One Company From Real Estate Space With Decent Growth Prospects

As the market players are aware, the outbreak of COVID-19 has impacted several industries and companies. The lockdowns which were imposed affected the operations of several companies. However, there are some companies which are expected to perform well moving forward. This company is possessing robust balance sheet which could help it in meeting long-term growth objectives. This company has increased its FY 2021 dividend guidance which reflects continued sound delivery of the strategy. The stock of this company has witnessed a rise of ~19.06% in the span of previous 6 months. In the time frame of past 9 months, the stock has increased by ~40.3%. 

Argosy Property Ltd

Business Overview

  • ARG’s capital as well as portfolio position is robust. Moreover, the issue of additional green bonds has extended and diversified the overall debt tenor.
  • The divestment of non-core properties helped the capital management program, and the funds were reinvested in the green development projects.
  • For the balance of FY 2021, the focus of the company would be towards addressing residual expiries within the portfolio as well as leasing up the remaining vacancies.

Argosy Property Ltd (NZX: ARG) is one of NZ’s leading listed property companies. Its portfolio is centered on the Auckland as well as Wellington markets with modest tenant-driven exposure towards provincial markets.

The following image provides a broad overview of the company’s portfolio:

Portfolio (Source: Company Reports)

Delivering on Strategy

ARG’s portfolio derives its strength owing to its well diversified mix spanning across sector, location and tenant mix. In line with the strategy, the company is progressing well towards divesting its non-core assets with an aim to recycle into green developments, both existing and planned. In a step forward towards this direction, ARG has recycled $73.5 million of non-core assets in H1FY21.

The company’s focus primarily revolves around maintaining the green/sustainable focus towards all the development and acquisition opportunities and making appropriate risk/reward decisions, with pre-commitments preferred on all the developments.

Resilient Performance in H1FY21

The company has reported a resilient performance in H1FY21 in the face of adverse impact of Covid-19 and like-for-like gross rental increased by 5.2% YoY. This was partially offset by the impact of Covid-19 related rental abatements and lower insurance proceeds at 7WQ. Notably, net property income witnessed a marginal growth in H1FY21 to $51.1 million from $51 million in H1FY20. For the six months ended 30th September, the portfolio witnessed revaluation gain of $79.8 million or 4.3%. Further, post non-cash adjustments as well as current tax, the company’s net distributable income witnessed a rise of $6.4 million or 21.5%.

Financial Snapshot (Source: Company Reports)

Sound Capital Structure

The company is having a robust balance sheet which could help it in navigating challenging operating environment and achieve growth objectives. As at 30th September, the company’s total bank debt facility stood at $660.0 million as compared to $585.0 million as at 31st March 2020.

The completion of the issue of green bonds worth $125 million in October has resulted in cancelling banking facilities worth $125 million. During the first six months, the company added the new banking facility, Tranche I, for $75.0 Mn. Notably, this new tranche expires in the month of May 2024. From the capital management perspective, the company’s target gearing band happens to be at 30%-40%.

Outlook

ARG is strongly placed on the back of its portfolio of the quality investment properties which is having a diverse tenant composition. This provides stability of the cash flows for the company going ahead. Meanwhile, it has guided for providing higher dividend of 6.45 cents per share for FY 2021. This reflects continued delivery of the company’s strategy.

The company stated that its management team has worked with tenants in order to support them during COVID-19 crisis and this strong focus towards tenant would continue over the remainder of FY 2021. It was mentioned that NZ monetary policy settings is expected to remain stimulatory for the broader economy over the short to medium term.

The strong execution of strategy as well as delivering on the crucial 2021 focus areas including initiatives of capital management is positioning the company well for the future. It would continue to reap benefits of the strategic acquisitions which have the potential to drive long-term capital growth as well as earnings.

The company’s management anticipates to witness some ongoing operational headwinds and some sectors of the economy could be more impacted as compared to others. Higher unemployment levels, subdued consumer confidence coupled with tough business conditions would be creating some degree of uncertainty. However, there are expectations that the low interest rate environment would be providing positive economic stimulus.

The company stated that its focus has been on working with the tenants as well as recommencing work on the existing development projects which were impacted as a result of lockdowns which were imposed. The Board is focused towards ensuring the delivery of the strategy, prudently managing the near term challenges with an aim to deliver on the long-term ambitions.

The stock of ARG ended the trading session at NZ$1.530 per share on January 22, 2021. The company is having a market capitalisation of ~$1.28 billion.  

 

 

 

 

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