Source: Vitalii Vodolazskyi, Shutterstock
As the market players are already aware, the impact of COVID-19 was felt in several sectors. Amidst the challenging environment, there are some companies having decent balance sheet which could navigate the operational challenges. This company has the quality portfolio of diversified assets and its focus revolves around investing in the diverse range of properties throughout sectors, locations as well as tenants. Over the time span of 9 months, this stock has witnessed a rise of ~29.5%.
Argosy Property Ltd
- From the capital management perspective, the company’s target gearing band happens to be at 30-40%.
- At the end of the interim period, the company remained well within all the bank covenants and it presently sits just above the middle of the target gearing band.
- The management’s focus for the balance of FY21 would be towards addressing the residual expiries within the portfolio as well as leasing up remaining vacancies.
Argosy Property Ltd (ARG) is one of the major real estate companies based in New Zealand. The company owns a diversified portfolio of industrial, office as well as retail properties predominately in Auckland and Wellington, with the modest tenant-driven exposure towards other parts of the country.
ARG has robust portfolio under its kitty that stands at $1.92 Bn at the end of 30 September 2020, with industrial sector accounting for 43% of the overall portfolio mix in terms of value, followed by office (42%) and large format retail (15%). The following image provides a broad overview of the sector summary:
Sector Summary (Source: Company Reports)
Resilient Performance in H1FY21
The company has reported a strong performance in H1FY21 in the face of adverse impact of Covid-19 and like-for-like gross rental increased by 5.2% during the period. 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.
Meanwhile, for the six months ended 30th September, the company’s portfolio witnessed a revaluation gain of $79.8 million or 4.3%. By sector, industrial reported a $44.1 million revaluation gain (55% of the total), reflecting a rise of 5.7% above book value.
Sound Balance Sheet
The company is having a sound balance sheet.
It stated that, during the half year ended 30 September 2020, it has added a new banking facility, Tranche I, for $75 million which is set to expire in May 2024. As at 30th September, the company’s total bank debt facility was $660.0 Mn ($585.0 Mn at 31st March 2020). Notably, its weighted average debt tenor, including bonds, was 3.2 years (3.6 years at 31st March 2020) and the weighted average interest rate was 3.74% from 3.95% at 31st March 2020. Following an issue of $125.0 Mn in green bonds in the month of October, ARG cancelled $125.0 Mn of the banking facilities.
Key Data (Source: Company Reports)
Resilient Dividend Payout
Over the years, ARG has maintained a resilient dividend payout. Meanwhile, the company has declared a dividend of 1.6375 cents per share for the second quarter ended 30 September 2020 with imputation credits of 0.0709 cents per share attached. Further, the company remains very much hopeful on delivering sustainable dividends going ahead. Resultantly, it has increased its FY21 dividend guidance to 6.45 cents per share, which reflects continued sound delivery of the company’s strategy. The following image provides an overview of the dividends:
Resilient and Sustainable Dividends (Source: Company Reports)
ARG has recently confirmed that the sale of the Albany Lifestyle Centre (or ALC) is now unconditional. It was mentioned that the low interest rate environment continued to support robust investor interest in the property. Notably, the sale price of $87.5 Mn is at book value and the company anticipates that the proceeds would be applied to value add developments in the pipeline. However, the settlement is anticipated on or around 30th April 2021.
ARG possesses a quality portfolio of the diversified assets. The company’s business has proved resilient and it is well placed to deliver a robust H2 performance. Notably, its third green bond issue in the month of October was well received, reflecting the continued interest in the transition towards greening the portfolio.
Besides, with a sound balance sheet in place and with prudent capital management driven by issue of green bonds which has not helped in expanding in debt profile but has also aided in increasing the duration of its overall debt. Its capital management programme was further supported by the divestment of non-core properties as the proceeds from the same were reinvested into green development projects. The company has stated that $76 million acquisition of Mt Richmond Properties announced in the month of October would be providing attractive long term capital growth as well as earnings sustainability.
The management foresees certain operational headwinds with certain sectors of the economy more impacted than others. It was mentioned that growing unemployment levels, weaker consumer confidence and challenging business conditions would be creating some degree of uncertainty.
However, there are expectations that the low interest rate environment could provide positive economic stimulus.
On February 26, 2021, the stock price of ARG ended at NZ$1.490 per share, up by 1.36%.