ARG - Argosy Property.

[Beagle]

I can just imagine your consternation if you bought $1m at $1.10 for 9% yield and the SP continued to lose another 25% capital, let alone the missed yield opportunity at that lower SP, but as you say the coming recession won't last forever ... and there's always medication available for anxiety and sleepless nights.

I hear you mate but I don't think the yield has ever been over 10% gross, ($1.00 at current payout level for 33% taxpayers), so I think barring some major exogenous shock buying at $1.10 would be very close to the bottom. That said, you know me and diversification and I also have a very healthy respect for TA. The only reason I used the $1m or $1.2m figures this morning is for illustrative purposes to compare the income to what people earn on residential property.

[Waltzing]

100 and 10%

that would be a what ?

XE Xeeeee 10% Yield SHOCK!!!!!

its a BUY!!!!!!

"exogenous" big word... BIG YIELD!!!!

BIG DEAL!!!!

ITS A BUY, its a NO BRAINER!!!!!

https://www.youtube.com/watch?v=kxloC1MKTpg

[Beagle]

$1.24...thus can't be right, everyone's telling me it would fall further.

[Waltzing]

strong days trading for this stock as the market realises its not a DOG! ... sorry mean a DUD!

its definitely not going to the plan.....

[Beagle]

Bugger...I was looking forward to backing up the truck at $1.10

[Swala]

Patience.....

[winner69]

Bugger...I was looking forward to backing up the truck at $1.10

Heading to $1.74 maybe

Even then over time you’ll get your 8% pa gross

[Waltzing]

"Bugger...I was looking forward to backing up the truck at $1.10"

something has gone badly wrong with the master plan...

however if the FED hikes to well into the 4's 100 is on the cards....


New Plan.... modified old plan.... heck we havnt got a plan for this one anymore..

Thank goodness there is still some left in a portfolio we did not sell.....:scared:

[winner69]

Bugger...I was looking forward to backing up the truck at $1.10

Even at 124 and the divie growing at 1.5% pa you will get the equivalent of about 10% pa after 10 years

[Waltzing]

"10% pa after 10 years"

boring, Boring , BORING!!!!!!

[troyvdh]

If it sounds to good to be true ......

[Beagle]

"Bugger...I was looking forward to backing up the truck at $1.10"

something has gone badly wrong with the master plan...

however if the FED hikes to well into the 4's 100 is on the cards....


New Plan.... modified old plan.... heck we havnt got a plan for this one anymore..

Thank goodness there is still some left in a portfolio we did not sell.....:scared:

:lol: :lol: Best post of the day !!

Like you mate, I am not sure what the plan is anymore but I am glad I have some in my portfolio !

[Waltzing]

There seems to be some master plans around the world that are currently NOT GOING TO PLAN and thank goodness.

But often this leads to OPPORTUNITY!!

Im sure everyone had lightened up thinking VOLKA and this allows some room for being nibble in the next 12 to 24 months.

[winner69]

The only thing that keeps me away from investing in ARG is their 27% portfolio exposure to Wellington Office towers - and all the accompanying seismic risk that brings with it. If they start divesting those buildings it becomes much more attractive to me.


Used to go into that Waterloo Quay building quite a lot before that last quake

Was a bit creaky back then …and a bit spooky …..wasn’t surprised that the interiors got damaged (even if a lot of it was asbestos related)

One unlucky building …..something will happen to it again

[Rawz]

That wellington building piece is definitely food for thought.

[Waltzing]

Be interesting to see how this sector reacts to the big sells off on western markets..

Since global markets are now no longer linked.

[Waltzing]

seem to have some orders piling on at 1.20

markets wants bricks and steel..

[BlackPeter]

$1.24...thus can't be right, everyone's telling me it would fall further.

No need to rejoice just now. Need to consult bull ... armageddon still coming!

[Waltzing]

just need a Quake and should get a lower price...

even more piling in at 1.20

that land congestion must be holding the price up...

[Beagle]

just need a Quake and should get a lower price...

even more piling in at 1.20

that land congestion must be holding the price up...

No mentions of earthquakes, new pandemic's or the use of nuclear weapons are the type of exogenous shock any of us want.
Maybe the bottom is in at $1.20 ? I mean come on !, that's a massive discount to NTA of $1.74. The end of the world isn't nigh, surely ?

[ronaldson]

The current discount is not unique to ARG, and is similar to other NZX listed property companies. Curious that no-one seems interested in a T/O offer or a merger. They all buy and sell individual properties from time to time, ostensibly to improve the quality of the portfolio/enhance supplementary development opportunities, so why not greater ambition?

One interesting fact is that capital gain to the share price over a very extended term ( ie more than a decade ) seems never to match the capital gain achieved by investors who simply buy and hold a single property over that duration. I understand the advantages of participating in a diversified portfolio, and the marketability of shares in a listed entity verses ownership or proportional ownership in a single building, but the long term outcome seems inevitably poorer. Are these companies overtrading, with all the attendant costs? After all, every property on-sold by these companies was once a property their Board considered needed to be acquired - so what happened? Does anyone ever adequately demonstrate if this activity is superior over time?

[ronaldson]

Another thought that I want to get " out there " but doesn't seem to have a convenient thread available, so I will use this one, relates to the updated individual parliamentarian's Register of Interests that the NZ Herald gave some publicity to recently.

What was absolutely striking was the paucity of elected members who held any ( yes, any ) NZX listed shares. Only about 3 of 120 did ( yes, I know, a Kiwisaver Account is now quite common and that usually signals an indirect investment in the market but most balances will not be very significant ) by contrast with those who held an interest in property, often multiple and often via Trusts, where only 3 of 120 didn't! The implied disconnect with business and the dominance of property in lieu is remarkable. This is widely known to be a NZ obsession, but when it is so evident in our elected representatives it is no wonder that there can be the perception of a lack of comprehension of how to achieve economic outcomes and efficiencies, and delivery of projects.

[Raven74]

Another thought that I want to get " out there " but doesn't seem to have a convenient thread available, so I will use this one, relates to the updated individual parliamentarian's Register of Interests that the NZ Herald gave some publicity to recently.

What was absolutely striking was the paucity of elected members who held any ( yes, any ) NZX listed shares. Only about 3 of 120 did ( yes, I know, a Kiwisaver Account is now quite common and that usually signals an indirect investment in the market but most balances will not be very significant ) by contrast with those who held an interest in property, often multiple and often via Trusts, where only 3 of 120 didn't! The implied disconnect with business and the dominance of property in lieu is remarkable. This is widely known to be a NZ obsession, but when it is so evident in our elected representatives it is no wonder that there can be the perception of a lack of comprehension of how to achieve economic outcomes and efficiencies, and delivery of projects.

That's a very interesting observation from the MP register.

[Waltzing]

", but when it is so evident in our elected representatives it is no wonder that there can be the perception of a lack of comprehension of how to achieve economic outcomes and efficiencies, and delivery of projects."

deeply disturbing !

Obviously Green and Labour MP's arnt allowed to own stocks and believe capital markets are EVIL places.

How a country expects to create wealth and infrastructure without a vibrant stock market shows how little chance the country has of achieving either.

An infrastructure bank would also solve many problems as long as it was careful on where it got its funds from.

[ronaldson]

ARG now well bid at $1.245 cum the quarterly dividend and the share price has reacted positively to the annual result just announced. I don't think this can dip under $1.20 going forward as some have speculated.

It is worth remembering that recent FY results have been adversely affected, initially by the earthquake remediation/loss of rents not being fully indemnified by insurance, and then the facade issue at 7 Waterloo Quadrant necessitating quite major maintenance expenditure, and covid related rental adjustments along with delays to project completion. Hopefully there is clearer air coming!

[LaserEyeKiwi]

ARG now well bid at $1.245 cum the quarterly dividend and the share price has reacted positively to the annual result just announced. I don't think this can dip under $1.20 going forward as some have speculated.

It is worth remembering that recent FY results have been adversely affected, initially by the earthquake remediation/loss of rents not being fully indemnified by insurance, and then the facade issue at 7 Waterloo Quadrant necessitating quite major maintenance expenditure, and covid related rental adjustments along with delays to project completion. Hopefully there is clearer air coming!

Their ever growing exposure to wellington office towers is not a good idea IMO. “Unexpected” seismic maintenance costs should actually be expected on a semi-regular basis going forward until they divest those.

[Beagle]

ARG now well bid at $1.245 cum the quarterly dividend and the share price has reacted positively to the annual result just announced. I don't think this can dip under $1.20 going forward as some have speculated.

It is worth remembering that recent FY results have been adversely affected, initially by the earthquake remediation/loss of rents not being fully indemnified by insurance, and then the facade issue at 7 Waterloo Quadrant necessitating quite major maintenance expenditure, and covid related rental adjustments along with delays to project completion. Hopefully there is clearer air coming!

I bought more on the open @ $1.245, (net of forthcoming dividend = ~ $1.23 = 8.07% gross effective forecast yield for 33% taxpayers in FY23). Those hoping for $1.00 - $1.10 are highly likely to be disappointed in my opinion. 50 cents per share discount to NTA at $1.24. I'm happy with that and happy to add more there. Sure there's a chance it might go a little under $1.20 in the future and I'm more than comfortable with that prospect as that would present another opportunity to add more on even more advantageous terms. Frankly I would relish that opportunity.
I note their target for the industrial property sector has moved up to 55-65% so that's where their build and acquisition focus is.

[Waltzing]

"I bought more on the open @ $1.245"

oh no no no no......

Driving up the price on panic FOMO...

:confused:

What to DO... WHAT TO DO!!!

[Waltzing]

AGM at the sail boat club 21 JUNE.

Be very interest to hear what their future development plans are and where they are going to BUY and how they intend to fund it.

[Waltzing]

Soros predicting global depression; commercial property stocks may turn out to be a place to hide.

[Waltzing]

ARG snatch's another crown entity for its wellington portfolio.

adds another little revenue building block.

[ronaldson]

Interesting volume at and after the close today at $1.25. No harm in some momentum just now to underpin ARG above $1.20 once it goes ex div shortly.

[Waltzing]

sub 120 coming up?

[GTM 3442]

Sub 1.20 arrived

[ronaldson]

ARG having a rerate today. Even Beagle back in the money after buying in May!

[Waltzing]

FOMO ....

it will bounce around for a while with a bit of luck...

anyone buying at 1.30 and above is front running this surely..

1.17 to 1.25 looks safe .... maybe. lower yield in the 10 US is only until the recession doesnt look like it going to be a hard landing..if its a hard landing than 1.10 could come into play next 12 months.

cant see NZ crash landing.

BEA...

[winner69]

big day --- seems most things are up today as well -- by big margins

good the world is happy again ....this time it will last

[BlackPeter]

big day --- seems most things are up today as well -- by big margins

good the world is happy again ....this time it will last

Didn't we talk about linear extrapolations before? Worlds happieness (if there is such a thing) must be one of these things moving in cycles :) ;

[Waltzing]

Suns out but the big winter freeze isnt here yet ....:scared:

its like the start of January for summer. Winters just getting started...

[Waltzing]

market seems to be looking out past next year...

winner(n) you may be right .

[winner69]

market seems to be looking out past next year...

winner(n) you may be right .

Markets always forward looking .... even if they can't predict the future

[Waltzing]

Winner(n) US 10 YR restarting to move up tonight..

a day later and its heading down below 2.9.

Pricing in a recession and that means defensive stocks like ARG are Winners?

[BlackPeter]

Winner(n) US 10 YR restarting to move up tonight..

a day later and its heading down below 2.9.

Pricing in a recession and that means defensive stocks like ARG are Winners?

I reccon it depends.

If inflation and interest rates go up, REITS will keep going down.

If inflation and interest rates go down, REITS will go up;

If inflation stays but RB too timid to keep rising rates, we might move towards the Japanese model of stagflation. Good for nothing.

Take your pick.

[Waltzing]

with the RBNZ now advertising for advisors with out economic degrees who needs statistical data sets from the economy.

chance of political agendas effecting OCR rates is possible if social issues are placed at the heart RBA decisions.

Some inflation fears appear to be abating slowly.

markets price ahead by several years and thats why there is the P/E ratio.

NAT GAS and WTI are trending down.

Winner(n) called it.

[Rawz]

High inflation leads to higher property prices sooner or later.

[ralph]

High inflation leads to higher property prices sooner or later.
We already have the higher property prices Rawz , that's the fuel for inflation later will be long time

[Waltzing]

well out performed the market must be the darling of the pack...

LEK's chart will show the big picture.

the US 10 yr is wobbling around for all sorts of reasons, recession, inflation its as if it doesnt known which direction to go.

[Waltzing]

off with some good trading support today. Should be lower with a higher yield curve but NOOOO!!!

[ronaldson]

Interesting close today at $1.33, up 5c, albeit now a significant gap between buyers at $1.285 and sellers at $1.34, large for a relatively liquid share in this price range. Not dissimilar for ARV which I also hold, close at $1.46, up 3c on the day with buyers at $1.42 and sellers at $1.46. You could infer from recent price action in both cases that momentum is positive rather than negative, thou ARG's pie yield has now dipped to just below 5%.

I did note that Graeme Hart has just achieved a record m2 rental on a largish industrial property near the airport. I like the thesis that existing buildings/developments cannot be replicated currently at past costs so are a natural hedge against inflation (though not against rising interest rates). There is still a real gap between current pricing and the last notified NTA at $1.74 so where to from here?

[Waltzing]

Ten YR US moved back under 3 rapidly..

NZ Ten moving back also

http://www.worldgovernmentbonds.com/bond-historical-data/new-zealand/10-years/#:~:text=The%20New%20Zealand%2010%20Years,210.2%20 bp%20during%20last%20year.

who desnt track these at the moment...

doesnt mean in the next 2 years these stocks will rally until inflation is moving the other way and OCR also cuts back..

Winner is a big BALIV'A in yield curves

[winner69]

Divie 1.6625 cents coming Sept

Miserly 1.5% pay rise for lucky shareholders who hold for divies

[Waltzing]

nice trade though from the lows....

Lets face winner() its out performed!!!

as retail US has don'eh opposite...

with the s**t show in europe just starting there's a chance of a market retracement of the S&P to 3 lows after this bounce up...

with NZ RB mired in political fog they will at least have enough fear in their pants to keep raising the OCR...

it should put a lid on these SP's and make for a trading range..

to imagine that accounting of high performance computing cant model short and long term financial models is just simplistic thinking on the part of some communities.

[Waltzing]

look like the FED is finished with big rate increases according to Jeffrey Gundlach

ARG low of 113 is probably in and winner(n) is right on the SP handle having a chance of a slow run up.

[Waltzing]

Winner(n) called it.

ARG hitting 135.....continuing its rebound..

Hold me ...

https://www.youtube.com/watch?v=E0sha1XfHxw

[winner69]

Winner(n) called it.

ARG hitting 135.....continuing its rebound..

Hold me ...

https://www.youtube.com/watch?v=E0sha1XfHxw

Was 113 not that long ago …..that’s 20% up

Beagle be happy

[Waltzing]

Retracement here winner ... FED possible more 75 's to come....

low 120's possible .. TT

Top up Time?

4.5 fed funds rate ... OR sounding hawish after Jackson H...

[ronaldson]

Oops - Some panic today! Down over 5%!

[777]

Oops - Some panic today! Down over 5%!

Time to buy then.

[troyvdh]

I agree 777.With steel prices ..amongst other increases..surely property entities..I hold PFI...should have at least have a higher NTA.....or am I missing something cheers. Troy.

[Waltzing]

US 10 year pressing down on market yield stocks.

Could go even lower into the mid 115-120.

[Waltzing]

nice price action today...

[troyvdh]

I have to ask..what is the investment horizon for you guys.

[Baa_Baa]

I have to ask..what is the investment horizon for you guys.

The property equity plays with decent yield are forever investments, they'll be part of my beneficiaries inheritance while I'm enjoying the earnings or reinvesting them while I'm alive. We're in a time now when SP to NTA and earnings vs capital invested for long term yield is improving, it is a once in a decade opportunity for those who have the capital to get invested or accumulate.

Someone might like to share their story about their investment in property equities that has already been paid off by earnings distributions, and what it's like to be freehold that keeps on paying out profits. I'm a bit away from that but heading in the right direction.

[Muse]

The property equity plays with decent yield are forever investments, they'll be part of my beneficiaries inheritance while I'm enjoying the earnings or reinvesting them while I'm alive. We're in a time now when SP to NTA and earnings vs capital invested for long term yield is improving, it is a once in a decade opportunity for those who have the capital to get invested or accumulate.

Someone might like to share their story about their investment in property equities that has already been paid off by earnings distributions, and what it's like to be freehold that keeps on paying out profits. I'm a bit away from that but heading in the right direction.

Totally agree...the early post dotcom years, the 2009-2011 years, 2020...all provided outstanding investment opportunities.

re your later item...in 2010 and in 2011 I took part in the acquisition of two private companies, not necessarily LPTs, but keeping it broad, akin to property services or asset management (but both in slightly different areas). I sold them both last year and this year. Over 11 and 12 years, both returned more than +2.5x their invested capital in net cash dividends, together with good capital returns, resulting in annual compounded annual returns of 20% and 28% (net of all transaction costs and taxes). There were the odd year or two where I felt a bit nauseous given their performance (the earliest investment continued to trend down after the first year), and a lot of heartache in the argy bargy of managing a business, but I had a decision to make at that point in time, invest now or never, and I think it more important to be confident you are investing on the bottom half of the cycle, rather than fretting over picking the bottom of the cycle.

Time, plus imputed dividends, plus picking a good business with good management in a good sector, in the bottom half of the cycle....all those things are good individually, but by adding them together they compound and create meaningful long term wealth.

[Waltzing]

Mr B might say that these are Dogs of another breed....

type in ARG NZX and go MAX... count the number of times its hit 117 ... then the number of time its hit 200

the trouble with tech stocks as always been until Apple Iphone nothing much stuck and keep growing...

the world is full of humans who stuff up and that stuffs up what could be a very very good investment.

They are stable stocks that balance the portfolios and support it when all else is going to hell in a hand basket...

if you go over weight after the april 2020 then sold some at1.50 and above as rates started to turn then now or the next 6 months might be a time to pick some more up but weight till after the ugly bear drops a nuke somewhere...

thats the problem at the moment... its a cuban moment.

[Habits]

Mr B might say that these are Dogs of another breed....

type in ARG NZX and go MAX... count the number of times its hit 117 ... then the number of time its hit 200

the trouble with tech stocks as always been until Apple Iphone nothing much stuck and keep growing...

the world is full of humans who stuff up and that stuffs up what could be a very very good investment.

They are stable stocks that balance the portfolios and support it when all else is going to hell in a hand basket...

if you go over weight after the april 2020 then sold some at1.50 and above as rates started to turn then now or the next 6 months might be a time to pick some more up but weight till after the ugly bear drops a nuke somewhere...

thats the problem at the moment... its a cuban moment.

Buy low sell high is a good strategy waltzing.... hard to know when high is actually high and will not continue trending up. In a downturn wheres the bottom of the cycle. MA charts and crossovers can give false signals or late signals that miss the move.

Hard for us lesser mortals... I need better hindsight from 2020. That was a good good year

[fungus pudding]

Buy low sell high is a good strategy waltzing....


Buy on any week day ending with AY, and never sell is better.

[NZSilver]

Haha too right FP

[Waltzing]

Winner() highlighted the relationships between the 10 Yr and SP.

could still be some more down side coming for long term holders to top up again.

[Waltzing]

could see some real kick ass prices here soon as the UK crisis kicks off ...

[troyvdh]

Habits..how long have you been investing in shares cheers troy.

[Habits]

Habits..how long have you been investing in shares cheers troy.

On and off. Used to do point and figure charts on graph paper. I doubt that I could remember how to draw them now, it has been a while

[ronaldson]

Market update " puff " announcement re minor leasing, and settlement of the Nugent Street sale. Seems to have stopped the share price slide, at least briefly.

[ronaldson]

Interesting market - today the OCR goes up by half a % with a clear signal more to come but ARG rallies 2c to $1.21, with the market close leaving a significant spread between buyers at $1.18 and sellers at $1.235. So where too tomorrow?

On a practical note, I have always thought that listed property companies are better hedged/protected, at least in the shorter term, from interest rate rises than your average homeowner. But share prices still suffer because the true comparison becomes market yield v bank deposit rates. Of course, the former benefits from the pie status for tax purposes so the comparison needs to factor that in particular.

Is it likely we will see office and industrial real estate values fall? Occupancy rates for genuine green buildings in these categories remain high and most rents are CPI adjusted on interim reviews so there is not the immediate hit currently being felt in the residential market from rate rises, and replacement/new build costs are up significantly from inflation so won't NTA per share just continue on up?

[Aaron]

Interesting market - today the OCR goes up by half a % with a clear signal more to come but ARG rallies 2c to $1.21, with the market close leaving a significant spread between buyers at $1.18 and sellers at $1.235. So where too tomorrow?

On a practical note, I have always thought that listed property companies are better hedged/protected, at least in the shorter term, from interest rate rises than your average homeowner. But share prices still suffer because the true comparison becomes market yield v bank deposit rates. Of course, the former benefits from the pie status for tax purposes so the comparison needs to factor that in particular.

Is it likely we will see office and industrial real estate values fall? Occupancy rates for genuine green buildings in these categories remain high and most rents are CPI adjusted on interim reviews so there is not the immediate hit currently being felt in the residential market from rate rises, and replacement/new build costs are up significantly from inflation so won't NTA per share just continue on up?

Hopefully that is not a rhetorical question. I think NTA relies much more on interest rates rather than actual construction costs, although both are important.

If interest rates keep rising asset prices fall and so does NTA. I think KPG provided a good example of how worthless NTA is as a measure with the sale of the Northlands Mall for $160mill, but after saying this is all I could find in the 2022 annual report regarding properties held for sale were figures lumped together for The Plaza, Northlands and 50% of Centre Place North and an adjoining property.

Seems that properties held for sale lost 141,859,000 in value over the 2022 year, that represented 41% of their value at the start of the year in April 2021. Was there a gain or loss on sale of northlands? Either way it is laughable.

ronaldson I think you asked why the property companies keep buying and selling properties. It is a question I always wondered as well. I guess I would need to look at cashflow over the years to see if this has grown or not. I suspect it has not grown nearly as fast as the capital values.

Sorry wrong company for this thread but I think beagles analysis of KPG indicated they had not improved earnings over a lengthy period, but I haven't done my own research.

[ronaldson]

Aaron - Yes, I queried the real value in the regular buying and selling that all these listed property entities engage in, via a post in May. And the lack of merger activity in lieu, despite all trading at well below NTA or replacement value currently. I suggested single property investors who simply buy and hold for a decade or more have a better outcome, although there are other factors to consider.

Interestingly, quite a few of the listed entities began via amalgamation of various syndicates and/or property management activity. Individual properties in multiple ownership are rarely, if ever, with the intent of further development. They are essentially held as a passive investment, for growth in the long term. By contrast, the listed entities as they matured became much more proactive in seeking additional development opportunities, more recently with a "green " focus, as their new acquisition strategy, in part because they had the asset base and resources access to deliver such outcomes.

But new purchases are inevitably expensive because it is a highly competitive market, ie no bargains. So, on balance, why divest what you already have, with all the attendant costs (commissions/legal/depreciation recovered etc) and take on development risk with all the attendant staff overhead?

I am sure Boards have a tick box or other reporting approach to justify their decision-making but at the end of the day I suspect at least some of the sell to buy activity is underpinned by the " hype/thrill of the deal " factor that almost everyone engaged in the industry (including Directors) wishes to experience and incorporate into their CV.

[ronaldson]

ARG rallies further to a Friday close at $1.24, but curiously the buy/sell spread widens even further to $1.18/$1.25. So where too next week?

Just a week ago the price was sliding after going ex div, so the " about face " since on quite good volume is noticeable and suggests the market has reassessed this stock.

I note that management don't appear to have commented at all on the NZ Herald reveal earlier in the week regarding ARGs involvement as one main plaintiff in a $160m cladding case in the High Court supported by a litigation funder. While that mitigates potential legal costs for ARG (but also potential recoveries if successful) it begs the question what remedial expenditures ARG has already incurred/will incur. The only cladding issue previously revealed, so far as I am aware, related to the quite substantial replacement expenditures now incurred on the 7 WQ property in Wellington, and that is not one of the two Argosy properties identified in this proceeding affected by the current problem. Rightly or wrongly, I inferred from the article that the two properties involved have already been remediated or substantially remediated, and if so then the expenses are already a sunk cost and any actual recovery would be a bonus of sorts. The alternative, that further major expenditures are still on the horizon, would be most unpalatable.

[NZSilver]

can you please share the article

[dubya]

can you please share the article

I think this is the article he was referring to:

https://www.nzherald.co.nz/business/fire-risk-fears-apartment-owners-argosy-suing-aluminium-panel-makers-suppliers/KWU3L23BF4UXNWFRPVGUZSC2D4/

Bay of Plenty apartment owners and NZX-listed Argosy Property are suing parties who made and supplied an aluminium building cladding product identified in New Zealand as a potential fire risk.
The buildings involved are a large multi-unit Mount Maunganui apartment complex, one of Auckland’s biggest outdoor retail centres visited by thousands daily at Albany and Countdown’s 5.9ha South Auckland distribution centre and head office.
Argosy owns the $161 million bulk retail Albany Mega Centre on Don McKinnon Drive on Auckland’s North Shore.
It also owns a $123m 59,000sq m distribution centre leased to Countdown at Favona Rd, Māngere. Both were named in the court cases.
Owners of Mount Maunganui’s Cutterscove Resort Apartments and Argosy Property No 1, owned by Argosy Property with a $1 billion market capitalisation, have hired Jim Farmer KC.
Alan Galbraith KC is representing the cladding manufacturer in the case, yet to go to a full hearing.
Cutterscove and Argosy lodged a claim in the High Court at Auckland against German manufacturer 3a Composites GmbH, supplier Terminus 2 and importer/distributor Skellerup Industries for selling cladding under the Alucobond PE brand.
Cutterscove markets itself as stylish and spacious home-away-from-home with tennis court, pool, spa, sauna, gym, golf driving net, mini-golf, barbecues and more.
Argosy’s chief executive Peter Mence says most of the cladding at its Albany and Māngere properties has been replaced.
“We take risk seriously across the portfolio and report regularly to the board on that and a number of other issues.”
A decision from Justice Pheroze Jagose this month said Cutterscove owners spent $9m recladding the exterior of the three-level building with a basement and 39 units.
Body Corporate 91535 and Argosy claimed Alucobond cladding was combustible.
They claimed when Alucobond was used as cladding on external walls or other building elements there was risk that in a fire, the Alucobond flammable core could cause or contribute to a fire’s rapid spread and severity.
They claimed such a fire in a building risked “loss of life and damage to the building and adjacent buildings”.
The plaintiff said in recent years, there was growing recognition aluminium composite panels (ACP) with polyethylene cores like Alucobond were unfit for use as exterior building cladding because of the risk of fuelling the rapid spread of fire.
They cited an inquiry into London’s Grenfell Tower fire, which found the main reason the fire spread so fast was because of ACP panels with polyethylene cores that fuelled the fatal blaze.
Cutterscove got the panels between 2006 and 2008.
Argosy said its Albany and Māngere buildings got the cladding around 2011.
Cutterscove and Argosy are suing for breach of the Consumer Guarantees Act, negligence, negligent misstatement and breach of the Fair Trading Act.
Justice Paul Davison’s ruling in May said Cutterscove and Argosy had “a good arguable case” against the first defendants.
But the defendants argued “combustibility” did not necessarily signal a problem or defect with cladding.
Globally recognised ways to show building compliance for external wall cladding systems included all types of aluminium composite panels, high-pressure laminated and other combustible cladding systems, the defendants argued.
Kaneba — a cladding and building supplier — acknowledged supplying and installing Alucobond panels to 22 Auckland and Wellington buildings.
Minor quantities included materials for a 10sq m pedestrian link bridge between Argosy’s Māngere buildings, which are Woolworths New Zealand’s main Auckland distribution centre and head office.
Galbraith, arguing against the Cutterscove/Argosy action, said for a Fair Trading Act claim to work, there must have been representation made and relied upon by someone else.
Yet the plaintiffs had failed to produce any evidence that Germany’s 3A Composites GmbH made representations relating to the supply of products in New Zealand on which plaintiffs relied, he told the court.
None of the plaintiffs’ witnesses asserted they or their agents received or relied on any representations made by the Germans, Galbraith said in a preliminary hearing.
Cutterscove and Argosy struck a deal with a litigation funder to bring the action.
A West Australian company has agreed to pay for the proceedings via a Cayman Islands’ fund. Cutterscove acknowledges the court proceeding would otherwise need to be paid for by levies raised from unit owners.
Cutterscove owners added: “There are many buildings in New Zealand that were or are fitted with Alucobond PE core cladding.”
They cited lists of buildings, published by Auckland, Wellington and Christchurch that have or had aluminium composite panel cladding.
The Herald has previously reported on the issue when more than 150 buildings were checked for potential fire risks in an Auckland Council investigation last decade.
Even before London’s 2017 Grenfell Tower tragedy, the council was looking into fire-safety issues, spurred by a 2014 Melbourne fire where a discarded cigarette at the Lacrosse Apartments cause a blaze that spread rapidly, fuelled by combustible cladding on the building’s exterior.
Burning cladding may also have accelerated the Grenfell Tower blaze, which killed more than 70 people.
The council identified more than 150 buildings that may have some aluminium composite panel (ACP) cladding.
But Ian McCormick, general manager building control, said no building was identified in 2017 that either raised immediate life safety concerns or that would be considered high risk.
The Cutterscove/Argosy case is yet to go to a full hearing

[SailorRob]

Interesting market - today the OCR goes up by half a % with a clear signal more to come but ARG rallies 2c to $1.21, with the market close leaving a significant spread between buyers at $1.18 and sellers at $1.235. So where too tomorrow?

On a practical note, I have always thought that listed property companies are better hedged/protected, at least in the shorter term, from interest rate rises than your average homeowner. But share prices still suffer because the true comparison becomes market yield v bank deposit rates. Of course, the former benefits from the pie status for tax purposes so the comparison needs to factor that in particular.

Is it likely we will see office and industrial real estate values fall? Occupancy rates for genuine green buildings in these categories remain high and most rents are CPI adjusted on interim reviews so there is not the immediate hit currently being felt in the residential market from rate rises, and replacement/new build costs are up significantly from inflation so won't NTA per share just continue on up?


Some interesting commentary on Argosy lately. Forgive me in case I've missed something as I'm not familiar with this company nor these types of businesses but having a look over a few years of financials, it appears to me that they earn an absolute pittance (in cash) on their capital, even on equity capital or market cap value.

When you look at reported earnings it's better but this seems to be just from revaluations - the actual cash earnings are slim indeed. The gross yields that are reported on different properties seem slim enough let alone considering that costs need to come out of them. The cash flow statements are sobering reading when you relate them back to the capital at work. It looks like the dividend isn't even covered by cash. I'm wondering what happens if the revaluations go into reverse as they may do with higher risk free rates?

Then I think that maybe the market is telling us this by valuing the assets at a fraction of 'NTA' - after all what use are assets if they don't generate cash? Something like property that has a pretty robust NTA as defined by what you could actually realise in a sale, if trading well below book in the market, then what does this mean.

[Waltzing]

Its priced against the 10 year yield...

and the market expects the NTA to come down.

it certainly run on the edge but so are all the PIE's in NZ.

DIC snop loves going over the numbers on These might fill you in with his tables.

Suggest you read his posts on Listed Trusts.

[SailorRob]

Its priced against the 10 year yield...

and the market expects the NTA to come down.

it certainly run on the edge but so are all the PIE's in NZ.

DIC snop loves going over the numbers on These might fill you in with his tables.

Suggest you read his posts on Listed Trusts.


Cheers Waltzing

[ronaldson]

5% rally today for ARG, and NZX over 11000 again. Perhaps the bottom is in unless Putin goes crazy?

[Waltzing]

yes keep hangin out for 1.10 but will we get it?

it sails close to the win this little house on the hill...cash flow looks tight..

next set of statements will be interesting.

Times like these one actually has to start reading stuff..

[Rawz]

yes keep hangin out for 1.10 but will we get it?

it sails close to the win this little house on the hill...cash flow looks tight..

next set of statements will be interesting.

Times like these one actually has to start reading stuff..

reading? cant we just rely on the ole "property always goes up" mantra

[Waltzing]

""property always goes up" mantra

boy that would be good... and maybe its actually right cause the dirt stuff doesnt get made very often and its a dangerous thing to be around when it does.....

:scared:

need a few more inflation shocks and the market panics some more...but as rates hick up the market shakes out the remaining who want to go for fixed income yield.


https://www.stuff.co.nz/business/money/300721499/anz-house-prices-likely-to-fall-27

[ronaldson]

Closing price down to 117.5 today after trading 119 - 120. Interesting standoff now with buyers at 117.5 and sellers very thin on the ground at 122 and gapping to 130.

Half year result announcement next week should be interesting and tell a tale how it is. Plus, we are due an RBNZ OCR announcement I believe.

[RTM]

Interesting week, or start to week, for ARG coming up so I thought I would take a look at the properties I own.
I see this term: "Passing Yield" against each one.
Does anyone have a definition of how Argosy is calculating this ?
I have done a brief Google...which left me a little confused.

https://www.argosy.co.nz/properties/

[winner69]

Interesting week, or start to week, for ARG coming up so I thought I would take a look at the properties I own.
I see this term: "Passing Yield" against each one.
Does anyone have a definition of how Argosy is calculating this ?
I have done a brief Google...which left me a little confused.

https://www.argosy.co.nz/properties/

As I understand it Passing Yield (sometimes known as Initial Yield) is basically the 'theoretical' yield at the time of purchase of the property - and generally rents as if fully occupied divided by purchase price. The real current yield might be quite different

Hope that helps (and hopefully I'm right)

[fungus pudding]

Interesting week, or start to week, for ARG coming up so I thought I would take a look at the properties I own.
I see this term: "Passing Yield" against each one.
Does anyone have a definition of how Argosy is calculating this ?
I have done a brief Google...which left me a little confused.

https://www.argosy.co.nz/properties/

Passing yield has become so misused over recent times, it's now best ignored or avoided. I'd like to see the terms 'gross yield' and 'net yield' more widely used.

[ronaldson]

In the ARG Annual report for y/e 31 March 2022 there is a statement that Argosy's " contract yield on values " is 5.23% and the yield " on fully let market values" (but the portfolio isn't fully let, so it's aspirational) is 5.43%. The reference to "values" is to the property values attributed collectively to the portfolio as at that date.

Then a little later there is a Table splitting out the portfolio into the three categories, Industrial, Office and Large Format Retail and attributing an average Passing Yield for each category, namely Industrial 4.67%, Office 6.04% and Large Format Retail 5.61%, and a weighted average Passing Yield across the portfolio of 5.23% which equates with the so called " contract yield on values " mentioned above.

Make of that what you will.

[Sideshow Bob]

https://www.nzx.com/announcements/402748

Key highlights for the period include:
• Net property income of $55.0 million, up 3.6%;
• Net distributable income of $32.9 million (flat on pcp);
• Adjusted Funds From Operations (AFFO) of $32.0 million, up 25.7%;
• Continued high occupancy (98.9%) and WALT (5.5 years);
• Strong portfolio leasing and rent review outcomes over the first half of the year, including 2.6% annualised rental growth on rents reviewed;
• Modest $23.5 million revaluation loss resulting in a decrease in NTA per share to $1.72 from $1.74 at 31 March 2022;
• Continued successful focus on sustainability and progressing green developments; and
• Unchanged FY23 dividend guidance of 6.65 cents per share, a 1.5% increase on the prior year

[winner69]

Good increase of 1.5% in dividend on the cards this full year

[Gerald]

$1.45B equity which market is valuing at ~$1B suggests the 1% writedown is pretty light. Who is willing to buy stuff on a 4-5% cap rate when you can get 4% on govt bonds?

Interesting exercise to look at the debt maturities, guess what they would refinance at then look at forecasted FFO. If interest rates aren't a heck of a lot lower by 25/26 the dividend could get a bit of a haircut.

[ronaldson]

In August 2022 the funding tenor, including green bonds, was 3.8 years. The Annual report confirms the average weighted interest rate as of 31 March 2022 was 4.14%. This half year result records total debt to assets is 32.5%, greater than as of 31 March when it was 31.1%. However, the average over the last 5 full years was around 35% so the current number is still lower than recent history. Not sure how much interest rate hedging will impact all this but it may mitigate some of the initial impact of rising rates.

The early market indications after this release are that the share price is under pressure having been reasonably solid in the lead up. And although most should have factored in tomorrow's OCR increase, I guess the actual announcement will not help.

The commercial property market is a different animal from residential and the release acknowledges recent sales evidence upon which to base the revaluation exercise is sparse. Inflation means the actual replacement cost of the portfolio is ever increasing so I see that as underpinning value and the current minor write-down may not be out of place.

[RTM]

$1.45B equity which market is valuing at ~$1B suggests the 1% writedown is pretty light. Who is willing to buy stuff on a 4-5% cap rate when you can get 4% on govt bonds?

Interesting exercise to look at the debt maturities, guess what they would refinance at then look at forecasted FFO. If interest rates aren't a heck of a lot lower by 25/26 the dividend could get a bit of a haircut.

Gerald...would we not expect the company to be fully on top of that and be adjusting rents accordingly ? The same or similar funding rate pressures, more or less, will be on all REITS. Or am I naive to think they will recover interest rate increases in corresponding rent
increases ?

[BlackPeter]

Gerald...would we not expect the company to be fully on top of that and be adjusting rents accordingly ? The same or similar funding rate pressures, more or less, will be on all REITS. Or am I naive to think they will recover interest rate increases in corresponding rent
increases ?

It is a market. Anybody can ask for as much rent as they like, but landlords only will get the market rate. If they ask for more they will get nothing (i.e. sitting on empty premises).

Increasing interest rates make it less likely that customers are able to pay a higher rent ... and dropping property prices mean that competing landlords are even able to offer lower rents.

That's one of the reason REITS go down when interest rates go up.

The other reason is that REITS income is compared to bond income. If bonds pay higher interest rates, REITS are expected to pay higher dividends. Given that they can't do that, REITS Share prices are adjusted accordingly.

[ronaldson]

As a shareholder I have now received by email the half-year Financial Statements and the accompanying presentation.

Total Bank and Bond debt at 30 September is $736.6m, being Green Bonds $325m (maturing 2026-2028, with interest rate fixed) and Bank Debt $411.6m. The weighted average interest rate is now 5%, up sharply from 4.14% at 31 March. Given the interest rate on the Green Bonds averages around 3% the interest rate of bank debt must be quite considerable.

Then there is the information that the average rate of Active Payer Swaps is 3.59%, with the weighted average duration of such Swaps being 3.0 years. I presume the Swaps are interest rate hedges on borrowings but someone much more knowledgeable than me would have to analyse/explain the forward impact of these on the above numbers.

[ronaldson]

Wow - Market took off in the last hour of trading - up 6c in that period to close at 125.5. Perhaps someone has heard the OCR will only be up .5% tomorrow?

[dibble]

Cant just do what they like with existing leases (WALT is 5.5 years so on average maybe on 20% of the leases pa they can try their luck). Poke your revenue-growth-stick around the rent review profile, $83m subject to review, but only 9m to CPI, bulk ($47m) is fixed increase, rest is "market" whatever that means in this environment. Perhaps if enough leases in entire NZ property base are CPI that might give "market" a wee lift but new tenancies might counter that if vacancies head north. Match all that to debt expiry to try and guess how much increasing int rates will eat into div yield.

Might be some interesting distortions to amuse watchers. Or maybe everything just stays the same.

[ronaldson]

ARG back down to close at $1.21 - considering the OCR rise of .75%, even though well signaled, that is still reasonably solid in relation to recent market pricing of this share, so perhaps the storm has been weathered?

But good comment above dibble.

[ronaldson]

Substantial Product Holder Notice filed by ACC today. Given these need to be submitted on NZX if an existing holding over 5% of shares on issue increases or decreases by more than 1% they often provide an interesting window into how traders at the big end of Town are operating.

Here between the last Notice given on 3/11/20 and todays Notice as at 8/2/23 their trading desk sold 17.531m ARG at an average of $1.535c and purchased 27.204 ARG at an average of $1.43c. While the math is favorable as a buy/sell outcome they will be wincing at today's on-market pricing of $1.14/$1.15c. Not so different to the rest of us currently!

[ronaldson]

31 million shares traded on market today at a VWAP of 111.5c. The next SPH Notice/s should be interesting! A major holder selling down and someone with a fat wallet buying.

[winner69]

31 million shares traded on market today at a VWAP of 111.5c. The next SPH Notice/s should be interesting! A major holder selling down and someone with a fat wallet buying.


Maybe something to do with Adjust Trading day thing

Like $640m of EBO shares changed hands as well

[ronaldson]

The market is a fascinating animal. Like going to the zoo, the more you look the more you see. Yesterday 31m ARG changed hands at 111.5c and today the share is happily trading at 115c. Go figure.

Agree with winner69 (and I looked at the daily turnover in EBO - massive) that the Adjust session leads to significant trading at the end of the particular session presumably as institutions amend their weightings or rebalance index holdings but curious that the price would then immediately move over 3% as ARG has today when the pricing in the days leading up had been relatively stable. Do folk perceive an overhang of potential sellers has now gone, or is it just a delayed reaction to the concept that the necessity for sharp OCR rate rises has abated somewhat?

[ronaldson]

Another day at the zoo. On Friday this share closed at 106.5c and today (Tuesday) it closes on good turnover at 113c.

With a relatively stable property company market moves of that magnitude in a couple of trading days absent any real news make no sense really. I suppose there are investment managers out there with a vested interest in ARG who need the market price to hold up at least until the close on 31 March.

I note the most recent quarterly dividend is actually paid tomorrow so that will be timely for some, myself included.

[Waltzing]

most of the COMP props had big turner over today.

[Sideshow Bob]

Article in the NZ Herald/ODT (paywalled) about Argosy picking up over the last year that Ezibuy was a tenant 'under stress' by its declining sales

Suspect they'll be looking for a new tenant soon....

https://www.nzherald.co.nz/business/ezibuy-classed-tenant-at-risk-a-year-ago-by-nzx-listed-landlord-argosy-property/EZ7PUPW4KRFSXA3MDHRC7SVZ7E/

[winner69]

Article in the NZ Herald/ODT (paywalled) about Argosy picking up over the last year that Ezibuy was a tenant 'under stress' by its declining sales

Suspect they'll be looking for a new tenant soon....

https://www.nzherald.co.nz/business/ezibuy-classed-tenant-at-risk-a-year-ago-by-nzx-listed-landlord-argosy-property/EZ7PUPW4KRFSXA3MDHRC7SVZ7E/

Apparently found one already ..... they can't say who yet will all be disclosed in due course ... like some exciting retailer

[ronaldson]

Quite a loss on the annual property revaluation as at 31 March 2023 disclosed today, particularly as only a smallish portion of that was taken in the half year reporting to 30 September 2022. Seems the decline in value has accelerated significantly in the second half do doubt driven by the sharp rise in the OCR. No surprise that office and large format retail have suffered more than industrial.

NAV now down to $1.57 per share from $1.74 as at 31 March 2022 (when the debt to asset ratio was under 32% - doesn't say what it is now but surely must be a few % higher). However NAV at 31 March 2021 was $1.53 so a modest increment still over that 2-year timeframe.

Will be interesting when the dividend projection is announced for FY24. Income from rents should be up, particularly those with CPI indexing, but interest outgoings incurred will jump too.

[Sideshow Bob]

Craigs last research note (Nov 22) estimated that ARG used more fixed rents reviews than its peers (76% of properties) so rental rate increases would fall behind the CPI.

[fungus pudding]

Craigs last research note (Nov 22) estimated that ARG used more fixed rents reviews than its peers (76% of properties) so rental rate increases would fall behind the CPI.

What does 'used fixed rent reviews' mean?

[Habits]

What does 'used fixed rent reviews' mean?

I would say a defined method such as cpi adjustment with a minimum amount every year or two, on review date. Then a market rent review less frequently

[fungus pudding]

I would say a defined method such as cpi adjustment with a minimum amount every year or two, on review date. Then a market rent review less frequently

Fixed rent reviews is fair enough, but the 'used' bit isn't so clear. Maybe it's just a poor word choice? Nearly all leases provide for a review - usually to market, or as you say cpi adjustments with market reviews periodically.

[Sideshow Bob]

What does 'used fixed rent reviews' mean?

FYI I said "estimated that ARG used more fixed rents reviews than its peers"

Perhaps a poor choice of words, but Craigs indicated fixed rent reviews were more common with ARG than other LPT's.

[SailorRob]

https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank

The following factors are influencing the CRE sector today:


Interest rates are up substantially. While some borrowers benefit from having fixed interest rates, roughly 40% of all CRE mortgages will need to be refinanced by the end of 2025, and in the case of fixed-rate loans, presumably at higher rates.

Higher interest rates call for higher demanded capitalization rates (the ratio of a property’s net operating income to its price), which will cause most real estate prices to fall.

The possibility of a recession bodes ill for rental rates and occupancy, and thus for landlords’ income.

Credit is likely to be generally less available in the coming year or so.

The concept of people occupying desks in office buildings five days a week is in question, threatening landlords’ underlying business model. While workers may spend more time in the office in the future, no one knows what occupancy levels lenders will assume in their refinancing calculations.

[bull....]

https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank

The following factors are influencing the CRE sector today:


Interest rates are up substantially. While some borrowers benefit from having fixed interest rates, roughly 40% of all CRE mortgages will need to be refinanced by the end of 2025, and in the case of fixed-rate loans, presumably at higher rates.
Higher interest rates call for higher demanded capitalization rates (the ratio of a property’s net operating income to its price), which will cause most real estate prices to fall.
The possibility of a recession bodes ill for rental rates and occupancy, and thus for landlords’ income.
Credit is likely to be generally less available in the coming year or so.
The concept of people occupying desks in office buildings five days a week is in question, threatening landlords’ underlying business model. While workers may spend more time in the office in the future, no one knows what occupancy levels lenders will assume in their refinancing calculations.



which put div's under pressure when debt is repriced ( i dont think rates going back to 2% ) if not compensated by revenue increases. companies in this space with huge debt levels relative to revenue will suffer most

[Sideshow Bob]

https://www.nzx.com/announcements/411537

Key highlights for the period include:
• Net property income for the period of $112.8 million, up 7.3%;
• Net distributable income of $64.2 million;
• High year end occupancy (99.3%) and WALT (5.4 years);
• $146.6 million annual revaluation loss, down 6.4% on book value, resulting in a net loss after tax of $80.8 million;
• NTA per share of $1.58 from $1.74 at 31 March 2022;
• Strong portfolio leasing and rent review outcomes, including 3.6% annualised rental growth on rents reviewed;
• Continued focus on sustainability with several green developments completed and 105 Carlton Gore Road nearing completion;
• A full year dividend of 6.65 cents per share, a 1.5% increase over FY22; and
• FY24 dividend guidance of 6.65 cents per share.

[winner69]

HeyBob, Not much of a pay rise who hold for divie income …and no pay rise next 12 months

[ronaldson]

HeyBob, Not much of a pay rise who hold for divie income …and no pay rise next 12 months

Yes, in a high inflationary environment it isn't a satisfactory outcome. I noted that the interest expense increased by $10.7m on a prior year comparison and no doubt more to come in FY24 as rate increases continue to flow thorough. Weighted average was 5.39% compared with 4.14% as at 31 March 2022.

Net distributable income was static at just over $64m and I doubt growth is expected in FY24 even if net property income improves due to interest costs and other inflation effects.

And $66m of assets said to be for sale "as they no longer meet the investment criteria", which as always begs the question why they were acquired in the first place.

[LaserEyeKiwi]

Inflation is enabling a rent surge higher, hence the nice increase in rental income.

Important to remember that rental income wont drop when the interest rate cycle reverses, but the interest costs will.

The math should be obvious on what that means for future “distributable income”

[Sideshow Bob]

HeyBob, Not much of a pay rise who hold for divie income …and no pay rise next 12 months

Around 6%, based on the current price of $1.10. Similar to a 1 year term deposit.

NTA is almost redundant isn't it. $1.58 NTA vs $1.10.

It's all about the income.

[Ggcc]

Inflation is enabling a rent surge higher, hence the nice increase in rental income.

Important to remember that rental income wont drop when the interest rate cycle reverses, but the interest costs will.

The math should be obvious on what that means for future “distributable income”
I used to rent a commercial property in Hawkes bay with rent linked to the rate of inflation. However there is only so high you can go until people can’t pay anymore, or they start looking at other options Ie working from home or warehouses.

Eventually I feel commercial properties will be a thing of the past, or only available in a few select areas in mega malls. For that reason I would never invest in the likes or Argosy.

[ronaldson]

Around 6%, based on the current price of $1.10. Similar to a 1 year term deposit.

NTA is almost redundant isn't it. $1.58 NTA vs $1.10.

It's all about the income.


I wonder what would happen if a shareholder resolution was put forward to sell the portfolio and distribute cash to holders?

After all, at a current dividend of 6.65cps it would take nearly 8 years to make up the difference between current share price and NTA.

And at 6% for a term deposit you would get over 9cps equivalent on a cash distribution at the NTA figure.

Pretty sobering really.

[Sideshow Bob]

I wonder what would happen if a shareholder resolution was put forward to sell the portfolio and distribute cash to holders?

After all, at a current dividend of 6.65cps it would take nearly 8 years to make up the difference between current share price and NTA.

And at 6% for a term deposit you would get over 9cps equivalent on a cash distribution at the NTA figure.

Pretty sobering really.

If their goal or driver is the standard corporate one of "maximising shareholder wealth" then the best thing to do would be to sell up and distribute the cash. Especially as a property company, they aren't out there with some altruistic driver, to 'save the world', or some greater good.

Given they've just written down their value, then those NTA values must be pretty recent, and must be able to realise something close to that figure.

The board would probably argue that they are there for 'long term' shareholder value blah blah blah.

Could be a good question at an AGM! :p

[ronaldson]

And I looked back, and at market close on 31 March 2013 (ie 10yr ago) ARG traded at 98.5c. So minimalist capital gain in the intervening period despite significant inflation/CPI increases over that time.

Do you think anyone who simply bought and held an individual property in any of the commercial, industrial or residential sectors did worse over that timescale?

The Board need to ask why? Something is wrong with the model and the execution.

[ronaldson]

For example, a better idea could be to sell the entire portfolio on-market whilst retaining the management rights. So holders would get the cash distribution but retain their ARG shares, maybe after a 1 for 20 consolidation, and still have a (much lesser) ongoing dividend stream?

[BlackPeter]

...
And $66m of assets said to be for sale "as they no longer meet the investment criteria", which as always begs the question why they were acquired in the first place.

Ever wondered why people are buying their first home just to sell it on later due to family growing, a new job in a different place or just a bigger budget? I guess really, with this knowledge they better would not have bought it in the first palace - right?

Same thing might happen to companies - they grow, the environment changes, the environment of their investment might change and the investment criteria might change and develop as well.

[ronaldson]

BP - These sale transactions are not transparent. There is no reporting as to whether acquiring then selling the particular property was a good or bad outcome for shareholders. We are told the gross sale price and how much it was above (occasionally even below) book value. Book value is a figure adjusted at each portfolio valuation, usually twice yearly, so hardly meaningful in the wider overview.

What would be good to know is what was the acquisition cost, how much capital expenditure was committed during the holding period, what was the annual rental income after maintenance, outgoings, and holding costs (interest and management overhead) each year, and costs of sale, depreciation recovered and so on. So how did it stack up? We never know.

See post #626 above. Why does this share trade at such a massive discount to NTA? What can be done about it? Would a merger within the sector enable costs to be taken out? And merely to suggest to the market that the Board were open to offers for the portfolio whilst retaining management rights would jump the share price at least 30c in a week? Of course that would ultimately be a major transaction requiring shareholder support but you get my drift.

[LaserEyeKiwi]

Why would you liquidate a property company at the bottom of the property cycle?

Now if we were somewhere that seemed like the top of a cycle (low interest rates, roaring economy, a sustained period of rising asset values) and a property company were still selling at a significant discount to NTA, then that would be the time for that conversation.

But liquidating at the bottom seems incredibly foolish. Instead it should be identified as what it actually is: A great time for accumulation.

[ronaldson]

You would do it to produce significantly more cash per share than the market is offering now and is likely to offer over the next, say, 2 years looking forward.

Then you would be able to invest that cash at the bottom of an economic cycle (doing exactly what you say - accumulating at a great time!)

[BlackPeter]

BP - These sale transactions are not transparent. There is no reporting as to whether acquiring then selling the particular property was a good or bad outcome for shareholders. We are told the gross sale price and how much it was above (occasionally even below) book value. Book value is a figure adjusted at each portfolio valuation, usually twice yearly, so hardly meaningful in the wider overview.

What would be good to know is what was the acquisition cost, how much capital expenditure was committed during the holding period, what was the annual rental income after maintenance, outgoings, and holding costs (interest and management overhead) each year, and costs of sale, depreciation recovered and so on. So how did it stack up? We never know.

See post #626 above. Why does this share trade at such a massive discount to NTA? What can be done about it? Would a merger within the sector enable costs to be taken out? And merely to suggest to the market that the Board were open to offers for the portfolio whilst retaining management rights would jump the share price at least 30c in a week? Of course that would ultimately be a major transaction requiring shareholder support but you get my drift.

I am pretty sure if you would get (e.g.) snoopy on it, he well might be able to find in the books some more of these data you seem to look for. Others are commercially sensitive, and there is a good reason for that.

At the end of the day however - why would it really matter? It would be anyway just a small historical piece of a constantly evolving jig saw puzzle.

Well managed REITS (like ARG) are a good and safe long term investment, paying reliable and sustainable dividends if bought at the bottom of a property cycle ... and they are a not such a good investment if bought at the top and sold at the next bottom.

Your capital (if bought at the bottom) will be safe as well - and NTA tends to rise (higher highs and higher lows).

In my view we are currently close enough to the bottom, so - I buy.

Might review my holding at the next Real Estate peak and have little stress and enough sleep during the time in between..

[BlackPeter]

You would do it to produce significantly more cash per share than the market is offering now and is likely to offer over the next, say, 2 years looking forward.

Then you would be able to invest that cash at the bottom of an economic cycle (doing exactly what you say - accumulating at a great time!)

Not sure how to put that, but if you are after really big gains (as well as losses), maybe you should consider crypto currencies, option trading or currency trading :) ... but give me first a chance to sell my shares :p ;

Apart from that - did you consider the tax implications of your proposal?

[kiwikeith]

Ronaldson you make a very good point and one that I have long pondered. Certainly you would have been better to have bought an average house in NZ in 2013 than put the same money into Argosy shares at the same time. The concern I have is that interest expense increased from $26 to $36m between FY 22 to FY23. However the interest bearing liabilities at FY end is $760m. The average interest rate (36/760) is around 4.7%. The fixed rates will need to be rolled over - over the next 4 years and we can expect much higher interest expense as they roll over.

[ronaldson]

Ronaldson you make a very good point and one that I have long pondered. Certainly you would have been better to have bought an average house in NZ in 2013 than put the same money into Argosy shares at the same time. The concern I have is that interest expense increased from $26 to $36m between FY 22 to FY23. However the interest bearing liabilities at FY end is $760m. The average interest rate (36/760) is around 4.7%. The fixed rates will need to be rolled over - over the next 4 years and we can expect much higher interest expense as they roll over.

The presentation accompanying the results announcement indicates the weighted average interest rate (on total debt and bond funding) is 5.39% v 4.14% for the prior year. I would expect (as you do) a further rise in such rate in FY24 so that will continue to pressure net distributable income (which in turn fell marginally in FY23 anyway), which is why the Board are not suggesting any increase in dividend. Interest bearing liabilities at 31 March 2023 were $763m v $700m for FY22, another factor in the equation to consider. Also, development risk is low at the moment with the completion of some significant projects including 143 Willis Street, meaning that interest paid which is capitalised into construction activity under the accounting rules should be proportionately lower this year.

[kiwikeith]

The presentation accompanying the results announcement indicates the weighted average interest rate (on total debt and bond funding) is 5.39% v 4.14% for the prior year. I would expect (as you do) a further rise in such rate in FY24 so that will continue to pressure net distributable income (which in turn fell marginally in FY23 anyway), which is why the Board are not suggesting any increase in dividend. Interest bearing liabilities at 31 March 2023 were $763m v $700m for FY22, another factor in the equation to consider. Also, development risk is low at the moment with the completion of some significant projects including 143 Willis Street, meaning that interest paid which is capitalised into construction activity under the accounting rules should be proportionately lower this year.

More good points Ronaldson. Yes the average of 5.39% ( which would incur $41m interest on the $763m of interest bearing liabilities) won't hold for too long as the ANZ pays 5.75% for a consumer term deposit at the moment.

Back to the comparison with residential estate. I have a friend who works in property management. She looks after over 50 houses and is paid a little over $60k pa. Argosy has 16 employees earning over $200k pa. Sounds excessive but I benchmarked with the other property companies and it was not out of line with peers (on a asset under management basis.)

[SailorRob]

How much cold hard cash does this company produce after all expenses and what is this number as a percentage of current market cap?

If you can examine the cash flow statement without vomiting, what do you come up with?

[winner69]

How much cold hard cash does this company produce after all expenses and what is this number as a percentage of current market cap?

If you can examine the cash flow statement without vomiting, what do you come up with?

OMG massive operating cash flow of $67m ….wow

More than enough to give shareholders the $54m dividend

[nztx]

OMG massive operating cash flow of $67m ….wow

More than enough to give shareholders the $54m dividend


A Revaluation Loss .. and a large one too - how on earth could that have happened ? ;)


must still be enough in the Non Cash Revaluation Slush fund, so it can be overlooked ..

[SailorRob]

OMG massive operating cash flow of $67m ….wow

More than enough to give shareholders the $54m dividend

Operating cash flow eh... And what expenses don't come out of that eh... Look back through this thread.

I said how much cold hard cash does this dog produce after ALL expenses.

[ronaldson]

On market close today at $1.155, up 3c with over 350k crossed at that price. Next 10k for sale at $1.17, a price touched intraday. Definitely some momentum here presently.

By contrast KPG fell 1c to $0.91. Must be someone seeing green shoots for ARG despite the current projection for no increase of dividend in FY24.

[winner69]

On market close today at $1.155, up 3c with over 350k crossed at that price. Next 10k for sale at $1.17, a price touched intraday. Definitely some momentum here presently.

By contrast KPG fell 1c to $0.91. Must be someone seeing green shoots for ARG despite the current projection for no increase of dividend in FY24.

ARG broke up through the 100 day MA the other day ……..bottom passed …….all good from here

[troyvdh]

PFI aint so shabby either...

[ronaldson]

Open at $1.18 this morning, up a further 2.5c. This is a big two day rerate for a listed property share. Sentiment has definitely shifted.

[Charlie]

It might seem that property prices have bottomed, and maybe, like retirement sector with lots of property, people are getting in early for the next few years when they might climb again ? looks like most stocks with property are bullish ?

[winner69]

Today’s decline in property stocks interest rate worries as many think interest rate rises still have a little bit further to go.

From Market Close -

The interest-rate-sensitive property sector was also weaker. Investore declined 4c or 2.76% to $1.41; Vital Healthcare Trust was down 5c or 2.09% to $2.34; Argosy shed 2c to $1.16; and Precinct decreased 2.5c or 1.95% to $1.255.

[Habits]

Today’s decline in property stocks interest rate worries as many think interest rate rises still have a little bit further to go.

From Market Close -

The interest-rate-sensitive property sector was also weaker. Investore declined 4c or 2.76% to $1.41; Vital Healthcare Trust was down 5c or 2.09% to $2.34; Argosy shed 2c to $1.16; and Precinct decreased 2.5c or 1.95% to $1.255.

GMT down half %
KPG down 1 %

Oneday they will rise like the phoenix

[SailorRob]

GMT down half %
KPG down 1 %

Oneday they will rise like the phoenix


Just as soon as they can generate cash net of all expenses and that cash as a % of the price you pay is enough to warrant someone buying a share.

[Habits]

Kpg is developing property which then gets revalued with a margin. Does that gain not count

[troyvdh]

And the costs of building these buildings...and the price of the land...is heading in the other direction....

[Baa_Baa]

Just as soon as they can generate cash net of all expenses and that cash as a % of the price you pay is enough to warrant someone buying a share.

Not saying you're wrong if you're looking at ultimate company performance, though there are plenty of folks happy to be invested in an, ARG 6.117% gross dividend yield and KPG at 7.344%. Many people I suspect are not interested in the 'perfect' investment, they look at what they've got invested, what it returns to them and say ... yeah, that's ok, or it's enough.

I doubt that many of those folks care too much about how they generate their income, NZ is a quite unique market focused largely on income, albeit perfect or not. Most of them have been screwed for a long time, the depositors and the low yield incomes have been really bad for quite a long time.

Anything at or above CPI will appeal to the many who have some of their portfolio leaning this way. Anything better than a bond or deposit will appeal to them.

It might not the perfect path to riches, but ponder that they may already be rich, or have enough, and just want a reliable income. This might not be your forte, but it is imo important to take into account. Not everyone is looking to smash it out of the park, fundamentally, technically, or any other which way.

[SailorRob]

Kpg is developing property which then gets revalued with a margin. Does that gain not count


No it does not.

[SailorRob]

Not saying you're wrong if you're looking at ultimate company performance, though there are plenty of folks happy to be invested in an, ARG 6.117% gross dividend yield and KPG at 7.344%. Many people I suspect are not interested in the 'perfect' investment, they look at what they've got invested, what it returns to them and say ... yeah, that's ok, or it's enough.

I doubt that many of those folks care too much about how they generate their income, NZ is a quite unique market focused largely on income, albeit perfect or not. Most of them have been screwed for a long time, the depositors and the low yield incomes have been really bad for quite a long time.

Anything at or above CPI will appeal to the many who have some of their portfolio leaning this way. Anything better than a bond or deposit will appeal to them.

It might not the perfect path to riches, but ponder that they may already be rich, or have enough, and just want a reliable income. This might not be your forte, but it is imo important to take into account. Not everyone is looking to smash it out of the park, fundamentally, technically, or any other which way.


I would totally agree with this IF the dividend is covered by actual cash generated by the business.

Otherwise there are thousands of examples of decent dividends being funded from other sources and this is not sustainable.

But these dividends are just paid out of ever increasing debt ultimately funded by ever increasing multiples, which has all fallen flat on its face.

If the dividends are sustainable and can be paid in perpetuity without taking on another cent of debt or equity or selling assets, then this yield is fine.

[Gerald]

I would totally agree with this IF the dividend is covered by actual cash generated by the business.

Otherwise there are thousands of examples of decent dividends being funded from other sources and this is not sustainable.


Made me think of OCA, but I guess that's a bit naughty :t_up:

[SailorRob]

Not saying you're wrong if you're looking at ultimate company performance, though there are plenty of folks happy to be invested in an, ARG 6.117% gross dividend yield and KPG at 7.344%. Many people I suspect are not interested in the 'perfect' investment, they look at what they've got invested, what it returns to them and say ... yeah, that's ok, or it's enough.

I doubt that many of those folks care too much about how they generate their income, NZ is a quite unique market focused largely on income, albeit perfect or not. Most of them have been screwed for a long time, the depositors and the low yield incomes have been really bad for quite a long time.

Anything at or above CPI will appeal to the many who have some of their portfolio leaning this way. Anything better than a bond or deposit will appeal to them.

It might not the perfect path to riches, but ponder that they may already be rich, or have enough, and just want a reliable income. This might not be your forte, but it is imo important to take into account. Not everyone is looking to smash it out of the park, fundamentally, technically, or any other which way.


Another comment would be that you can get better yields with safer bonds, no equity risk. So these folk you speak of would perhaps be much better off doing that.

[SailorRob]

Made me think of OCA, but I guess that's a bit naughty :t_up:


No, that's a fair comment.

[Rawz]

I would totally agree with this IF the dividend is covered by actual cash generated by the business.

Otherwise there are thousands of examples of decent dividends being funded from other sources and this is not sustainable.

But these dividends are just paid out of ever increasing debt ultimately funded by ever increasing multiples, which has all fallen flat on its face.

If the dividends are sustainable and can be paid in perpetuity without taking on another cent of debt or equity or selling assets, then this yield is fine.

Why would you want a REIT to only use cash to pay dividends?? Talk about wasting the balance sheet- poor shareholders.

A REITs assets will increase always, in the long run (see long term history as proof of property prices going up statement I have made lol).

If the REIT didn't continue to increase its debt alongside its ever increasing (long term) asset base then its debt to assets ratio would become insignificant and the balance sheet would be hopelessly lazy and inefficient

The manager is paid the big bucks to decide if it is better to return capital to shareholders or buy new property or develop etc. Issuing debt for all of these options is perfectly fine as long as the debt balance is in line with assets and equity..
Not sure why you dont get the logic behind this

[SailorRob]

A REITs assets will increase always, in the long run (see long term history as proof of property prices going up statement I have made lol).


Oh man, today I don't have time to deal with this BS...

We're not talking multiple expansion sport.

So where does this cash come from???

The value keeps rising proportionally more than the amount of cash the assets can produce??

Sounds like an amazing machine you've found here!

Only it does not seem to be working...

[SailorRob]

Why would you want a REIT to only use cash to pay dividends?? Talk about wasting the balance sheet- poor shareholders.

A REITs assets will increase always, in the long run (see long term history as proof of property prices going up statement I have made lol).

If the REIT didn't continue to increase its debt alongside its ever increasing (long term) asset base then its debt to assets ratio would become insignificant and the balance sheet would be hopelessly lazy and inefficient

The manager is paid the big bucks to decide if it is better to return capital to shareholders or buy new property or develop etc. Issuing debt for all of these options is perfectly fine as long as the debt balance is in line with assets and equity..
Not sure why you dont get the logic behind this



An asset that produces very little cash, but continually rises in value so that you can borrow more against it and pay that out.

Hell this sounds like Wayne and Sharleen's rental property!!

What an incredible idea.

[Rawz]

hmmm yes, you dont get it. that's okay.

[Aaron]

An asset that produces very little cash, but continually rises in value so that you can borrow more against it and pay that out.

Hell this sounds like Wayne and Sharleen's rental property!!

What an incredible idea.

It has worked really well for the last 30 years why do you think this will change?

[SailorRob]

It has worked really well for the last 30 years why do you think this will change?


Because multiples cannot continue to expand forever, it's just been one giant leveraged rates play.



14679

[Rawz]

be interested to know what the nominal (real rate) chart looks like......

at the moment inflation is paying off a good portion of the reits debt

[Rawz]

Because multiples cannot continue to expand forever, it's just been one giant leveraged rates play.



14679


be interested to know what the nominal (real rate) chart looks like......

at the moment inflation is paying off a good portion of the reits debt

here you go folks

not as dramatic as Sailor would have you think

https://www.longtermtrends.net/real-interest-rate/

[Aaron]

Because multiples cannot continue to expand forever, it's just been one giant leveraged rates play. 14679

When do you think it might end? As RAWZ says inflation is taking care of the debt at the moment, Adrian has asked the banks to set themselves up to deal with negative interest rates. Why do you think we can't continue down this road for a lot longer.

I agree it cannot continue forever and that negative interest rates are absurd but with suppressed interest rates and a 7% inflation a lot of REIT bonds on 3-4% don't mature for a few years (ARG030 2.2% matures 2027). 4years of 6% inflation takes care of 24% of your debt and if rents rise with inflation you could keep this game going for a long time. I do not see any inclination from the people in power to change things anytime soon, in fact a lot of "investors" are just hanging out until the pivot on interest rates and easy money which will happen before multiples are allowed to contract.

You seem very positive about a lot of things and I agree with you that it is not sustainable but I wonder why you think it might be coming to an end anytime soon? Based on the chart you posted, do you expect interest rates to keep rising? I think the levels of debt rule out that possibility. I have heard there are two options to deal with the debt which is default(rising rates) or inflate away the debt. Inflation is looking pretty good at the moment.

[SailorRob]

be interested to know what the nominal (real rate) chart looks like......

at the moment inflation is paying off a good portion of the reits debt


Only if inflation leads to higher nominal NET cash flows.

Inflation also ramps up all expenses...

If your income isn't keeping up then it wont help.

[SailorRob]

When do you think it might end? As RAWZ says inflation is taking care of the debt at the moment, Adrian has asked the banks to set themselves up to deal with negative interest rates. Why do you think we can't continue down this road for a lot longer.

I don't know the answer to that, and you are correct it could continue, I just would not bet on it.

I agree it cannot continue forever and that negative interest rates are absurd but with suppressed interest rates and a 7% inflation a lot of REIT bonds on 3-4% don't mature for a few years (ARG030 2.2% matures 2027). 4years of 6% inflation takes care of 24% of your debt and if rents rise with inflation you could keep this game going for a long time. I do not see any inclination from the people in power to change things anytime soon, in fact a lot of "investors" are just hanging out until the pivot on interest rates and easy money which will happen before multiples are allowed to contract.

Excellent points and could be correct.

You seem very positive about a lot of things and I agree with you that it is not sustainable but I wonder why you think it might be coming to an end anytime soon? Based on the chart you posted, do you expect interest rates to keep rising? I think the levels of debt rule out that possibility. I have heard there are two options to deal with the debt which is default(rising rates) or inflate away the debt. Inflation is looking pretty good at the moment.

Overall this is an exceptional post, well measured and thought out responses that I have little or no comeback to, other than that I have given it a lot of consideration and the range of possible outcomes are large.

I have no idea when it will come to an end and agree with you that large debt levels rule out much higher rates and I do not expect them to keep rising, not too much anyway.

I agree inflating away the debt is the only option.

Great post Aaron.

[SailorRob]

here you go folks

not as dramatic as Sailor would have you think

https://www.longtermtrends.net/real-interest-rate/


Yes rates are in fact deeply negative. They are not high at all.

This is why I have been highlighting the opportunity to borrow at negative rates and invest into productive assets.

There is WAY too much debt relative to productive capacity.

But you need incomes to keep up.

[SailorRob]

All I am highlighting is that so far what has driven these companies in essentially a Ponzi scheme where you need new investors coming in paying forever higher prices to pay out the existing ones, they do not stand on their own tow feet as cash producing entities like a normal company.

No different to residential property either.

The yields are incredibly slim but if the keep getting slimmer then you're fine.

If yields are not falling continually with rates then you have nothing to generate cash.

[Habits]

And the costs of building these buildings...and the price of the land...is heading in the other direction....

I would be very surprised if Kpg does not get an uplift between purchase price and current worth of Drury town centre.

[ValueNZ]

Yes rates are in fact deeply negative. They are not high at all.

This is why I have been highlighting the opportunity to borrow at negative rates and invest into productive assets.

There is WAY too much debt relative to productive capacity.

But you need incomes to keep up.
How much leverage do you use as a percentage of your portfolio, and what are the terms of the debt? The idea of being margin called and being forced to sell my shares is a sickening thought...

[ronaldson]

There is quite a tooth and claw struggle going on here over the last few days as to whether this share should trade above or below $1.18.

Total volume today was 790k at a VWAP of $1.177 with 317k traded at market close. No buyers above $1.16 and no sellers below $1.19 now.

The idea taking root that a further OCR raise may be more likely than not doesn't really seem to have taken the gloss off ARG up until now. Next week will be an interesting watch if you are a holder.

[ronaldson]

There is quite a tooth and claw struggle going on here over the last few days as to whether this share should trade above or below $1.18.

Total volume today was 790k at a VWAP of $1.177 with 317k traded at market close. No buyers above $1.16 and no sellers below $1.19 now.

The idea taking root that a further OCR raise may be more likely than not doesn't really seem to have taken the gloss off ARG up until now. Next week will be an interesting watch if you are a holder.


And just like that we have a close on solid turnover at $1.21 and no sellers until $1.25. Definitely resolution on the upside, and although I am realistic about tomorrow I think this new level will be sustained this week.

[Waltzing]

Yes some firming up of the SP.

Still some more OCR hikes to come in the states but maybe none here?

[winner69]

ARG share price all over the place these days

Just like that it’s down to 118.5 again

[SPC]

And then it's back up to $1.21!
Definitely looking like a winner 😃

[Snoopy]

Just doing a little valuation exercise on 'property under management'.



Over FY2021IndustrialOfficeLarge Format Retail
Total


Argosy @ EOFY2021$985mas$812.7m$213.2m
$2,010.9m


Argosy @ EOFY2020$842.8mas$752.2m$270.0m
$1,865m


Argosy average over FY2021$913.9mas$782.5m$241.6m$1,938m


Portfolio distribution47.1%as40.4%12.5%100%


Annual Rent Review Change+3.1%as+4.3%+2.2%+3.3% (overall)



From AR2021 p13

ACQUISITIONS AND VALUE ADD DEVELOPMENTS
"A highlight during the year was the strategic acquisition of two contiguous industrial properties in Mt Richmond, Auckland, in October 2020 for $76 million."

Does this indicate that industrial property is going to be the 'sweet spot' going forwards?

"Securing these strategic sites within a prime industrial precinct with historically very low supply levels makes sense. It allows us to be ready and responsive to changing demand patterns, not just now, but in the years ahead."


Just updating my little valuation exercise on 'property under management'.




Over FY2023IndustrialOfficeLarge Format Retail
Total



Argosy @ EOFY2023$1,128mas$811m$206m$2,145m



Argosy @ EOFY2022$1,127mas$857m$223m$2,208m



Argosy average over FY2023$1,128mas$834m$215m$2,177m


Portfolio distribution51.8%as38.3%9.9%100%


Annual Rent Review Change+3.4%as+3.5%+4.7%+3.6% (overall)



From AR2023 p18

VALUE ADD DEVELOPMENTS

a/ 105 Carlton Gorge Road, Newmarket, Auckland; $35m refurbishment (4 level office, 1st floor still to lease)
b/ 10.6ha green field development at Mt Richmond, Mt Wellington, Auckland: (industrial, under development)
c/ Neilson Street, Onehunga, Auckland: (office/industrial, under development)

In addition, 25 Nugent Street Auckland was sold for $22m (a 28% premium to book value) and $66m worth of additional properties are up for sale as they no longer meet Argosy's investment criteria.

SNOOPY

[Waltzing]

66 million buys you what these days in industrial development per S/M?

not area have any expertise in...

[ronaldson]

And just like that we have a close on solid turnover at $1.21 and no sellers until $1.25. Definitely resolution on the upside, and although I am realistic about tomorrow I think this new level will be sustained this week.

So it was sustained last week, and now we have over 500k trading at market close today at $1.22. Looks to me to have become established in the low $1.20's and could go as high as $1.25, maybe as early as later this week as other property stocks are moving on up as well.

Cum the quarterly pie dividend of 1.6625cps currently but actual payment is still a long way off at 27 September, so I don't see that as the driver. Rather the market has reassessed, as this share was trading at $1.11 on 31 March 2023 so up 10% in the four months since.

[Waltzing]

GMT had a some big Vol also... end of month Insto investing....

[Grimy]

Month end rebalancing.

[winner69]

ARG share price struggling to get too far into the 120’s

10 Year Govt not far off 5% …and possibly heading higher to levels seen in GFC times

That would be a negative for share price

[Waltzing]

YUP more pain to come... and some very interesting articles on money supply in the UK... but is inflation actually on the wane and central banks over cooking the tightening?

[ronaldson]

So it was sustained last week, and now we have over 500k trading at market close today at $1.22. Looks to me to have become established in the low $1.20's and could go as high as $1.25, maybe as early as later this week as other property stocks are moving on up as well.

Cum the quarterly pie dividend of 1.6625cps currently but actual payment is still a long way off at 27 September, so I don't see that as the driver. Rather the market has reassessed, as this share was trading at $1.11 on 31 March 2023 so up 10% in the four months since.

I didn't really get this right. Too optimistic when a dose of pessimism seems to have taken root now across the wider market. I think the substantial reduction in the farmgate price by Fonterra has given everyone pause for thought about what lies ahead. A few wage settlements will have improved the mood for those who benefit directly but they are also inflationary and make another OCR interest rate rise more likely, probably after the election as despite the so-called independence the RBNZ decisionmakers are in my view still overly sensitive to political nuance.

[Waltzing]

RBNZ hike again? kidding the rural sector wont handle it....

cant see ARG SP going anywhere for a while its failed to cross 1.25 even when offering PIE income.

[ronaldson]

Price sag to $1.17 currently.

I wonder what it will close at today?

[winner69]

Price sag to $1.17 currently.

I wonder what it will close at today?

10 Govt fraction under 5%

[ronaldson]

Died in a hole at $1.13 at close today. No discernable buy interest, despite being cum dividend. A symptom of wider market malaise just now.

I can't see this general circumstance improving until the election result is ascertained, preferably on a clear-cut two-party basis rather than a wider arrangement where no one will know how it is to be going forward. This country needs a relatively stable coalition with clear direction.

[ronaldson]

Died in a hole at $1.13 at close today. No discernable buy interest, despite being cum dividend. A symptom of wider market malaise just now.

I can't see this general circumstance improving until the election result is ascertained, preferably on a clear-cut two-party basis rather than a wider arrangement where no one will know how it is to be going forward. This country needs a relatively stable coalition with clear direction.

Another failed prediction, since ARG is back trading at $1.20 barely a week after. The market doesn't seem to know its own mind sometimes. 7c difference for a basic property stock which is quite liquid in the marketplace in that time, absent any relevant news, indicates someone dropped the ball/got a bargain depending upon whether you sold/bought.

[ronaldson]

ARG gone all weak at the knees today, no doubt on the back of Nationals tax policy release which signals an intention to close out the "tax break" of depreciation deductibility on commercial and industrial buildings.

This has become something of a political football in recent times, having existed as an appropriate accounting methodology for an extended period of time before being removed (under National?) earlier in this millennium, then reinstated by Labour from 1 April 2020 as part of measures to provide relief to businesses during the Covid-19 pandemic. So I guess now likely to be gone from 1 April 2024.

I looked at ARG's Financial Statements for y/e 31 March 2023 to try to establish the potential impact. I am not accounting qualified, but it seemed to me that the impact on the tax liability for that year, given the 28% corporate tax rate, was a reduction of $9.6m. So quite a hit to the bottom line from FY25 if a deductibility for depreciation is removed. If anybody sees the implication/my figure differently, please post.

[winner69]

Did ARG go ex divie or something for the dip in its share price

Only a few weeks ago was 124 …..115 now is a bit brutal

[Onemootpoint]

Ex div is 12 Sep I believe.

[Soolaimon]

The political noise at the moment is affecting property shares big time, could be buying oppertunity, who knows?

[winner69]

Jeez, Snoopy pn another thread suggesting ARG share price could go under a buck ....if this or that happened

I'd buy at under a buck ...hoping not to lose in doing so

[Snoopy]

Jeez, Snoopy pn another thread suggesting ARG share price could go under a buck ....if this or that happened

I'd buy at under a buck ...hoping not to lose in doing so


Actually I agreed with Bob50 that ARG could go under a buck 'all things continuing to be equal'. But then I carefully pointed out that I did not expect 'all things to continue to be equal' and other factors influencing the share price would most likely come into the valuation equation.

SNOOPY

[winner69]

Actually I agreed with Bob50 that ARG could go under a buck 'all things continuing to be equal'. But then I carefully pointed out that I did not expect 'all things to continue to be equal' and other factors influencing the share price would most likely come into the valuation equation.

SNOOPY

OK..you should know by now my comprehension not the best lol

ARG did spend 2014 to 2018 hovering around $1 plus or minus a bit ……and interest rates weren’t at ridiculously low level during that period

So maybe a buck is on the cards again

[winner69]

Morningstar data shows total shareholder returns (dividend reinvested etc) over last 8.5 years has been about 3.5% pa ……$1,000 invested May 2015 now worth $1,300

May15/ May 16 share price ranged from $1.05 to $1.18

Doesn’t seem right

[ronaldson]

ARG gone all weak at the knees today, no doubt on the back of Nationals tax policy release which signals an intention to close out the "tax break" of depreciation deductibility on commercial and industrial buildings.

This has become something of a political football in recent times, having existed as an appropriate accounting methodology for an extended period of time before being removed (under National?) earlier in this millennium, then reinstated by Labour from 1 April 2020 as part of measures to provide relief to businesses during the Covid-19 pandemic. So I guess now likely to be gone from 1 April 2024.

I looked at ARG's Financial Statements for y/e 31 March 2023 to try to establish the potential impact. I am not accounting qualified, but it seemed to me that the impact on the tax liability for that year, given the 28% corporate tax rate, was a reduction of $9.6m. So quite a hit to the bottom line from FY25 if a deductibility for depreciation is removed. If anybody sees the implication/my figure differently, please post.

Snoopy on the Listed Property Trusts thread calculates, correctly in my view, that the hit to the bottom line from removal of depreciation is 1.13cps from 1 April 2024, based upon the depreciation incurred/applied for FY23.

The dividend guideline for FY24 is 6.65cps and AFFO per share for FY23 was only 6.86c so the payout ratio to AFFO is very high. A 1.13cps reduction in AFFO is a proportionately serious outcome for holders, indicating a high probability of a dividend reduction beginning in FY25. This would significantly depress the share price further, particularly if interest rates remain elevated, as they surely will in that timeframe. And that is without factoring in the extra interest costs yet to fully flow through to the debt carried by ARG.

With an NTA of $1.58cps the Board would do well to explore the potential for a comprehensive divestment of the entire portfolio, perhaps to a sovereign wealth fund, and wind up. That would likely be a financially acceptable non-taxable outcome for holders, who could then reinvest the payout. Divestment would remove the current market risk from the retail and office components of the portfolio, and development risk inherent in the various projects. It would be an interesting exercise to explore this, which need not incur great expense, and put it to a shareholder vote. This is not as radical a suggestion as it may seem, but an active approach to delivering shareholder value.

[SPC]

Totally agree with the last paragraph but good luck getting the board to agree.
Turkey's don't vote for an early Christmas.

[Baa_Baa]

The past couple of years have been tough on capital value (SP), but over 20 years, ARG is still above 8% p.a. return. These REIT's are cash machines, they consistently payout dividends to shareholders. Selling the cash machine might suit some who consider success to be the market price, but it won't suit most of the investors who enjoy the regular cash payouts.

[Waltzing]

Its a capital gains tax in any other form and one wonders how Act will square it and how National will explain it to the accounting profession. After all if you HIT comp props what next... where does it start and end.

Dont think ARG will shut shop on this and there could be some strong lobbying that hasnt started yet...

All commercial prop owners may simply up the rents..

[ronaldson]

Last minute buyers at the close today at $1.12 to capture the quarterly dividend. Trades ex-dividend tomorrow so if we are lucky will open at $1.105 but that could be optimistic!

[winner69]

I shouldn’t have joked about ARG at around a buck again ….heading there …but as long as the ATM isn’t broken no worries

[Aaron]

I shouldn’t have joked about ARG at around a buck again ….heading there …but as long as the ATM isn’t broken no worries

If there is a valid argument that ARG has not grown its dividend then why would you accept a 6.427% dividend yield (Gross per NZX today) when you can get over 7% for the bonds on the secondary market?

I had thought that traditionally you demand a higher yield for equity than debt as it carries a lot more risk?

[ronaldson]

Over 1.5m shares traded at $1.16 at market close. I believe it's the extended "Adjust" session today, but a big number and a good price by comparison with recent trading activity!

[ronaldson]

Another "Leasing and general update" announcement. A bit underwhelming, I thought, although under current conditions probably all leasing outcomes are a positive. Apologies for my inadequacies in not being able to post a link as others can.

The NIWA arrangement for an extended lease of space at 82 Wyndham Street seems to be still conditional, and they are vacating a similar amount of space at another Argosy building at Viaduct Harbour which will need to be filled so hard to calculate if it represents rental gain even if there are other positives. While the 105 Carlton Gore Road development has now been completed it doesn't say when the two new tenancies advised actually commence.

We are closing on the half year balance date, 30 September. It will be interesting to understand how the interim valuations stack up, and if NTA has fallen further. The market price per share has reverted to around $1.10. Given the constrained economic/financial situation this country confronts I don't see any election outcome combination being immediately positive for this sector and holders will need to wait on a fall in interest rates, which is hardly imminent, for relief.

[ronaldson]

Well, we now have the interim valuations at half year, 30 September, and a 2.3% decrease on book value with NTA now about $1.52 per share.

By comparison with KPG for the comparable period which has reported a similar decline, 2.4%. Interestingly ARG's office portfolio component recorded a 3.6% decline which contrasts with the 5.8% attributed by KPG. Although these are both "desktop" assessments it may imply credibility to ARG's focus on green property assets in this market and the assertion that in turn such buildings may rent more readily and at higher m2 rates.

Gearing remains at 36%. With the loss of depreciation deductibility and the increase in interest rates, and with hedges running off, the sector is going nowhere fast along with the share price for the foreseeable future.

[ronaldson]

Buyers at $1.09 and Sellers $1.10 is indicative of further share price slippage just now. For the reasons outlined in #707 above not much improvement can be anticipated.

I think the restoration of depreciation deductibility on commercial buildings cannot be realistically expected as a priority in the current economic circumstances, and not much else on the horizon is at all hopeful to turn this around.

I am not even sure the dividend can be maintained in FY25, and likely NTA will continue to fall. We are fortunate dividends are paid as PIE income which helps the yield calculation v non-pie income.

[winner69]

Jeez, 1.055 is pretty low ……esp relative to recent highs

But some might say current price about right?

[kiwikeith]

Jeez, 1.055 is pretty low ……esp relative to recent highs

But some might say current price about right?

The last trade today was 105.5c but the ask was 108c at the close. It will be interesting to see where it opens tomorrow.

[ronaldson]

Down to $1.04 and has traded at $1.03. Considering you are supposedly getting $1.52 NTA per share this is a steep discount.

One thing I can't reconcile is that Jarden say the yield is 6.86% at this price whereas the actual annual dividend is only 6.65cps which given the share price is over $1 doesn't compute. Anyone know how the Jarden figure is reached?

[Sideshow Bob]

Down to $1.04 and has traded at $1.03. Considering you are supposedly getting $1.52 NTA per share this is a steep discount.

One thing I can't reconcile is that Jarden say the yield is 6.86% at this price whereas the actual annual dividend is only 6.65cps which given the share price is over $1 doesn't compute. Anyone know how the Jarden figure is reached?

Just a guess, but is it based on a taxpayer paying 33%, given it is a PIE?

[777]

PIE's usually are straight net against price

6.65/104 gives 6.394% div yield

Jardens/Direct Brokerage state 6.39%.

Note I am using the old DB site.

[bull....]

8.74% with imputations

[777]

8.74% with imputations

Imputations are not constant every payment. Last payment Imputations were 10x what they were in the previous payment.

And the credits are only of use if your tax rate is 17.5c/$ or less.

[ronaldson]

Hmmm - Thanks for the responses. In trying to answer my own question I now see Jarden assert the dividend is 7.2c rather than the actual 6.65c, which probably underpins the 6.86% calculation - so why would Jarden do that?

[winner69]

Hmmm - Thanks for the responses. In trying to answer my own question I now see Jarden assert the dividend is 7.2c rather than the actual 6.65c, which probably underpins the 6.86% calculation - so why would Jarden do that?

Seems they included imputation credits of .548 cents .. 6.652 + .548 = 7.20

[ronaldson]

Seems they included imputation credits of .548 cents .. 6.652 + .548 = 7.20

Winner/All - Exactly correct. The aggregate of the last four quarters Imputation Credits equals that additional amount. It is a bit confusing because the IC varies each quarter according to how much of the divvie comprised excluded income.

[ronaldson]

Trading at $1.13 this morning with sellers at $1.15, so a bit of a run up lately. I wonder if the coalition negotiations will preserve the deductibility of depreciation on commercial/industrial buildings? That would be a major positive for the sector.

[SPC]

That's my thinking. No other explanation comes to mind.

[ronaldson]

Well the coalition agreements took us no further regarding deductibility, and any buy-side support has fallen away.

Ex dividend and trading at $1.07 is definitely not inspiring!

[kiwikeith]

They should come out with a valuation update soon. Published one on the 20th April 2023.

[kiwikeith]

26/4/2024, 12:02 pm GENERALArgosy Property Limited (‘Argosy’) today announced that for the 12 months to 31 March 2024, it has recorded a full year portfolio revaluation loss of $111.7 million, a 5.4% decrease on book value. Of this decrease, $50.8 million was recognised in the 30 September 2023 interim result.

Overall cap rates softened by 37 basis points to an average of 6.21% and this was a primary driver in revaluation decreases. By sector, Industrial decreased $51.2 million or 4.8%. The Office portfolio declined by $49.9 million or 6.1%, and Large Format Retail declined by $10.6 million or 5.1%. The portfolio is 8.6% under-rented, excluding market rent on developments. More detail is provided in the appendix to this release. Based on the provisional revaluation announced today, Argosy’s adjusted NTA would be approximately $1.45 per share compared to $1.58 as at 31 March 2023.
The valuations as at 31 March 2024 remain subject to audit by Deloitte and will be confirmed in the financial results to be announced to the market on 22 May 2024.

[ronaldson]

Valuation loss rate increased quite a bit in HY2. We may not have seen the bottom in the Wellington office market in particular yet either.

While we are told about the relationship between sales price of those properties divested and the most recent book valuations there is never any analysis vis a vis the original acquisition price and yield achieved on that during the holding period, and the actual divestment price net of costs, so we holders can see the real outcome achieved on our behalf. I wonder if even Board members actually know.

These companies tend to buy at cyclical highs and then sell at cyclical lows for debt management purposes or even more specious reasons. Does anyone think these entities outperform a traditional buy and hold single or multi property investor over a timeframe of years?

[kiwikeith]

Valuation loss rate increased quite a bit in HY2. We may not have seen the bottom in the Wellington office market in particular yet either.

While we are told about the relationship between sales price of those properties divested and the most recent book valuations there is never any analysis vis a vis the original acquisition price and yield achieved on that during the holding period, and the actual divestment price net of costs, so we holders can see the real outcome achieved on our behalf. I wonder if even Board members actually know.

These companies tend to buy at cyclical highs and then sell at cyclical lows for debt management purposes or even more specious reasons. Does anyone think these entities outperform a traditional buy and hold single or multi property investor over a timeframe of years?

They probably do not outperform a single property investor due to significant overheads. Argosy, for example, has 16 employees earning over $200k a year. A single property investor probably does all the property management activities himself in his spare time. However the listed property companies do provide the benefits of diversification (ie risk spread over several properties), liquidity (ie you can sell your shares in less than 5 minutes) and convenience (ie you wont be phoned up at 8pm on a Friday night to be told the roof is leaking.).

[ronaldson]

Close today at $1.12 after trading as low as $1.075 earlier and mostly below $1.10 all day.

I have noticed that to trade low on market during the day and then at significantly higher (ie by 2 or 3 cents or more) during the close match pricing auction is something of a feature of this stock for some time now, and I don't really understand why when players could pick stock up cheaper without much trouble beforehand.

[SPC]

Normal strategy for a large buyer or insto to lurk in the background and strike on the closing bell. Avoids sellers hiking prices earlier in the trading day. Catch the afternoon napping sellers by surprise.
Probably mopped up those quantities at a range of prices, up to final price at close.

[kiwikeith]

Well Arg comes out with its annual results tomorrow morning. It has already signaled that there will be a $112m property writedown. That is already known by the market so in itself should not move the needle. I guess most retail investors will be most interested on any indications for dividends for the next financial year.

[ronaldson]

Well Arg comes out with its annual results tomorrow morning. It has already signaled that there will be a $112m property writedown. That is already known by the market so in itself should not move the needle. I guess most retail investors will be most interested on any indications for dividends for the next financial year.

True. The loss of the ability to claim depreciation will be impactful so the question is can the dividend be maintained for FY25 (the June quarter payment is still FY24 as far as ARG is concerned), and if not then how much will be offered/suggested. The Board will recognise most holders are seeking income so will try to hold it steady but I noted at least one other property company has already guided lower.

[Sideshow Bob]

https://www.nzx.com/announcements/431439

Argosy Property Limited (‘Argosy’ or the ‘Company’) has reported its results for the 12 months to 31 March 2024.

Key results for the period include:• Net property income for the period of $116.5 million, up 3.3% on the prior comparable period;
• $111.7 million revaluation loss for the 12 months to 31 March ($50.8 million recognised in the first half), down 5.4% on book value, contributing to a full year net loss after tax of $55.3 million;
• Net distributable income of $55.8 million vs. $64.2 million for the prior comparable period;
• Sound portfolio metrics, with occupancy at 96.7% and WALT of 5.2 years;
• NTA per share of $1.45, from $1.58 at 31 March 2023;• Portfolio gearing steady at 36.5%, near the middle of the target band of 30-40%;
• Divested four non Core assets for $93.1 million, achieving above book value;
• Successful portfolio leasing and rent review outcomes, including 3.5% annualised rental growth on rents reviewed and 85% tenant retention rate;
• Execution of strategy, including obtaining 6 Green Star Built and 5.5 NABERSNZ certification on 8-14 Willis Street, commencement of 224 Neilson Street targeting 6 Green Stars and continuing the company’s portfolio transformation and progress to a 50% green portfolio by 2031; and
• FY25 dividend guidance of 6.65 cents per share, in line with the prior year.

[kiwikeith]

Good place to work. I just had a browse at the annual report. Argosy appears to have 36 employees, of which 19 earn over $200k a year.

[ronaldson]

True. The loss of the ability to claim depreciation will be impactful so the question is can the dividend be maintained for FY25 (the June quarter payment is still FY24 as far as ARG is concerned), and if not then how much will be offered/suggested. The Board will recognise most holders are seeking income so will try to hold it steady but I noted at least one other property company has already guided lower.

Well, dividend guidance for FY25 has been maintained at the current 6.65cps albeit with some cautious comments around economic conditions generally. Payout will require to be at the very high end of expected AFFO to achieve that so let us hope no reason arises subsequently to resile from that guidance.

[kiwikeith]

Well, dividend guidance for FY25 has been maintained at the current 6.65cps albeit with some cautious comments around economic conditions generally. Payout will require to be at the very high end of expected AFFO to achieve that so let us hope no reason arises subsequently to resile from that guidance.

Argosy says it expects its dividend payout ratio to be at the top end of the 85-100% of AFFO - over a 3 year rolling period. In 2023 the ratio was 97% and 2024 it was 96%. So conceivable they could pay out 105-106% of AFFO for 2025 and still keep the rolling 3 year average under 100%.