increase
(000's)
% Increase
Annualised $
Increase
(000's)
Annualised
% Increase
% of rent
reviewed
Total4215,50816,0435353.4%4783.1%100.0%
By review
type
Fixed278,7929,0732813.2%2813.2%56.7%
Market42,2002,3251255.7%1014.6%14.2%
CPI114,5164,6451292.9%962.1%29.1%
By sector
Industrial97,8028,1073053.9%2803.6%50.3%
Office172,7192,794762.8%632.3%17.5%
Retail164,9875,1421543.1%1352.7%32.2%
By location
Auckland3612,94313,3524093.2%3903.0%83.5%
Wellington51,8541,938844.5%462.5%12.0%
Other1711753425.9%425.9%4.5%
Rent Reviews
31
#
Previous Rent
(000's)
New rent
(000's)
$ Increase
(000's)
% Increase
Annualised $
Increase
(000's)
Annualised %
Increase
% of rent
reviewed
Auckland
Office14
2,1952,24752
2.4%
51
2.3%13.8%
Industrial6
5,7605,963203
3.5%
203
3.5%44.5%
Retail16
4,9885,142154
3.1%
136
2.7%41.7%
36
12,94313,352409
3.2%
390
3.0%100.0%
Wellington
Office3
52354825
4.6%
11
2.2%28.2%
Industrial2
1,3311,39059
4.5%
35
2.6%71.8%
Retail0
000
0.0%
0
0.0%0.0%
5
1,8541,93884
4.5%
46
2.5%100.0%
Portfolio Metrics
32
Note: Data as at 30 September 2018
The strength of our diversified portfolio is in the breadth and depth of our tenant base and sectors
they represent.
Top 10 Customers by Rent
MBIE
NZ Post
General Distributors
Cardinal Logistics
The Warehouse
Ezibuy
Government Property
Services (MBIE)
Mitre 10
Te Puni Kokiri
Tonkin & Taylor
All other
Rent Roll by Industry
Government Administration
Retail
Transport and Storage
Manufacturing
Property & Business Services
Wholesale Trade
Finance and Insurance
Electricity, Gas and Water
Supply
All other
Portfolio Snapshot
33
Our focus is delivering improved portfolio quality and is reflected in our strong portfolio metrics
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
FY15
FY16
FY17
FY18
1H19
WALT (years)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
FY15
FY16
FY17
FY18
1H19
Debt
-
to
-
total
-
assets
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
FY15
FY16
FY17
FY18
1H19
Occupancy
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
FY15
FY16
FY17
FY18
1H19
Net Tangible Assets
Disclaimer
34
This presentation has been prepared by Argosy Property Limited. The details in this presentation
provide general information only. It is not intended as investment or financial advice and must
not be relied upon as such. You should obtain independent professional advice prior to making
any decision relating to your investment or financial needs. This presentation is not an offer or
invitation for subscription or purchase of securities or other financial products. Past performance
is no indication of future performance.
All values are expressed in New Zealand currency unless otherwise stated.
20 November 2018
---
Strength in diversity
Interim Report
30 September 2018
balanced.
Our balanced portfolio is the key to
delivering consistent shareholder returns.
With properties across different sectors,
locations and sizes, we can be agile,
quickly adapting to meet the diverse and
changing needs of our tenants. And we can
quickly react to opportunities or cyclical
changes in the market.
balanced.
Total
portfolio
value
Properties
Tenants
Portfolio
occupancy
(by rent)
Weighted
average
lease term
$1.62b
62
172
98.4%
5.6 years
Argosy Property Limited | Interim Report 30 September 2018
“Strategic acquisition
and divestment
opportunities for Argosy
have materialised and we
have also continued to
focus on organic growth
opportunities.”
MICHAEL SMITH
CHAIRMAN
On behalf of the Argosy Board of Directors, I am
pleased to be able to report Argosy's interim results
to 30 September 2018.
We have commenced the 2019 year well. The
management team has continued to reposition the
portfolio and work hard on the operational
elements of the business including resolution of
lease expiries and addressing key vacancies.
FINANCIAL RESULT
For the period ending 30 September gross
distributable income
1
was $33.4 million which was
7.1% higher than the previous interim period.
Gross distributable income per share for the
period was 4.04 cents per share, compared to 3.79
cents per share in the previous interim period, up
6.6%.
Net distributable income increased by 9.2% to
$28.7 million compared to the previous interim
period, due primarily to improved net property
income. Net distributable income per share
increased 8.8% to 3.47 cents per share from 3.19
cents per share in the previous interim period.
DIVIDENDS
Consistent with the first quarter dividend, a
second quarter dividend of 1.5625 cents per share
with imputation credits of 0.3890 cents per share
attached has been declared for the September
quarter. The dividend will be paid to shareholders
on 19 December 2018 and the record date will be
5 December 2018. The dividend reinvestment plan
remains suspended.
Argosy has started the 2019 financial year in a very
solid financial and portfolio position. We remain
1
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. Note 14 of the financial statements released today provides a full reconciliation between profit
before tax and distributable income.
Focused
on growth
2
Chairman’s Review
Argosy Property Limited | Interim Report 30 September 2018
focused on delivering sustainable dividends to our
shareholders. Based on current projections for the
portfolio, the Board expects a full year 2019 cash
dividend of 6.25 cents per share, an increase of 1%
on the prior year. The increase reflects our wish for
shareholders to share in the continued strong
results but also allows us to maintain our
momentum towards an AFFO
2
based dividend
policy in the medium term.
CAPITAL MANAGEMENT
At 30 September 2018, Argosy’s debt-to-total-
assets ratio, excluding capitalised borrowing costs,
was 36.8% versus 35.9% at 31 March 2018 year end.
The increase reflects the net impact of acquisitions
and developments during the period largely offset
by divestments and revaluation gains. Argosy’s
target gearing band is 30 to 40% providing
flexibility depending on financial and property
market conditions. Argosy currently sits in the
middle of the target band and remains well within
all bank covenants.
GOVERNANCE
At the August 2018 Annual Meeting, Jeff Morrison
was re-elected as an independent Director. Chris
Hunter retired as an independent director at the
meeting and did not seek re-election.
Subsequently Stuart McLauchlan and Chris
Gudgeon have been appointed as independent
directors.
OUTLOOK
The Company continues to operate in a low
interest rate and low inflation environment,
although the possibility of rising interest rates has
caused some nervousness around the world’s stock
markets. The economy, and thus the property
market, in New Zealand however remains solid
with good economic growth expected to continue.
Argosy remains in a strong position with a quality,
resilient portfolio that is diversified by sector,
location and tenant mix.
Ongoing strength in the sector should continue to
provide opportunities to divest non Core assets at
attractive prices and either reduce gearing or
reinvest the proceeds into tenant led development
opportunities.
On behalf of the Board I would like to thank
shareholders for their continuing support.
P MICHAEL SMITH
Chairman
2
AFFO (Adjusted Funds From Operations) is considered by some investors to represent a measure of dividend sustainability.
Net Distributable Income per share up
8.8%
Gross Distributable Income increased
7.1%
3
Argosy Property Limited | Interim Report 30 September 2018
“With a strong FY18
platform as our base, we
have started the first six
months of FY19 year very
well. ”
PETER MENCE
CHIEF EXECUTIVE OFFICER
In the first six months of the financial year, Argosy
has continued to improve the quality of the
portfolio through acquisitions, tenant-led
developments and the divestment of non Core
assets. We are pleased to report that the metrics of
the portfolio remain strong with occupancy at
98.4% and a weighted average lease term of 5.6
years. We can also announce further progress at
New Zealand Post House at 7 Waterloo Quay,
Wellington. The reinstatement works for levels 1-4
and 7 are largely complete apart from some further
seismic work. The balance of the damaged floors
are expected to be completed this financial year,
except for level 12. Further details on this building
are provided in this report.
HIGHLIGHTS:
— Net property income up 4.7%;
— Net distributable income up 9.2%;
— Net distributable income per share up by 8.8%;
— Revaluation gain of $34.6 million, an increase
of 2.2% on book value;
— Continued divestment of non Core assets
significantly above book value;
— Strong progress at 7 Waterloo Quay with very
good enquiry from the Government sector for
space in the building;
— Acquisition of 11 Coliseum Drive, Albany and
133 Roscommon Road, Wiri;
— Balance sheet is in good shape and we are
considering longer term debt funding options;
— Full year dividend of 6.25 cents per share
expected in line with previous guidance;
— Lift in NTA to $1.17 from $1.12 at the end of
March.
Building
Momentum
4
Chief Executive Officer’s Review
Argosy Property Limited | Interim Report 30 September 2018
FINANCIAL RESULTS
Statement of Comprehensive Income
Argosy reported net property income of
$50.8 million for the period, which includes rental
loss recoveries from insurers, and is 4.7% higher
than the previous interim period. Lost revenue
from divestments in the period has been more than
compensated for by strong rental growth and
leasing up of vacant space, notably at 82 Wyndham
Street, Auckland.
Administration expenses were up $0.4 million on
the previous interim period primarily due to
restructuring costs and additional resourcing costs
across the business.
Profit before interest, other gains/losses and taxes
was $45.6 million, up 4.2% on the previous interim
period.
Interest expense of $12.2 million was down
$0.4 million on the previous interim period as the
interest on higher average debt was offset by
higher capitalised interest on developments.
An interim revaluation was undertaken by Argosy
following evidence of improved market conditions
since the last valuation date of 31 March 2018, and
desktop valuations performed by Colliers
International during the period. A revaluation gain
of $34.6 million or 2.2% on previous book value,
has subsequently been recorded.
The sale of Wagener Place, St Lukes, resulted in a
significant gain of $2.9 million over book value.
Net profit after tax was $66.8 million for the
period, compared to $23.1 million in the previous
interim period.
Interim revaluations
The independent work performed and interim
revaluation resulted in an uplift of $34.6 million, a
2.2% increase on book values immediately prior to
the interim revaluation.
As a result of the revaluation, Argosy’s NTA has
lifted to $1.17, up from $1.12 at the end of March.
The Company’s portfolio following the
revaluation shows a contract yield on values of
6.63% and a yield on fully let market rentals of
6.70%.
PORTFOLIO ACTIVITY
Leasing and Rent Reviews
Underpinned by continued strength in Auckland
and Wellington property market fundamentals,
Argosy has delivered strong leasing and rent
review results over the first half of the year. During
the interim period, 24 lease transactions were
completed on 39,500sqm of net lettable area,
including 16 new leases, seven renewals and one
extension.
Significant leasing transaction successes over the
first half of the financial year include:
—
320 Ti Rakau Drive, East Tamaki, Auckland -
Bunnings Limited - 10 years;
—
Albany Lifestyle Centre, Albany, Auckland - E
Road Limited - 9 years;
—
Albany Lifestyle Centre, Albany, Auckland -
Peterken Enterprises Limited - 9 years;
—
Albany Lifestyle Centre, Albany, Auckland -
Outdoor Holdings Limited - 9 years.
There has been some progress in leasing the vacant
floors at 23 Customs Street, Auckland. Levels 2, 14
and part of 13 are now leased and there is strong
enquiry on the remaining floors - levels 6, 7 and
part of 13.
Argosy’s weighted average lease term at
30 September decreased to 5.6 years compared to
the 6.1 years at the end of March 2018. This
movement reflects the adjusted arrangements
with New Zealand Post at 7 Waterloo Quay which
are discussed in more detail in the 7 Waterloo Quay
update below.
Net Property Income up 4.7% to
$50.8m
5
Argosy Property Limited | Interim Report 30 September 2018
Argosy has maintained a very high occupancy level
over the interim period and occupancy was 98.4%
at 30 September 2018 compared to 98.8% at the end
of March.
During the first six months, a total of 42 rent
reviews on $15.5 million of existing rental income
were completed. Rental growth of 3.4% was
achieved or 3.1% on an annualised basis on all rents
reviewed. Across the rental increase, the industrial
portfolio accounted for 57% of the total rental
uplift on 50% of the rent reviewed (9 reviews). This
continued strong rental growth has been a key
contributor to the improvement in net property
income in the interim period.
Approximately 57% of all rents reviewed (by
income) were fixed reviews, 14% were market
reviews and 29% were CPI based.
Acquisitions and Value Add Developments
Ongoing tightness across the property market
continued in the first half of this financial year.
Despite this, opportunities have emerged during
the period to make strategic acquisitions.
In September, Argosy acquired 11 Coliseum Drive
in Albany (The Warehouse), for $26.4 million. This
property is contiguous to the Argosy owned
Albany Mega Centre and comprises 7,600sqm of
warehouse, 760sqm of office, mezzanine and
garden centre and 413 carparks. The lease had 6.5
years to run on the initial 12-year lease. The
purchase allows us to now consider a range of
organic growth options across the entire Albany
Mega Centre site. Longer term, we are optimistic
about the opportunity and value this acquisition
can deliver for Argosy and its shareholders.
Argosy also acquired a freehold 15,838 sqm
industrial yard in September on Roscommon Road,
Wiri for $8.6 million. The site is leased to NZX
listed Turners Automotive Group on a 15-year
lease, providing a holding return of 5% with fixed
reviews of 2.5% per annum, with a market review
in year six.
Argosy also continued to progress its development
pipeline with a $10.3 million upgrade of the
Placemakers property in Hutt Road,
Kaiwharawhara now underway.
This project will be another green development for
Argosy and the Company is targeting a 4-Star
Green Built Industrial rating. Argosy will continue
to pursue these value-add opportunities to
improve overall portfolio quality and add value to
shareholders
DIVESTMENT OF NON CORE ASSETS
With the continued strength in property markets
over the first half of the financial year, Argosy
successfully completed the sale of Wagener Place
in Auckland for $31.0 million. This transaction
settled in July 2018. The Wagener Place sale was
an opportunity to reduce Argosy’s retail exposure
in an area where there will be increasing
competition.
In September, Argosy announced that it had
unconditionally sold the non Core property at 626
Great South Road, Greenlane. The property was
sold at a price of $10.6 million, 8% over the book
value of $9.8 million. Settlement is scheduled for
30 November 2018.
Subsequent to period end, Argosy announced the
sale of two non Core regional assets, 1478 Omahu
Road in Hastings and 31 El Prado Drive in
Palmerston North. 1478 Omahu Road has been sold
for $10.2 million which represents a 12% premium
over book value immediately preceding the
September valuation. Settlement will take place in
March 2019. The property at 31 El Prado Drive has
been sold for $35.5 million, which represents a 25%
premium over book value immediately preceding
the September valuation. Settlement will take
place in December 2018. The divestment of these
regional assets means that Argosy has only three
properties outside its core Auckland and
Wellington markets.
Portfolio Occupancy (by rental)
98.4%
6
Chief Executive Officer’s Review
Argosy Property Limited | Interim Report 30 September 2018
At year end, Argosy has categorised approximately
10% or $153 million of the portfolio as non Core.
This number includes the two assets noted above
as well as the Albany Lifestyle Centre which is on
the market currently. Argosy will continue its
divestment programme over the next 12-18 months
to take advantage of current market conditions.
PORTFOLIO UPDATE
7 Waterloo Quay
Earthquake Damage and Insurance Claim
Argosy’s 14 level property at New Zealand Post
House at 7 Waterloo Quay in Wellington sustained
damage in the 7.5 magnitude Kaikoura earthquake
on 14 November 2016. Independent engineers
confirmed that the building is structurally sound,
but it suffered damage to fit out and services.
Argosy has material damage insurance and we are
working with our insurers to progress a significant
insurance claim. Argosy expects that, as with many
earthquake insurance claims, there may be debate
with insurers over the extent of damage, the
appropriate method of reinstatement and the
extent of cover.
Argosy commissioned a comprehensive damage
survey of 7 Waterloo Quay, and detailed damage
assessment reports were provided to insurers
earlier in the year. We envisage that the damage
reports may be updated, based on our advisors’
experience that additional earthquake damage
may become apparent. More recently, detailed
reinstatement scope reports were completed by
our expert consultants and these have been
provided to our insurers. We are now engaged in
an exercise to quantify the cost to repair the
damage. We expect that this process will be
completed in early 2019 to enable a material
damage claim to be submitted to insurers.
Argosy also has business interruption insurance,
which is expected to cover loss of rents and certain
additional expenses until mid-November 2018,
being a period of two years from the date of the
earthquake.
Argosy has made six interim claims under its
material damage and business interruption
insurance and received progress payments from
insurers (to 31 October 2018) of $14.9 million plus
GST (after a $4.8 million deductible). In the
interim period to 30 September 2018, $2.3 million
has been allocated by Argosy to loss of rents, and
$2.8 million to material damage reinstatement.
Further interim claims will be presented for the
remainder of the two-year business interruption
indemnity period, and for material damage.
Reinstatement and Leasing
Demand for space from late calendar 2019 has
dictated a desired delivery in this timeframe. With
recent changes in the method of measurement for
seismic resilience, some upgrade to the building is
considered desirable to maximise the potential
from the current strong leasing environment. It is
expected that these works will cost between
$15-20 million and be complete in September 2019.
Argosy has proceeded with its interim works
programme to make damaged levels in the building
available for occupation (including levels 10-12).
The reinstatement project is on program to be
completed (apart from level 12) by March 2019.
Damaged levels 1-4 and 7 were leased to New
Zealand Post (Post) to December 2025. As part of
a lease termination agreement, Post has agreed to
pay a termination fee of $2.9 million to Argosy
effective 30 November 2018 and relinquish these
floors. This amount, although calculated based on
the previous rent from levels 2-4 and 7 through to
31 August 2019, is required by accounting
standards to be fully recognised in the second half
of this financial year. Post will remain on the
ground floor (part) and levels 5, 6, 8 and 9.
Management is working with Post on longer term
accommodation options.
The office leasing environment in Wellington is
very favourable at present and we are currently in
negotiations for the remaining space in this
building.
7
Argosy Property Limited | Interim Report 30 September 2018
CAPITAL MANAGEMENT
At period end, Argosy’s weighted average interest
rate was 4.86% versus 4.98% at 31 March 2018.
In October 2018, Argosy added $25 million to its
banking facilities with ANZ Bank New Zealand
Limited, Bank of New Zealand Limited and The
Hongkong and Shanghai Banking Corporation.
Argosy’s total debt facility is now $650 million
versus $625 million at 30 September 2018. Argosy
is reviewing its long term debt funding options
with a view to diversifying its debt funding base
over the next 12 months.
OUTLOOK
Argosy will remain as focused as ever on
addressing near term lease expiries within the
portfolio and ensuring that the tenant retention
rate remains high. We will continue to focus on the
existing portfolio of value add properties to create
long term value for shareholders and increase the
quality and sustainability of our earnings.
PETER MENCE
Chief Executive Officer
Debt-to-total-assets ratio
36.8%
2nd Quarter Dividend
1.5625c
8
Chief Executive Officer’s Review
TENANT
The Warehouse Group
WAREHOUSE & OFFICE
7,600sqm warehouse
760sqm office
413 onsite carparks
In August, Argosy announced
the acquisition of 11 Coliseum
Drive in Albany (The Warehouse),
for $26.4m.
The acquisition allows Argosy to
secure a strategically important
property and strengthen
its relationship with a long
standing and valued partner in
The Warehouse Group. Most
importantly, the purchase allows
Argosy to now consider a range of
organic growth options across the
entire Albany Mega Centre site.
NEW CONCEPT STORE
The Warehouse Group is using
the revamped Albany as a concept
store to test shopper preferences
and the retail market. The Albany
store was chosen because of
its large volumes of returning
customers. If all goes well, the
NZX-listed company will install
similar new-look interiors in its
network of 92 stores. Some of the
new key features of the proposed
new concept stores include
things like digital price tags,
more open spaces, IKEA-esque
furniture displays and artificial
intelligence-enabled technology. It
also features self-serve checkouts
and click-and-collect pickup boxes.
“ The real value
lies with the new
property being
adjacent to Argosy’s
Albany Mega
Centre and we are
excited about the
long term value this
acquisition can deliver
for shareholders.”
PETER MENCE
Chief Executive Officer
11 Coliseum
Drive
ALBANY, AUCKLAND
Argosy Property Limited | Interim Report 30 September 2018
9
Argosy Property Limited | Interim Report 30 September 2018
Total portfolio update
BY SECTOR
41%Industrial
37%Office
22%Retail
Portfolio mix
BY VALUE
83%Core properties
7%Value Add properties
10%Properties and land
to divest
Total portfolio value
BY REGION
71%Auckland
24%Wellington
5%Regional North &
South Island
The above charts all exclude properties held for sale.
Lease Expiry Profile by Income
AS AT 30 SEPTEMBER 2018
Year ending
Percentage of portfolio (by income)
1.6%1.6%
11.6%11.6%
7.3%7.3%
10.2%10.2%
9.3%9.3%
4.3%4.3%
4.7%4.7%
11.6%11.6%
8.1%8.1%
11.5%11.5%
2.7%2.7%
17.1%17.1%
VacantMar-19Mar-20Mar-21Mar-22Mar-23Mar-24Mar-25Mar-26Mar-27Mar-28Mar-29+
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Total expiry
10
Portfolio
Argosy Property Limited | Interim Report 30 September 2018
8 Nugent Street, Auckland
11
Argosy Property Limited | Interim Report 30 September 2018
Argosy continues to operate in
a low interest rate and low
inflation environment,
although the possibility of
rising interest rates has
caused some nervousness
around global equity markets.
The economy, and thus the
property market, in New
Zealand however remains
solid with good economic
growth expected to continue.
Argosy remains in a strong
position with a quality,
resilient portfolio that is
diversified by sector, location
and tenant mix.
Industrial
NUMBER OF BUILDINGS
37
MARKET VALUE OF ASSETS
$670.0m
OCCUPANCY FACTOR (BY INCOME)
100%
WALT (YEARS)
7.0
CONTRACT YIELD
6.5%
12
Portfolio
Argosy Property Limited | Interim Report 30 September 2018
Property Address
Valuation
$000s
Weighted
Avg.
Lease Term
(years)
Net Lettable
Area (sqm)
Vacant
Space
(sqm)
Contract
Yield
Auckland
90-104 Springs Road, East Tamaki5,6008.43,884–6.2%
8 Forge Way, Panmure27,60012.24,231–5.4%
10 Transport Place, East Tamaki29,4105.510,641–6.4%
1 Rothwell Avenue, Albany28,40011.812,683–5.7%
4 Henderson Place, Onehunga24,30012.810,841–6.3%
1-3 Unity Drive, Albany10,7003.06,204–6.8%
5 Unity Drive, Albany6,5750.53,046–5.6%
80 Springs Road, East Tamaki10,7000.49,675–8.4%
211 Albany Highway, Albany22,4004.314,589–6.3%
80-120 Favona Road, Mangere85,2505.959,386–7.6%
19 Nesdale Avenue, Wiri51,90013.220,677–5.7%
15 Unity Drive, Albany4,4201.67,002–5.7%
12-16 Bell Avenue, Mt Wellington23,3002.014,809–6.2%
18-20 Bell Avenue, Mt Wellington14,7002.78,941–6.0%
32 Bell Avenue, Mt Wellington11,1501.68,139–6.8%
9 Ride Way, Albany22,80014.09,178–6.3%
2 Allens Road, East Tamaki4,5801.82,920–6.5%
12 Allens Road, East Tamaki4,0302.12,372–6.5%
106 Springs Road, East Tamaki5,8901.83,846–6.5%
5 Allens Road, East Tamaki5,0703.22,663–4.9%
960 Great South Road, Penrose6,3000.43,676–6.6%
17 Mayo Road, Wiri26,2008.313,351–5.8%
Cnr William Pickering Drive & Rothwell Avenue,
Albany14,5002.07,074–5.9%
240 Puhinui Road, Manukau33,40013.217,735–5.5%
246 Puhinui Road, Manukau3,3500.0––0.0%
Highgate Parkway, Silverdale28,7009.410,581–5.7%
133 Roscommon Road, Wiri8,70015.015,862–4.9%
Wellington
Cnr Wakefield, Taranaki & Cable Streets22,1705.03,307–4.1%
147 Gracefield Road, Seaview11,0000.38,018–10.2%
19 Barnes Street, Seaview13,1209.96,857–7.8%
39 Randwick Road, Seaview18,0502.016,249–8.8%
68 Jamaica Drive, Grenada North16,4002.89,609–7.5%
56 Jamaica Drive, Grenada North1,1000.0––0.0%
Other
31 El Prado Drive, Palmerston North32,2005.424,656–7.7%
8 Foundry Drive, Woolston, Christchurch13,55011.37,668–7.9%
1478 Omahu Road, Hastings10,0008.88,514–7.5%
223 Kioreroa Road, Whangarei12,4503.49,797–9.3%
669,9657.0378,678–6.5%
13
Argosy Property Limited | Interim Report 30 September 2018
Office
NUMBER OF BUILDINGS
16
MARKET VALUE OF ASSETS
$596.8m
OCCUPANCY FACTOR (BY INCOME)
96.4%
WALT (YEARS)
3.7
CONTRACT YIELD
6.9%
Property Address
Valuation
$000s
Weighted
Avg.
Lease Term
(years)
Net Lettable
Area (sqm)
Vacant
Space
(sqm)
Contract
Yield
Auckland
99-107 Khyber Pass Road, Grafton9,0003.62,4411,5333.1%
101 Carlton Gore Road, Newmarket26,5002.14,821–6.8%
8 Nugent Street, Grafton50,0004.18,1251,1355.5%
39 Market Place, Viaduct Harbour33,5003.810,365–10.7%
105 Carlton Gore Road, Newmarket30,7002.55,312–6.8%
302 Great South Road, Greenlane8,3003.61,890–7.4%
308 Great South Road, Greenlane7,1001.71,568–7.1%
25 Nugent Street, Grafton12,0004.13,028–6.8%
107 Carlton Gore Road, Newmarket29,0000.66,061–7.0%
Citibank Centre, 23 Customs Street East69,3004.09,6332,4865.3%
82 Wyndham Street, CBD44,5007.16,012–6.1%
Wellington
143 Lambton Quay, CBD28,0006.86,216–7.7%
147 Lambton Quay, CBD35,3501.88,5391349.1%
8-14 Willis Street, CBD15,1001.25,055–8.7%
New Zealand Post House, 7 Waterloo Quay87,7000.624,977–0.0%
15-21 Stout Street, CBD110,7507.820,709–6.6%
596,8003.7124,7515,2886.9%
1
1. Total yield excludes 7 Waterloo Quay.
14
Portfolio
Argosy Property Limited | Interim Report 30 September 2018
Retail
NUMBER OF BUILDINGS
9
MARKET VALUE OF ASSETS
$356.2m
OCCUPANCY FACTOR (BY INCOME)
100%
WALT (YEARS)
6.6
CONTRACT YIELD
6.5%
Property Address
Valuation
$000s
Weighted
Avg.
Lease Term
(years)
Net Lettable
Area (sqm)
Vacant
Space
(sqm)
Contract
Yield
Auckland
Albany Mega Centre, Albany107,0004.725,154–6.8%
11 Coliseum Drive, Albany26,5006.58,637–5.0%
320 Ti Rakau Drive, East Tamaki56,5008.228,353–6.7%
Albany Lifestyle Centre, Albany86,0008.024,955–6.9%
50 & 54-62 Cavendish Drive, Manukau27,8006.59,939–6.1%
252 Dairy Flat Highway, Albany7,7001.52,262–5.5%
Wellington
180-202 Hutt Road, Kaiwharawhara16,3009.96,019–5.8%
Stewart Dawsons Corner17,7000.0––0.0%
Other
Cnr Taniwha & Paora Hapi Streets, Taupo10,7004.04,212–6.9%
356,2006.6109,530–6.5%
1
1. Excludes Stewart Dawsons Corner.
15
INDEPENDENT REVIEW REPORT
TO THE SHAREHOLDERS OF ARGOSY PROPERTY LIMITED
We have reviewed the condensed consolidated interim financial statements of Argosy
Property Limited and its subsidiaries (‘the Group’) which comprise the statement of
financial position as at 30 September 2018, and the statement of comprehensive
income, statement of changes in equity and statement of cash flows for the six months
ended on that date, and a summary of significant accounting policies and other
explanatory information on pages 18 to 36.
This report is made solely to the company’s shareholders, as a body. Our review has
been undertaken so that we might state to the company’s shareholders those matters
we are required to state to them in a review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company’s shareholders as a body, for our engagement, for this report,
or for the opinions we have formed.
Board of Directors’ Responsibilities
The Board of Directors are responsible for the preparation and fair presentation of the
condensed consolidated interim financial statements, in accordance with NZ IAS 34
Interim Financial Reporting and IAS 34 Interim Financial Reporting and for such internal
control as the Board of Directors determine is necessary to enable the preparation and
fair presentation of the condensed consolidated interim financial statements that are
free from material misstatement, whether due to fraud or error.
Our Responsibilities
Our responsibility is to express a conclusion on the condensed consolidated interim
financial statements based on our review. We conducted our review in accordance with
NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of
the Entity (‘NZ SRE 2410’). NZ SRE 2410 requires us to conclude whether anything has
come to our attention that causes us to believe that the condensed consolidated interim
financial statements, taken as a whole, are not prepared, in all material respects, in
accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial
Reporting. As the auditor of Argosy Property Limited, NZ SRE 2410 requires that we
comply with the ethical requirements relevant to the audit of the annual financial
statements.
Argosy Property Limited | Interim Report 30 September 2018
16
Independent Review Report
A review of the condensed consolidated interim financial statements in accordance with
NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures,
primarily consisting of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an
audit conducted in accordance with International Standards on Auditing (New Zealand).
Accordingly we do not express an audit opinion on those financial statements.
Other than in our capacity as auditor and for the attendance and scrutineering at the
Annual Meeting, we have no relationship with or interests in Argosy Property Limited or
its subsidiaries. These services have not impaired our independence as auditor of the
Group.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that
the condensed consolidated interim financial statements of the Group do not present
fairly, in all material respects, the financial position of the Group as at 30 September
2018 and its financial performance and cash flows for the six months ended on that date
in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial
Reporting.
Chartered Accountants
Auckland, New Zealand
19 November 2018
Argosy Property Limited | Interim Report 30 September 2018
17
Argosy Property Limited | Interim Report 30 September 2018
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2018 (UNAUDITED)
Note
Group (unaudited)
30 September 2018
$000s
Group (audited)
31 March 2018
$000s
Non-current assets
Investment properties41,622,9651,513,120
Other non-current assets417469
Total non-current assets
1,623,3821,513,589
Current assets
Cash and cash equivalents2,0041,274
Trade and other receivables4,7771,681
Other current assets3,154885
9,9353,840
Non-current assets classified as held for sale59,82927,400
Total current assets
19,76431,240
Total assets
31,643,1461,544,829
Shareholders' funds
Share capital7792,620792,620
Share based payments reserve8389389
Retained earnings174,897133,884
Total shareholders' funds
967,906926,893
Non-current liabilities
Borrowings9603,777552,800
Derivative financial instruments634,24932,306
Deferred tax1111,77312,183
Total non-current liabilities
649,799597,289
Current liabilities
Trade and other payables19,80612,240
Derivative financial instruments6246697
Other current liabilities3,5434,896
Deposit received for non-current assets classified as held for sale5301,550
Taxation payable1,3161,264
Total current liabilities
25,44120,647
Total liabilities
675,240617,936
Total shareholders' funds and liabilities
1,643,1461,544,829
For and on behalf of the Board
P Michael Smith
Director
Mark Cross
Director
19 November 2018
The notes to the accounts form part of and are to be read in conjunction with these consolidated financial statements.
18
Consolidated Financial Statements
Argosy Property Limited | Interim Report 30 September 2018
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 (UNAUDITED)
Note
Group (unaudited)
Six months to
30 September 2018
$000s
Restated Group
(unaudited)
Six months to
30 September 2017
$000s
Gross property income from rentals51,76749,467
Insurance proceeds - rental loss2,2872,418
Gross property income from expense recoveries10,0868,607
Property expenses(13,371)(11,990)
Net property income
350,76948,502
Administration expenses5,1234,713
Profit before financial income/(expenses),
other gains/(losses) and tax
45,64643,789
Financial income/(expenses)
Interest expense15(12,238)(12,596)
Gain/(loss) on derivative financial instruments held for trading(1,492)(2,665)
Interest income2026
(13,710)(15,235)
Other gains/(losses)
Revaluation gains on investment property34,633-
Realised gains/(losses) on disposal of investment property2,895165
Insurance proceeds - earthquake expenses–782
Insurance proceeds - reinstatement2,838–
Earthquake expenses(1,089)(2,102)
39,277(1,155)
Profit before income tax attributable to shareholders
71,21327,399
Taxation expense104,4614,309
Profit and total comprehensive income after tax
66,75223,090
All amounts are from continuing operations.
Earnings per share
Basic and diluted earnings per share (cents)138.072.80
The notes to the accounts form part of and are to be read in conjunction with these consolidated financial statements.
19
Argosy Property Limited | Interim Report 30 September 2018
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 (UNAUDITED)
Shares
on issue
$000s
Share based
payments
reserve
$000s
Retained
earnings
$000s
Total
$000s
For the six months ended
30 September 2018 (unaudited)
Shareholders' funds at the
beginning of the period
792,620389133,884926,893
Total comprehensive income
for the period
––66,75266,752
Contributions by shareholders
Dividends to shareholders––(25,739)(25,739)
Shareholders' funds at the
end of the period
792,620389174,897967,906
Restated for the six months ended
30 September 2017 (unaudited)
Shareholders' funds at the
beginning of the period
788,37219486,655875,221
Total comprehensive income
for the period
––23,09023,090
Contributions by shareholders
Issue of shares from Dividend
Reinvestment Plan
3,200––3,200
Issue costs of shares(3)––(3)
Dividends to shareholders––(25,324)(25,324)
Equity settled share based payments–98–98
Shareholders' funds at the
end of the period
791,56929284,421876,282
The notes to the accounts form part of and are to be read in conjunction with these consolidated financial statements.
20
Consolidated Financial Statements
Argosy Property Limited | Interim Report 30 September 2018
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 (UNAUDITED)
Note
Group (unaudited)
Six months to
30 September
2018
$000s
Group (unaudited)
Six months to
30 September
2017
$000s
Cash flows from operating activities
Cash was provided from:
Property income61,59358,032
Insurance proceeds received–2,000
Interest received2026
Cash was applied to:
Property expenses(14,906)(12,993)
Earthquake expenses(1,089)(1,936)
Interest paid(14,291)(12,277)
Employee benefits(3,626)(3,417)
Taxation paid(4,480)(5,369)
Other expenses(2,345)(2,235)
Net cash from/(used in) operating activities
1220,87621,831
Cash flows from investing activities
Cash was provided from:
Sale of properties, deposits and deferrals28,99020,523
Cash was applied to:
Capital additions on investment properties(36,283)(29,591)
Capitalised interest on investment properties(2,254)(1,142)
Purchase of properties, deposits and deferrals(35,259)–
Net cash from/(used in) investing activities
(44,806)(10,210)
Cash flows from financing activities
Cash was provided from:
Debt drawdown83,17546,130
Cash was applied to:
Repayment of debt(32,377)(35,489)
Dividends paid to shareholders net of reinvestments(26,078)(22,429)
Issue cost of shares–(14)
Facility refinancing fee(60)(500)
Net cash from/(used in) financing activities
24,660(12,302)
Net increase/(decrease) in cash and cash equivalents
730(681)
Cash and cash equivalents at the beginning of the period1,274968
Cash and cash equivalents at the end of the period
2,004287
The notes to the accounts form part of and are to be read in conjunction with these consolidated financial statements.
21
Argosy Property Limited | Interim Report 30 September 2018
1. GENERAL INFORMATION
Argosy Property Limited (APL or the Company) is an FMC Reporting Entity under the Financial Markets
Conduct Act 2013 and the Financial Reporting Act 2013. APL is incorporated under the Companies Act
1993 and domiciled in New Zealand.
The Company’s principal activity is investment in properties which include industrial, office and retail
properties throughout New Zealand.
These condensed consolidated interim financial statements (interim financial statements) are presented
in New Zealand dollars which is the Company's functional currency and have been rounded to the nearest
thousand dollars ($000) and include those of APL and its subsidiaries (the Group).
These interim financial statements were approved by the Board of Directors on 19 November 2018.
2. BASIS OF PREPARATION
These interim financial statements have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand (NZ GAAP) and comply with NZ IAS 34 and IAS 34 Interim Financial
Reporting as applicable to the Company as a profit-oriented entity. These interim financial statements do
not include all of the information required for full annual financial statements.
The interim financial statements have been prepared on the historical cost basis except for derivative
financial instruments and investment properties which are measured at fair value.
The preparation of financial statements in conformity with NZ GAAP requires the use of certain critical
accounting estimates that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. The area involving a higher degree of judgement or complexity, and where
assumptions and estimates are significant to the financial statements is set out in Note 4 - valuation of
investment property.
Insurance income recognition
The company recognises income from insurance proceeds when it is virtually certain that the claims made
in an accounting period have been accepted by insurers.
Change in accounting policies
Accounting policies and methods of computation have been applied consistently to all periods and by all
Group entities, with the exception of the mandatory adoption of NZ IFRS 9 Financial Instruments and
NZ IFRS 15 Revenue from Contracts with Customers, which are effective for annual reporting periods
beginning on or after 1 January 2018.
NZ IFRS 9 requires the use of a forward-looking expected credit loss model to determine impairment
provisioning on trade receivables. Consistent with the assessment disclosed in the annual report for the
financial year ended 31 March 2018, the Group has concluded that the impact of the expected credit loss
model is not material for the interim financial statements.
NZ IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers
to a customer. This standard is not applicable to rental income which makes up the majority of the Group’s
revenue, however it does apply to operating expense recovery income and management fees. The Group
has separately identified the significant performance obligations and revenue streams within Gross
22
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Argosy Property Limited | Interim Report 30 September 2018
property income from rentals and Gross property income from expense recoveries and determined that
the quantification of the performance obligations contained within these line items are not material.
Hence, no cumulative opening balance adjustment is required for the interim financial statements.
Supplementary dividends
To be consistent with NZ IAS 12.61 the Group now takes the tax credit relating to supplementary dividends
through retained earnings rather than tax expense. This change had a minor impact on the comparative
results which have been restated (basic and diluted earnings per share were reduced from 2.84 cents per
share to 2.80 cents per share).
Standards and interpretations in issue not yet effective
At the date of authorisation of these interim financial statements the following relevant Standards and
Interpretations were in issue but not yet effective and have not been applied in preparing these interim
financial statements:
NZ IFRS 16 Leases (effective for accounting periods beginning on or after 1 January 2019) eliminates the
distinction between operating and finance leases for lessees and will result in lessees bringing most leases
onto their balance sheet, with the exception of certain short-term leases and leases of low-value assets.
There are minimal changes from the current NZ IAS 17 requirements for lessors.
Given the Company is primarily a lessor, this standard is not expected to significantly impact on the
Group's financial statements. However, a ground lease exists over 39 Market Place, Viaduct Harbour,
Auckland and as the lessee, the Company will recognise a 'right-of-use' asset and corresponding lease
liability (representing the obligation to make lease payments) in the Statement of Financial Position.
23
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
3. SEGMENT INFORMATION – OPERATING SEGMENTS
The principal business activity of the Group is to invest in, and actively manage, properties in New Zealand.
NZ IFRS 8 - Operating Segments requires operating segments to be identified on the basis of internal
reports about components of the Group that are regularly reviewed by the chief operating decision maker,
being the Chief Executive Officer, in order to allocate resources to the segments and to assess their
performance.
The information reported to the Group’s Chief Executive Officer includes information by investment
property and has been aggregated based on three business sectors, being Industrial, Office and Retail,
based on what the occupants actual or intended use is. Segment profit represents the profit earned by
each segment including allocation of identifiable revaluation gains on investment properties and gains/
(losses) on disposal of investment properties. This is the measure reported to the Chief Executive Officer.
The following is an analysis of the Group’s results by reportable segments.
IndustrialOfficeRetailTotal (unaudited)
Six months to
30 September
Six months to
30 September
Six months to
30 September
Six months to
30 September
2018
$000s
2017
$000s
2018
$000s
2017
$000s
2018
$000s
2017
$000s
2018
$000s
Restated
2017
$000s
Segment profit
Net property income
1
20,51019,12719,49618,42410,76310,95150,76948,502
Realised gains/(losses) on
disposal of investment
properties(11)(47)––2,9062122,895165
Insurance proceeds - earthquake
expenses–––782–––782
Insurance proceeds -
reinstatement––2,838––2,838–
Earthquake expenses–(6)(1,089)(2,096)––(1,089)(2,102)
20,49919,07421,24517,11013,66911,16355,41347,347
Revaluation gains/(losses) on
investment properties13,670–(711)–21,674–34,633–
Total segment profit
2
34,16919,07420,53417,11035,34311,16390,04647,347
Unallocated:
Administration expenses(5,123)(4,713)
Net interest expense(12,218)(12,570)
Gain/(loss) on derivative financial instruments held for trading(1,492)(2,665)
Profit before income tax
71,21327,399
Taxation expense(4,461)(4,309)
Profit for the year
66,75223,090
1. Net property income consists of revenue generated from external tenants less property operating expenditure plus insurance proceeds - rental loss.
2. There were no inter-segment sales during the period (30 September 2017: Nil).
24
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
IndustrialOfficeRetailTotal
$000s$000s$000s$000s
Segment assets as at 30 September 2018 (unaudited)
Current assets1,2365,2895737,098
Investment properties669,964596,801356,2001,622,965
Non-current assets classified as held for sale–9,829–9,829
Total segment assets
671,200611,919356,7731,639,892
Unallocated assets3,254
Total assets
1,643,146
Segment assets as at 31 March 2018 (audited)
Current assets4908481341,472
Investment properties637,569577,251298,3001,513,120
Non-current assets classified as held for sale––27,40027,400
Total segment assets
638,059578,099325,8341,541,992
Unallocated assets2,837
Total assets
1,544,829
For the purposes of monitoring segment performance and allocating resources between segments, all
assets are allocated to reportable segments other than cash and cash equivalents, derivatives, tax assets,
other non-current assets and other minor assets that cannot be allocated to particular segments.
25
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
4. INVESTMENT PROPERTIES
Industrial
Six months to
30 September
2018
$000s
Office
Six months to
30 September
2018
$000s
Retail
Six months to
30 September
2018
$000s
Group
(unaudited)
Six months to
30 September
2018
$000s
Movement in investment properties
Balance at the beginning of the period637,569577,251298,3001,513,120
Acquisition of properties8,600–26,66535,265
Capitalised costs9,38730,4498,47048,306
Transfer to properties held for sale–(9,829)–(9,829)
Change in fair value13,670(711)21,67434,633
Change in capitalised leasing costs(84)143200259
Change in lease incentives822(502)8911,211
Investment properties balance at 30 September
669,964596,801356,2001,622,965
Industrial
12 months to
31 March 2018
$000s
Office
12 months to
31 March 2018
$000s
Retail
12 months to
31 March 2018
$000s
Group
(audited)
12 months to
31 March 2018
$000s
Movement in investment properties
Balance at the beginning of the period583,405547,450311,3001,442,155
Capitalised costs25,19524,28111,88661,362
Disposals(10,078)––(10,078)
Transfer to properties held for sale––(27,400)(27,400)
Change in fair value39,0805,6012,65247,333
Change in capitalised leasing costs213539(107)645
Change in lease incentives(246)(620)(31)(897)
Investment properties balance at 31 March
637,569577,251298,3001,513,120
Investment properties are classified as level 3 (inputs are unobservable for the asset or liability) under
the fair value hierarchy on the basis that adjustments must be made to observable data of similar properties
to determine the fair value of an individual property.
The Group holds the freehold to all investment properties other than 39 Market Place, Viaduct Harbour,
Auckland and a small part of 19 Barnes Street, Wellington.
26
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
4. INVESTMENT PROPERTIES (CONTINUED)
Valuation of Investment properties
The Group's policy is for investment property to be measured at fair value for which the Group completes
property valuations at least annually by independent registered valuers. Following recent market property
sale transactions and improved leasing activity, the Board and Management engaged Colliers
International New Zealand Limited (Colliers) to review key valuation metrics in order to undertake a
high-level desktop review of the property portfolio as at 30 September 2018. These indicative market
values provided by Colliers were then adopted by Management. Overall there was an uplift in the valuation
of the portfolio of $34.6 million, which has been recognised as a revaluation gain on investment property
as at 30 September 2018. (No desktop review was undertaken at 30 September 2017). Colliers reviewed
key information (tenancy schedules, operating expenditure and capital expenditure) associated with each
property, however full property inspections were not undertaken as part of the high-level desktop review.
Generally as occupancy and weighted average lease terms increase, yields firm, resulting in increased fair
values for investment properties. A movement in any of these assumptions could result in a significant
change in fair value.
Investment property metrics for the period ended 30 September 2018 are as follows:
IndustrialOfficeRetailTotal
Contract yield
1
- Average6.51%6.85%6.53%6.63%
- Maximum10.18%10.72%6.88%10.72%
- Minimum0.00%3.05%4.97%0.00%
Market yield
1
- Average6.54%7.23%6.23%6.70%
- Maximum8.74%10.37%6.63%10.37%
- Minimum0.00%6.38%5.37%0.00%
Occupancy (rent)100.00%96.36%100.00%98.41%
Occupancy (net lettable area)100.00%95.76%100.00%99.14%
Weighted average lease term (years)6.963.736.575.60
No. of buildings
2
3716962
Fair value total (000s)
$669,964$596,801$356,200$1,622,965
1. 7 Waterloo Quay and Stewart Dawsons Corner have been excluded from these yield metrics as the rents of both properties included in the valuation reports were
based on the completion of the planned remedial and redevelopment work required to be undertaken.
2. Certain titles have been consolidated and treated as one. The total number of buildings excludes properties held for sale.
27
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
Investment property metrics for the year ended 31 March 2018 are as follows:
IndustrialOfficeRetailTotal
Contract yield
1
- Average6.71%6.97%7.12%6.88%
- Maximum10.18%10.59%10.22%10.59%
- Minimum0.00%5.20%5.51%0.00%
Market yield
1
- Average6.74%7.37%6.80%6.98%
- Maximum8.79%10.32%10.18%10.32%
- Minimum0.00%6.23%6.16%0.00%
Occupancy (rent)99.90%97.25%100.00%98.75%
Occupancy (net lettable area)99.93%97.51%100.00%99.42%
Weighted average lease term (years)7.354.995.696.08
No. of buildings
2
3617861
Fair value total (000s)
$637,569$577,251$298,300$1,513,120
1. 7 Waterloo Quay and Stewart Dawsons Corner have been excluded from these yield metrics as the rents of both properties included in the valuation reports were
based on the completion of the planned remedial and redevelopment work required to be undertaken.
2. Certain titles have been consolidated and treated as one. The total number of buildings excludes properties held for sale.
5. PROPERTY HELD FOR SALE
626 Great South Road, Greenlane ($9.8 million) was subject to an unconditional sale and purchase
agreement at 30 September 2018 (31 March 2018: 7 Wagener Place, St Lukes, Auckland ($27.4 million)
was subject to an unconditional sale and purchase agreement).
28
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
6. DERIVATIVE FINANCIAL INSTRUMENTS
Group (unaudited)
30 September 2018
$000s
Group (audited)
31 March 2018
$000s
Nominal value of interest rate swaps345,000345,000
Average fixed interest rate4.56%4.56%
Floating rates based on NZD BBR (including margin)2.79%2.78%
Interest rate swaps are measured at present value of future cash flows estimated and discounted based
on applicable yield curves derived from observable market interest rates. Accepted market best practice
valuation methodology using mid-market interest rates at the period end date is used, provided from
sources perceived to be reliable and accurate. Interest rate swaps have been classified into Level 2 of the
fair value hierarchy on the basis that the valuation techniques used to determine the values at period end
date use observable inputs.
The net liability for derivative financial instruments as at 30 September 2018 is $34.5 million (31 March
2018: $33.0 million). The mark-to-market increase in the liability for derivative financial instruments is
a result of movements in the interest rate curve during the interim period.
7. SHARE CAPITAL
Group (unaudited)
30 September 2018
$000s
Group (audited)
31 March 2018
$000s
Balance at the beginning of the period792,620788,372
Issue of shares from Dividend Reinvestment Plan–4,263
Issue costs of shares–(15)
Total share capital
792,620792,620
The number of shares on issue at 30 September 2018 was 827,030,390 (31 March 2018: 827,030,390).
All shares are fully paid and rank equally with one vote attached and carry the right to dividends. All
ordinary shares have equal voting rights.
Reconciliation of number of shares
(in thousands of shares)
Group (unaudited)
30 September 2018
Group (audited)
31 March 2018
Balance at the beginning of the period827,030822,928
Issue of shares from Dividend Reinvestment Plan–4,102
Total number of shares on issue
827,030827,030
29
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
8. SHARE BASED PAYMENTS RESERVE
Performance share rights (PSRs) were offered to senior executives, commencing 1 April 2015. Under the
scheme, PSRs are issued to participants which give them the right to receive ordinary shares in the
Company after a three year period, subject to certain vesting and other conditions being met. The vesting
of the PSRs is subject to the Company achieving a positive total shareholder return (measured against the
Company's share price on the date of the issue of the PSRs, and including dividends) over a three year
measurement period. The total number which actually vest will be dependent on the relative ranking of
the Company's total shareholder returns against a comparator group of listed entities determined by the
Board from the S&P/NZX All Real Estate Gross Index.
There were no expenses recognised in the period to 30 September 2018 in relation to equity settled share
based payments (30 September 2017: $97,500). No rights were exercised during the period.
Grant dateVesting date
Granted
during the
year
1
Weighted
average
issue price
Balance at
the
beginning
of the
period
1
Vested
during the
period
Forfeited
during the
period
1
Balance at
the end of
the period
1
2019
1 April 20181 April 2021372,689$1.01869,157–(279,203)
2
962,643
2018
1 April 20171 April 2020321,284$0.99547,873––869,157
2017
1 April 20161 April 2019268,670$1.17279,203––547,873
2016
1 April 20151 April 2018279,203$1.13–––279,203
1. This is the number of PSRs.
2. The rights forfeited relate to those issued on 1 April 2015.
30
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
9. BORROWINGS
Group (unaudited)
30 September 2018
$000s
Group (audited)
31 March 2018
$000s
ANZ Bank New Zealand Limited283,341259,370
Bank of New Zealand177,005161,829
The Hongkong and Shanghai Banking Corporation Limited144,661133,010
Borrowing costs(1,230)(1,409)
Total borrowings
603,777552,800
Shown as:
Term603,777552,800
As at 30 September 2018, the Group had a syndicated revolving facility with ANZ Bank New Zealand
Limited, Bank of New Zealand and The Hongkong and Shanghai Banking Corporation Limited for
$625.0 million (31 March 2018: $625.0 million) secured by way of mortgage over the investment properties
of the Group. The facility includes a Tranche A limit of $275.0 million, a Tranche B limit of $275.0 million,
a Tranche C limit of $25.0 million and a Tranche D limit of $50.0 million. Tranche A matures on 31 October
2021, Tranche B on 30 September 2020, Tranche C on 31 October 2021 and Tranche D on 28 February
2021. The tranche limits and maturity dates remain unchanged from 31 March 2018.
The weighted average interest rate on borrowings (including margin and line fee and interest rate swaps)
as at 30 September 2018 was 4.86% (31 March 2018: 4.98%).
Borrowing costs are the costs incurred in establishing the bank facility. These costs are amortised over
the life of the facility at the effective interest rate.
On 18 October 2018, a new facility agreement was entered into, which provides an additional tranche,
Tranche E, with a limit of $25.0 million maturing on 18 October 2020. All other tranche limits and maturity
dates remain unchanged.
31
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
10. TAXATION
Group
(unaudited)
Six months to
30 September
2018
$000s
Restated Group
(unaudited)
Six months to
30 September
2017
$000s
The taxation charge is made up as follows:
Current tax expense5,3885,342
Deferred tax expense(410)(1,033)
Adjustment recognised in the current year in relation
to the current tax of prior years(517)–
Total taxation expense recognised in profit/(loss)
4,4614,309
Reconciliation of accounting profit to tax expense
Profit before tax71,21327,399
Current tax expense at 28%19,9407,672
Adjusted for:
Capitalised interest(631)(320)
Fair value movement in derivative financial instruments418746
Fair value movement in investment properties(9,697)–
Depreciation(3,048)(3,274)
Depreciation recovered on disposal of investment properties(725)382
Other(869)136
Current taxation expense
5,3885,342
Movements in deferred tax assets and liabilities attributable to:
Investment properties(320)(172)
Fair value movement in derivative financial instruments(418)(746)
Other328(115)
Deferred tax expense/(credit)
(410)(1,033)
Prior year adjustment(517)–
Total tax expense recognised in profit or loss4,4614,309
There were no imputation credits at 30 September 2018 (30 September 2017: Nil).
32
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
11. DEFERRED TAX
The following are the major deferred tax liabilities and (assets) recognised by the Group, and the
movements thereon during the current and prior reporting years:
Interest rate
swaps
$000s
Investment
property
$000s
Other
$000s
Total
$000s
At 1 April 2018(9,241)18,2413,18312,183
Charge/(credit) to deferred taxation expense for the
period
(418)(320)328(410)
At 30 September 2018 (unaudited)(9,659)17,9213,51111,773
At 1 April 2017(8,086)17,4943,21112,619
Charge/(credit) to deferred taxation expense for the
year
(1,155)747(28)(436)
At 31 March 2018 (audited)(9,241)18,2413,18312,183
12. RECONCILIATION OF SURPLUS AFTER TAXATION WITH CASH FLOWS FROM OPERATING ACTIVITIES
Group
(unaudited)
Six months to
30 September
2018
$000s
Restated Group
(unaudited)
Six months to
30 September
2017
$000s
Profit after tax
66,75223,090
Movements in working capital items relating to investing and financing activities(13,225)2,399
Non cash items
Movement in deferred tax liability(410)(1,033)
Movement in interest rate swaps1,4922,665
Fair value change in investment properties(34,633)–
Movements in working capital items
Trade and other receivables(3,096)(1,391)
Taxation payable52(331)
Trade and other payables7,566(1,834)
Other current assets(2,269)(1,643)
Other current liabilities(1,353)(91)
Net cash from operating activities20,87621,831
33
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
13. EARNINGS PER SHARE
Basic and diluted earnings per share is calculated by dividing the profit attributable to shareholders of
the Company by the weighted average number of ordinary shares on issue during the year.
Group (unaudited)
Six months to
30 September 2018
Restated Group
(unaudited)
Six months to
30 September 2017
Profit attributable to shareholders of the Company ($000s)66,75223,090
Weighted average number of shares on issue (000s)827,030823,629
Basic and diluted earnings per share (cents)
8.072.80
Weighted average number of ordinary shares
Issued shares at beginning of period (000s)827,030822,928
Issued shares at end of period (000s)827,030826,020
Weighted average number of ordinary shares (000s)
827,030823,629
14. DISTRIBUTABLE INCOME
Group (unaudited)
Six months to
30 September 2018
$000s
Restated Group
(unaudited)
Six months to
30 September 2017
$000s
Profit before income tax71,21327,399
Adjustments:
Revaluation gains on investment property(34,633)–
Realised (gains)/losses on disposal of investment properties(2,895)(165)
Derivative fair value (gain)/loss1,4922,665
Earthquake expenses1,0892,102
Insurance proceeds - reinstatement(2,838)–
Insurance proceeds - earthquake expenses–(782)
Gross distributable income33,42831,219
Tax impact of depreciation recovered on disposal of investment properties
and taxable gains on disposal of revenue account properties180428
Current tax expense(4,871)(5,342)
Net distributable income28,73726,305
Weighted average number of ordinary shares (000s)827,030823,629
Gross distributable income per share (cents per share)
4.043.79
Net distributable income per share (cents per share)
3.473.19
The Company's dividend policy is based on net distributable income. Net distributable income is
determined under the Company's bank facility agreement.
34
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
15. INTEREST EXPENSE
Group
(unaudited)
Six months to
30 September
2018
$000s
Group
(unaudited)
Six months to
30 September
2017
$000s
Interest expense(14,492)(13,738)
Less amount capitalised to investment properties2,2541,142
Total interest expense
(12,238)(12,596)
Capitalised interest for the period to 30 September 2018 relates to the Placemakers development at
180-202 Hutt Road, Kaiwharawhara, the redevelopment at Stewart Dawsons Corner, Wellington and the
reinstatement works at 7 Waterloo Quay, Wellington (30 September 2017: Capitalised interest relates to
the Polarcold development at 8 Foundry Drive, Christchurch, the Placemakers development at 180-202
Hutt Road, Kaiwharawhara, the Mighty Ape development at Highgate Parkway, Silverdale, Auckland and
the development at 82 Wyndham Street, Auckland).
16. COMMITMENTS
Ground rent
Ground leases exist over 39 Market Place, Viaduct Harbour, Auckland and a small part of 19 Barnes Street,
Wellington. The amount paid in respect of the Auckland ground lease during the period was $0.5 million
(30 September 2017: $0.5 million). The annual ground lease commitment is $1.0 million and is generally
recoverable from tenants in proportion to their area of occupancy. The Auckland ground lease is
renewable in perpetuity, with the next renewal date in 2019.
Building upgrades and developments
Estimated capital commitments contracted for building projects not yet completed at 30 September 2018
and not provided for were $30.6 million (31 March 2018: $64.1 million). Of this total, $15.8 million relates
to the reinstatement works at 7 Waterloo Quay, Wellington and $7.7 million relates to the Placemakers
development at 180-202 Hutt Road, Kaiwharawhara.
There were no other commitments as at 30 September 2018 (31 March 2018: Nil).
35
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
17. CONTINGENCIES
There were no contingencies as at 30 September 2018 (31 March 2018: Nil).
18. SUBSEQUENT EVENTS
On 18 October 2018, a new facility agreement was entered into with Argosy's banking syndicate, which
provides an additional tranche, Tranche E, with a limit of $25.0 million maturing on 18 October 2020. All
other tranche limits and maturity dates remain unchanged.
On 31 October 2018, an unconditional sale and purchase agreement was entered into for the sale of 1478
Omahu Road, Hastings for $10.2 million. Settlement is expected to take place in March 2019.
On 6 November 2018, an unconditional sale and purchase agreement was entered into for the sale of 31
El Prado Drive, Palmerston North for $35.5 million. Settlement is expected to take place in December
2018.
On 19 November 2018, a dividend of 1.5625 cents per share was approved by the Company. The record
date for the dividend is 5 December 2018 and payment is scheduled to shareholders on 19 December 2018.
Imputation credits of 0.389012 cents per share are attached to the dividend.
19. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the
Company, have been eliminated on consolidation and are not disclosed in this note.
There were no significant changes in relationships or transactions with related parties during the period
ended 30 September 2018.
36
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(CONTINUED)
Argosy Property Limited | Interim Report 30 September 2018
DIRECTORS
Argosy Property Limited
Michael Smith, Auckland (Chair)
Peter Brook, Auckland
Mark Cross, Auckland
Andrew Evans, Auckland
Stuart McLauchlan, Dunedin
Christopher Gudgeon, Auckland
Jeffrey Morrison, Auckland
REGISTERED OFFICE
Argosy Property Limited
39 Market Place
Auckland 1010
PO Box 90214
Victoria Street West
Auckland 1142
Telephone: (09) 304 3400
Facsimile: (09) 302 0996
REGISTRAR
Computershare Investor Services Limited
159 Hurstmere Road
Takapuna
Private Bag 92119
Auckland 1142
Telephone: (09) 488 8777
Facsimile: (09) 488 8787
AUDITOR
Deloitte
Deloitte Centre
80 Queen Street
Private Bag 115-003
Auckland 1010
Telephone: (09) 303 0700
Facsimile: (09) 303 0701
LEGAL ADVISORS
Harmos Horton Lusk Limited
Vero Centre
48 Shortland Street
PO Box 28
Auckland 1010
Telephone: (09) 921 4300
Facsimile: (09) 921 4319
Russell McVeagh
Vero Centre
48 Shortland Street
PO Box 8
Auckland 1140
Telephone: (09) 367 8000
Facsimile: (09) 367 8163
BANKERS TO THE COMPANY
ANZ Bank New Zealand Limited
ANZ House
23–29 Albert Street
PO Box 6243
Auckland 1141
Bank of New Zealand Limited
Deloitte Centre
80 Queen Street
Private Bag 99208
Auckland 1142
The Hongkong and Shanghai Banking
Corporation Limited
HSBC House
1 Queen Street
PO Box 5947
Wellesley Street
Auckland 1141
37
Directory
39 Market Place
Po Box 90214, Victoria Street West, Auckland 1142
P / 09 304 3400
F / 09 302 0996
www.argosy.co.nz
---
Amount NZ$000sPercentage change
50,7694.7%
66,752189.1%
66,752189.1%
Amount per security
Imputed amount per
security
NZ$0.015625NZ$0.003890
30 September 2018
(NZ$)
30 September 2017
(NZ$)
Net tangible assets per share$1.170$1.060
Basic earnings after tax per share$0.0807$0.0280
Diluted earnings after tax per share$0.0807$0.0280
Basic distributable income after tax per share¹
$0.0347$0.0319
Diluted distributable income after tax per
share¹
$0.0347$0.0319
¹ 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.
Note 14 of the financial statements released today provides a full reconciliation between the two measures.
Comments:The financial information for this announcement has
been extracted from the unaudited financial
statements of Argosy Property Limited which has
been released to NZX in conjunction with this
announcement.
Dividend Payment Date19 December 2018
5 December 2018
Net profit attributable to security holders
Dividend
Interim Dividend
Argosy Property Limited
Other Financial Information
Previous Reporting Period6 months to 30 September 2017
Unaudited interim results for announcement to the market
Reporting Period6 months to 30 September 2018
Revenue from ordinary activities
Profit from ordinary activities after tax
attributable to security holders
Record Date
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- AOF — AoFrio Limited: 2018 interim financial statements and funding update2018-08-29
“AOF | AoFrio Limited | 2018-08-29 | HALFYR | 2018 interim financial statements and funding update…”
- PEB — Pacific Edge Limited: PE Announces Improved Result and Capital Raising2018-11-29
“PEB | Pacific Edge Limited | 2018-11-29 | HALFYR | PE Announces Improved Result and Capital Raising…”
- APL — Asset Plus: Asset Plus Announces Interim Result to 30 September 20182018-11-27
“Asset Plus Announces Interim Result to 30 September 2018 (NZX: APL) Auckland, 28 November 2018 - Asset Plus is pleased to announce its interim financial results for the six months ended 30 September 2018. Asset Plus Chairman, Bruce Cotterill says: “The first six months h…”