Just for you mate.
https://www.bing.com/videos/search?q...F78B&FORM=VIRE
Are they good buying at the current level ?
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Just for you mate.
https://www.bing.com/videos/search?q...F78B&FORM=VIRE
Are they good buying at the current level ?
Valuation Metrics FY2021: Earnings Precinct Properties Argosy Vital Healthcare Properties Stride Property Group Kiwi Property Group Normalised Profit (After Tax) {A} $59.8m $48.324m $36.010m $56.076m $83.773m Market capitalisation 31-12-2021 {G} $2,647.6m $1,351.5m $1,818.9m $1,139.8m $1,876.3m Normalised PER 31-12-2021 {G}/{A} 44.3 28.0 50.5 20.3 22.4 Shareholder Equity (EOFY) {B} $2,220.6m $1,280.635m $1,503.451m $1,017.786m $2,134.786m Gross PIE equivalent Dividend Yield (EOCY2021) 5.10% 5.65% 3.74% 5.07% 6.63% Gross Income from rentals {C} $168.1m $111.522m $113.622m $127.563m $232.436m Net Operating Profit Margin {A}/{C} 35.6% 43.3% 31.7% 44.0% 36.0% Bank and Bond Debt (EOFY) {D} $1,052.7m $754.521m $929.3m $303.029m $1,048m MDRT {D}/{A} 17.6 years 15.6 years 25.8 years 5.4 years 12.5 years
Notes
1/ Adjusted gross income from rental revenue:
1a/ PCT: I have removed $31.7m in expense recoveries from profit, and re-expressed that as an 'expense reduction' (see post 375).
1d/ SPG: $66.428m+$25.057m+$36.078m = $127.563m. I have included $25.057m of external company management fees that form part of the Stride business model. I have also included $36.078m of proportional rent revenue from equity investments (see note 5 on post 375 on this thread).
1e/ KPG: I have removed $1.547m of property management income, and offset that against management expenses (see post 375).
Discussion
The way I see things, It comes down to this. Would you rather buy an 'office' investment company which has:
a/ The lowest 'Operating Expense to Operating Asset Ratio.'?
b/ A competitive 'Gross PIE Equivalent Dividend Yield', supported by the lowest actual dividend payout ratio compared to earnings? (except for KPG which reduced its dividend payout over the initial Covid-19 period).
c/ The highest Return on Shareholder Equity? (refer post 387)
d/ The largest market discount compared to underlying earning ability? (refer post 399)
e/ The largest net profit margin? AND
f/ The lowest debt in relation to earnings?
.....The company I am talking about is Stride Property Group by the way, in case you have got this far and not figured it out ....OR
Would you rather buy an alternative Office Facility holding vehicle that is inferior in EVERY measure (except Gross PIE Equivalent Dividend Yield), referring to the a/ to f/ listed above.
Stride is so far ahead of the chasing pack, I am not sure it matters who they are. Argosy looks like nosing ahead of Precinct Properties with Vital Healthcare Properties bringing up the rear. I want to make clear that I am not a property investor 'per se', and so I came into this comparative analysis green with no shareholding in any of the above. My first reaction to a result like this is that I must have made a mistake. In an efficient market, there is no way one of the protagonists should be that far in front in my comparison stakes. So for any of you property gurus reading this please find my error and I will fix it. However, I have slept on the matter and found 'no issues'. So I shall arrogantly assume I am right, and carry on. (Edit: I had miscalculated the 'gross yield' of Stride, because the way the dividends were laid out on the NZX website was not consistent, and also the SIML and SPL tax treatment for yield was different. Looking up the original Stride material, I have corrected the error which decreased the gross yield I had previously reported numerically, and relative to the others).
Argosy looks better among this lot than amongst those 'big box' competitors. But I am having trouble stomaching the displayed high debt burden of each of the protagonists, bar SPG. As far as the MDRT measure for debt goes, my rule of thumb says that if you take an MDRT figure in years then:
years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern
Following this rule, the debt levels at Argosy, Precinct Properties and Vital Healthcare Property and yes, even the Kiwi Property Group, are a 'cause for concern'. I know it is common to leverage up on property more than other asset classes. But MDRT = nearly 26 years at VHP? Are they for real? Given VHP have a 17 year average lease term, I suppose they are. But with VHP trading at a gross interest return of under 4%, VHP is just too expensive to warrant further scrutiny for potential investment by me. I wonder if the current market price for VHP is just reflecting the fashion for 'all things health'?
The fact that I deem four of these protagonists too expensive on the debt scale, could be because I am not familiar with what 'normal' debt in a property investment company is. Yet I note that when Precinct Properties and Vital Healthcare Properties wanted to expand over FY2021, they went back to shareholders for more funds. That would suggest that these companies, at least, are 'mortgaged to the max', and discounted shares offered to the market for the next expansion are likely to be around the corner. Argosy at a gross yield of 5.65% has my attention, given it is a full PIE status vehicle. By contrast, parts of the SPG dividend (the non-SPL bit) will be taxed at an investors full marginal rate. PCT looks to be paying a lot more dividend than their underlying income allows, This is consistent with a potential dividend cut coming on an already on a far from generous gross yield rate rate of 3.43% (refer post 387).
My verdict:
1/ SPG is invest-able, albeit no bargain, at a gross yield of around 5%.
2/ ARG would be a reasonable bit of office owning diversification, particularly as it is a full PIE and has a dividend reinvestment plan.
Also rans (there is no third place!)/ Forget about PCT and VHP. They are good companies, but priced out of the investment market at today's inflated share prices by my value equation (look at the debt risk in post 407).
Note that SPG and ARG are currently trading at a discount to adjusted equity, but PCT and VHP do not (post 399)
KPG is harder to judge in this company. Don't pay too much attention to any historical 'bottom of the pack' gross dividend yield . That is an historical effect of reducing dividend payments from the retail shutdown with forced store closures from Covid-19 over our study period. Yet dividends are expected to reduce in the short term once the shopping malls at Northlands in Christchurch and the mall at Palmerstion North are both sold. Superficially KPG looks like relative value, and the debt levels are below the industry norm. However management have indicated they plan to ramp up spending as the holistic community vision (incorporating residential towers, with shops and offices) development plan kicks into action. It strikes me there is significant execution and ongoing management risk in suddenly taking on hundreds of domestic dwellers as long term residential tenants. Perhaps that risk is why KPG trades on the market at the largest discount to unadjusted net asset backing? Purely on this snapshot view (and disregarding their somewhat chequered history of building shareholder value), I would take KPG as a 'spread the risk' investment punt, mainly because it trades at a discount to adjusted equity (post 399).
SNOOPY
discl: do not hold any of the above shares under discussion
As a special Sunday present to you Beagle, I have relented and included KPG in my 'Toffs into Offs' 'Office Investment' comparison series. All posts (375, 384, 387, 399 and 402) have now been rewritten and updated to include KPG. I think it must be my most extensive cross company comparison to date. I can't even be accused of bias as I don't hold any of them! Plenty to 'chew over' in there as you crunch down on your Sunday saveloy in your dog dish. Happy reading.
SNOOPY
Fantastic comparison of the property companies. Well done Snoopy
Debt in the commercial property sector could be view as against the properties structural life times rather than say debt in retail sector operations.
However note that WHS and HLG have no term debt.
Land and Buildings are usually seen as bankable from the lenders perspective.
Therefore the RISK profiles of there Term LIAB might be viewed by the lender in a different light.
Investment bankers used to call this GEARING as Mike Faye used to say walking around the office.
Gosh those were the days of champagne and Melbourne cups...
Just glancing at the paintings of champion sires.
What a good Beagle doggie you are, thank you...and just the other day I questioned if there might be some poodle breeding mixed into you, shame on me :blush:
Too many bones to chew over at once but on a quick sniff over your amended work I am not surprised at all to see KPG's management expense ratio is by far the highest. It would seem they're especially good at patting themselves on the back for worst of sector performance over the medium to long term. Cheap for very good reasons I've barked about in that thread. Excellent growth in just one area of their business model, staff remuneration lol
25-40% gearing for commercial property with a good spread of tenants is good business practice in my view as it gives better return on equity employed.
Time to look a bit closer at the debt position of our five companies.
Gearing = (Bank and Bond Liabilities)/(Capital Employed)
Valuation Metrics FY2021: Debt Precinct Properties Argosy Vital Healthcare Properties Stride Property Group Kiwi Property Group Normalised Profit (After Tax) {A} $59.8m $48.324m $36.010m $56.076m $83.773m Market capitalisation 31-12-2021 {G} $2,647.6m $1,351.5m $1,818.9m $1,139.8m $1,876.3m Shareholder Equity (EOFY) {B} $2,220.6m $1,280.635m $1,503.451m $1,017.786m $2,134.786m Bank and Bond Debt (EOFY) {D} $1,052.7m $754.521m $929.3m $303.029m $1,048.000m Capital Employed (EOFY) {C} $3,456.4m $2,156.779m $2,662.56m $1,383.618m $3,366.311m Gearing ratio {D}/{C} 30.5% 35.9% 34.9% 21.9% 31.1% MDRT {D}/{A} 17.6 years 15.6 years 25.8 years 5.4 years 12.5 years
What is of interest here is the debt position of a company in relation to its asset base (gearing ratio), verses the debt position of a company to its income base (MDRT).
With interest rates crashing in the Covid-19 pandemic, the ability to service debt has increased (providing that is your income did not crash as a result of the Covid-19 pandemic as well!) So to some extent, gearing has become less relevant, even if I do note that the gearing ratios of these companies remain within Beagle's 'capital efficient' ball park limits of between 25-40% (the naughty exception being 'Stride' who have not borrowed enough, tut tut!). The ability to service debt by income is a different matter.
I haven't yet gone fully into AFFO which is meant to be some 'proxy for profit' of property companies. Without even opening Chapter 1 of the explanatory notes, I know I don't like AFFO though. My mind casts across to the power sector where assets with a life stretching out to maybe hundreds of years are 'depreciated' according to accounting rules. This creates a mismatch between profit and cashflow. So I fully understand these power generators managing their businesses on a cashflow basis. Yet I don't see an analogous position with property companies.
I think Waltzingironman's comment on looking at buildings in terms of their structural life (inferring that is a long time), and the fact that banks see buildings and land as 'bankable' assets comes to the fore here. I have seen multi-story buildings 'stripped to their shells' and repurposed (the old Post Office Administration Building recycled into the new City Council Offices here in Christchurch for example). But that would be a rare success. I think most repurposing is more complex - for example transforming office space into residential apartments with all the associated change in plumbing requirements. Then there is the 'restoration' of the 'Theatre Royal' in central Christchurch. Let's not mince words here. This is a completely new building, built behind the old facade with the original front of house staircase and some interior detailing -like the theatre boxes- put back in. Don't get me wrong. I see that rebuild as 'a good thing', because the original 'Theatre Royal', especially the behind the stage facilities for the performers, was an anachronism. But the point I am making is that, facades apart, very few commercial buildings are 'fit for purpose' with the passing of years. The Christchurch earthquakes simply accelerated the repurposing that was desirable. Thus depreciation for building owners is a 'real thing', because construction and repurposing costs tend to -if anything- go up faster than general inflation. And the 'commercial structural life' for many buildings is rather less than the 'building code structural life' for the same. I guess the saving grace for a business district building is that there will always be a buyer, even if the 'remodeling exercise' to bring a building site 'up to date' starts with the touch point of a wrecking ball.
This means I am back to seeing MDRT or EBITDA/I or AFFO/I (these are all similar because 'I' is correlated with the size of the debt) as the more critical measurements in looking at debt serviceability. If you have land and buildings on it, then surplus property can always be sold off (although if it was truly surplus and you were doing you fiduciary duty as a director, then surely that surplus property would have already been sold off before the property company even looked like getting into trouble). I am not sure I would want to be selling off property in a genuine deep property recession. Despite the 'rules of thumb' on gearing levels, my inkling is that much attention would be paid to the cashflow to avoid at all costs the selling off of property to square up a gearing ratio.
SNOOPY
Mr B is on the front lines these days..
Just quoting how M Faye operated in the Golden days and how com property was valued by investment banks and the model probably hasnt changed much.
its bankable stuff in NZ... those land and buildings portfolios ...
Dont think any of these new buildings in auckland and central Golden Triangle are going to be stripped down any time soon.
Dont think ARG is going to be buying any old theatres anytime soon.
The above post was written in May 2021.
Now the FY2022 year is closed off, I thought it might be worth revisiting what did happen to those dividend payments over the financial year.
Payable dividend date Amount {A} Imputation {B} Imputation Percentage (i) {B}/({A}+{B}) Gross Dividend {A}+{B} 30th March 2022 1.638cps 0.120cps 6.83% 1.758cps 22nd December 2021 1.638cps 0.072cps 4.21% 1.710cps 29th September 2021 1.638cps 0.138cps 7.77% 1.776cps 23rd June 2021 1.613cps 0.000cps 0.0% 1.613cps Total FY2022 6.527cps 0.330cps 4.81% 6.857cps
Note
(i) For a fully imputed dividend, the imputation percentage is 28%
I calculate the backward looking gross dividend, based on Friday's closing share price of $1.37, to be: 6.857/137= 5.005%
If I go to the ARG page on the NZX website, the gross yield displayed is 4.967%. I am not quite sure why there is a difference, although I do recall that sometimes the NZX website 'rounds off' dividends when they display them on their site (that would put my gross yield calculation slightly out).
However, since ARG is a PIE, unitholders don't normally concern themselves with tax matters as it is all done for them. The maximum PIE tax rate is 28%. This means Argosy unitholders can consider themselves as being taxed at the equivalent of 28%, because the net dividend they receive is not subject to any further tax. In actuality ARG does not pay tax at 28%, because not all of their income is taxable. However, this matters not one jot to the Argosy unitholder if they compare the dividend they receive with other dividend yielding investment opportunities in the market. Using this alternative logic, the gross return earned by Argosy unitholders over FY2022 was:
(6.527/0.72) / 137 = 6.617%
Or if you are a 33% taxpayer
(6.527/0.67) / 137 = 7.110%
The above looks like the way Beagle sees it. So why does the NZX see the gross yield for ARG very differently, at just 4.967%? Who has the right number?
SNOOPY
ARG was a big buy back in april 2020....
2020......
time to find a new horizon....
something that will "Fill ya Boots" as WH Turner was fond of saying ... well at least in the movie...
I have gone back through the original ARG dividend announcements and, sure enough, the dividends and imputation credits as displayed on the NZX website have been rounded. The unrounded figures appear in the table below:
Payable dividend date Amount {A} Imputation {B} Gross Dividend {A}+{B} 30th March 2022 1.6375cps 0.119884cps 1.757384cps 22nd December 2021 1.6375cps 0.072027cps 1.709527cps 29th September 2021 1.6375cps 0.138124cps 1.775624cps 23rd June 2021 1.6125cps 0.000cps 1.6125cps Total FY2022 6.525cps 0.330035cps 6.855035cps
The gross dividend yield calculation based on the unrounded figures is now: 6.855035/137 = 5.004%
This is a tiny difference which has not explained how the NZX gross yield figure of 4.967% was calculated.
SNOOPY
well if you all missed out on buying in when it was dirty cheap in april 2020
is it a BUY NOW?
not yet is likely the answer from MR B but the Market just keeps BUYING Land and Buildings no matter what.
then there are those who just keep banking those DIVs and know that one day inflation will abate maybe not for a few years but...
what goes up ...
Latest investor news wasn't a bad read. About 50% of their portfolio is industrial. Chart suggests its making progress on forming a bottom in the late 130's here.
"About 50% of their portfolio is industrial. "
yes wonder if people had realised that because they have not got a lot of retail.
wise move and of course the reval of NTA will include that increase in the value of commercial property in the upper north island.
Notice the expansion of industrial sites south of Hamilton now appearing on the new motor way.
What was COW country is now turning to large warehouses on the wakatoo plain.. look pretty ugly but shows just how far south of Hamilton is starting to build out into farm country.
The fight for land use is really starting to hot up.
With TD's starting to push up over 3% low 1.30 looks possible when the FED hicks up fast.
reload looks possible and there are some punters waiting at 1.30 already.
Yes I am watching closely. Annual report date is 19 May. Current price gives a gross return of just on 7% for 33% taxpayers and 7.7% for those paying 39%. I have some moderate interest in getting back into a reasonable sized holding if it holds about these level's and they can confirm dividend guidance for FY23. Probably wait for the annual result and have a think about it after that. I don't think there's any great rush upwards with this one anytime soon.
OK, I think I have solved this problem. I had a look at ARG on the NZX website and, lo and behold, the dividend yield was listed as 5.005% (which I take it to equal the 5.004% that I had previously calculated within rounding error). However in the interim the share price had gone up by 1.5c, which should have reduced the gross yield from Friday's 4.967% reported yield. Huh? Then it hit me in a blinding insight on what must be going on here.
That 5.005% gross yield reported on Monday is the gross yield from Friday, but reported on a one day delay basis on the closing share price from the previous trading day. If the quoted yield was actually live, changing throughout the day, then it would cause havoc for anyone referencing the data. If you were comparing yields across different companies, for example, then it would depend on what time of day you referenced the figures, as to the relative results you would get. Furthermore you would not be able to get consistency if a sharebroker and an accountant, for example, wanted to liaise on tax matters by mining data on a particular client investment, if that data feed kept changing.
If my explanation is correct, then the 4.967% gross yield quoted on Friday, must have been derived from the closing ARG share price on the day before - Thursday. On Thursday 31st March the ARG share price closed at $1.38. Using this figure the historical gross yield on ARG shares was:
6.855035 / 138 = 4.967%
And yes, that is the exact yield figure quoted on the NZX website on Friday April 1st! This gives me some confidence that my explanation for the apparent yield discrepancy is correct. One more mystery solved!
SNOOPY
Yields shown are net yield Snoopy. Its a PIE.
The burgle horns sound at the Hunt as the horses chase after the Hounds...
South Waitako actually has a Hunt compound...
" confirm dividend guidance for FY23"
Yes that is the stuff we want to know for sure!
Since entry in one portfolio was 1.17 we still hold but 2 other entities are waiting for some again..
If big warehouses are going up on COW land south of Hamilton you know there is a land problem.
Are you talking about the Argosy page on the NZX website where the figure of 5.004% is quoted as the gross dividend yield Beagle?
Refer to my post 411 and you will see where the figures come from
6.855035/137 = 5.004% (Gross dividend yield)
6.525/137 = 4.762% (Net dividend yield)
So it looks to me as though the number presented (5.004%) and labelled on the NZX website as the 'Gross dividend yield' is in fact the 'Gross dividend yield' (funny that :-P)
SNOOPY
ARG is paying 4 x 1.6375 cent quarterly dividend payments = 6.55 cps. On $1.38 closing price today that's a net tax paid yield of 4.746%. Its a PIE (Portfolio investment entity) so these are fully tax paid dividends and regardless of one's personal tax rate an investor pays no more tax on these distributions. A fully tax paid yield of 4.746% is the same as a 7.08% gross yield for a 33% taxpayer (4.746 / 0.67) or a 7.78% gross yield for a taxpayer with a marginal tax rate of 39%, (over $180,000 personal income) (4.746 / 0.61).
These yields are considerably better than some other yields in the property market including the vast majority of direct property investments, all of the retirement sector companies and most of the other property investment companies on the NZX (KPG excepted).
In addition the stated asset backing as at the half year is $1.64 so these trade at a material discount of ~16% to NTA and about half their assets are industrial property.
Not too shabby. I presently only have a very modest stake. if it goes a bit lower I might lift that.
The fourth quarter dividend for FY2022 is only a promise. It has not been paid yet. But we will go with your assumption that it is 1.6375c and not 1.6125c which woudl match what happened last year. Given that assumption I do not have a quibble with your maths. Then you go on to say something extremely perceptive (my italics)
"A fully tax paid yield of 4.746% is the same as a 7.08% gross yield for a 33% taxpayer (4.746 / 0.67) "
"The same as a 7.08% gross yield " is exactly the right way to phase things. Because if you had asked me who pays the tax amounting to 7.080%-4.746%= 2.334% amounting to 2.334%/7.080% = 33% of the gross payout deducted as tax, then up until last week I would have told you Argosy. In addition Argosy, in normal (non PIE) circumstances, would also deduct a withholding tax to make sure that I 'the shareholder' ended up being taxed at the right rate (which is 33%, because the company tax rate is 28%). However, this is the wrong answer.
If you look at post 409 you will see that the imputation rate paid on all dividends over the year was just 4.8% out of a possible total of 28% (if Argosy was paying tax at the full corporate rate). So the correct answer to my question is that no-one paid this missing tax the Argosy shareholders have been gifted with of the PIE status of Argosy - because the income wasn't taxable in the first place. OK that is a slight simplification of the truth. A 4.8% imputation rate represents 4.8%/28% = just 17.1% of a normal company tax liability. This means the 'strictly correct answer' to my question is that Argosy paid 17.1% of the 'full imputation tax due' and nobody paid the other 82.9%, which evaporated in a puff of smoke as a 'phantom tax.'
If all this sounds like nit picking, it is nit picking for a good reason. From a 33% tax rate shareholder perspective, our shareholder receives a 'gross dividend equivalent return' of 7.08%. But the actual 'gross dividend return' as listed on the NZX website is 5.004%, which despite being the correct 'gross dividend return' is actually very misleading of the gross return shareholders can expect, and considerably understates the 'gross shareholder return'.
The moral of this story is that if you use the term 'gross return' with a PIE, it pays to be very prescriptive of what you are talking about.
SNOOPY
To me the PIE situation underscores the merits of investment in ARG. 7.08% effective gross rate and a decent discount to NTA along with the knowledge that ~ 50% of their asset are in the most favored industrial sector
To me the PIE situation underscores the merits of investment in ARG. 7.08% effective gross rate and a decent discount to NTA along with the knowledge that ~ 50% of their asset are in the most favored industrial sector along with a 16% discount to NTA seems like a pretty good deal to me.
You can say that again 😉
Happy holder since 2010...
It is correct that the four quarter dividends for y/e 31 March 2022 are scheduled to be paid at 1.6375cps, but they are always declared and paid in arrear for the prior quarter just past, so the next payment in June will be at that rate and be the '' final " for that 21/22 annual period. That will give the stated 6.55cps for that 12 month period, on which yield can be calculated if you disregard the timing issue.
Thereafter the Company has committed to adopting an AFFO based dividend policy, where the Board cannot state with any degree of certainty their intentions in advance other than to confirm a policy of paying a particular % of AFFO and at least the "final " dividend each year is likely to be tweaked to reflect the true AFFO financial result. Some projections/graphs were provided in the most recent half year report ( or was it y/e 2021? ) which were indicative in my view that a higher total cps annual dividend going forward was not only plausible but likely. Of course there are the impacts of Omicron and rising interest rates to consider but in the near term at least interest rates are mostly hedged and there are minimal vacancies with most rentals CPI adjusted on review, which bodes well.
So it is the forward yield which is more relevant than the historic yield, given the announced change in dividend policy. It would be good receive the thoughts of Forum members about that.
You never know but after this morning announcement by Jamie D COMP PROPS might have a low SP to NTA for a while. Could see some shocks in the market if FED has to tighten more than expected into 2024. Remember it was all temporary?
These SP's could be hit for a while to come.
The only oddity was the high SP handles in 2007-08 in relation to OCR rates.
Wonder if MR B has considered this but perhaps it was just the effect of securitization but that was a US market phenomenon and should not have effected NZ.
Was it simply a side effect of human emotion in relation to markets and wont be a factor this time round.
If it was simply a one off then COMP PROP sp handles could stay low for a few years to come .
Higher DIV offset by rising interest rates.
If that happens its just keep accumulating Mr B?
Would rather accumulate this if SP stays low and DIV increases then go retail.
A Proxy for the market without having to buy the underlying individual shares. Also gets you a return from corporate and govt rental and private industrial and commercial business sectors.
Can it get any better than that MR B?
Almost as good or complimentary to WHS with less risk for a slightly lower DIV.
Yes there's no shortage of bricks for the wall or worry however I think ARG are well positioned and investors look to be earning somewhere around 5% net in FY23. I think that's reasonably attractive but there's no obvious catalyst for the shares to be rerated anytime soon. I think its a yield story.
Page 30 of last years presentation covers off the change in dividend policy. I think its more than a little opaque as their new policy is anywhere from 85-100% of AFFO. A fairly wide range there. http://nzx-prod-s7fsd7f98s.s3-websit...406/346272.pdf
No question that we're in for a fairly long period of enduring inflation, I simply don't buy the argument its transitory anymore. Rising long term interest rates are also a headwind for Cap rates which will impact valuations in due course, maybe not this year, so I foresee the current discount to reported NTA as simply front running that rising cap rate outlook.
I think this one comes down to are you happy with little prospect for share price gains in the medium term and simply accepting a ~ 5% net return.
" little prospect for share price gains"
no reason to go overweight then....
a back stop for DIV with lower risks only.
a counter balance hedge then.
CNBC inflation being described as "supercharged"
Yeah I think that sums it up. A modest portfolio allocation to this one makes sense to me. I am currently well and truly underweight in this so might look to adjust that after the annual result.
Agree we are in for some enduring inflation.
Won't all of Argosy's assets inflate in value more or less at the inflation rate over time ? It mightn't be instantaneous, but is that an issue if one is invested for the longer term...say > 10 years (all going well )
Meaning it would be a lot better to hold them (and here I really mean any REIT) rather than cash ?
No question about that over the timeframe you mention. In the short term its less clear. The NTA of these is calculated as a function of the annual rent capitalized using market rate considerations for what's the right capitalization rate. The extent to which investors demand higher rates of return on property investment, raising the cap rates, affects the market value of the buildings. It helps a lot that ~ 50% of ARG's properties are classified as industrial because they enjoy the lowest cap rates as they're the type of property that's most in demand.
I think ~ 5% net is a pretty decent return and as rents go up so should that return so there's at least a partial element of inflation proofing depending upon how many of their leases are linked to CPI adjustments and what others to market rates.
Long story short these are probably as boring as bat**** but there's a place for a slice of super boring stocks in one's portfolio.
Thank you Mr B and FP,
For me, boring is great. I have more than enough ‘interesting’ ones here and there.
Mr B, sometime you might like to think about what would happen if Mr B was out of action for 12 months or so,
How would Mrs B cope ? Boring would be great then..
ARG is a boring share indeed - holding and adding since 2009
ARG 1.40!!!!
where is the bottom now!!!
1.30 looks a long way away ...
will we see a 3 on the 10 YR as it moves past 2.6.
FED indicating faster tightening surely the COMP PROPS have to crack soon to the down side..
or are investors going to ignore the elephant in the room?
obviously they cant see one...
And that maybe why the most posted threads are REST HOMES!!!
the most boring places to reside but the hot gossip of the investor world in NZ...
in the rest homes and villages PROPERTY is still probably the most talked about investments!!!
Don't know mate. Tough call to make. We live in "interesting" times.
We live in "interesting" times...
well it may be a long winter then.
Even a mention to those in tribal nations.
https://www.cnbc.com/2022/04/05/-key-people-from-the-fed-just-spooked-the-markets-heres-what-they-said.html
might be a case of Slowly Slowly catchy monkey... money...
Looks like Res property is still going up...
will commercial property land do the same ... probably.
https://www.stuff.co.nz/business/128...arket-downturn
I was surprised to see in Craigs latest quarterly these are actually on a 'reduce'!
(dont hold)
They probably have some clients who want to buy more on the cheap :)
... but yeah, not sure - at the moment they are clearly in a downtrend (SP below all relevant MA's) and no doubt - there are risks associated with interest rates rising, the real estate bubble deflating and shops (i.e. some of their customers) moving online ...
Discl: watch, but don't hold either
Rising Rates as Deposit yields tick up.
Notice MR B got out with a handsome profit ages ago. 2 tops above 1.60 was a sell..
reduce 2/3's age ago. If they hit into the low 1,20's its a load up for PIE DIV again.
They dont have a lot of retail as they are moving to industrial and that started a while back.
More of a balanced property manager.
Seems a good buy
http://nzx-prod-s7fsd7f98s.s3-websit...638/368842.pdf
Waltz be impressed ...investing the Waikato
Vendor probably more than happy getting $33.1m (4.3% yield)
WIN WIN for all concerned
well winner() shows they got left behind as there are some big projects out along the new motorway which now has it big signs up heading into hamTron from Tamahere.
Retirement Villages also springing up in the Central WakaToo.
The small towns south of Hamilton will have traffic problems as they were never designed for Growth!!!
Havnt seen a hit to the SP handle as one would have though. Wondering if NZ is a small country with limit land and finding the right location will keep COMP PROPS from devaluing like residential is.
In just north of Landskrona a whole town sits empty waiting for new occupants. It might now be full of refugees from Ukraine!
No such empty towns in NZ except perhaps on the West Coast south island!!
"Site 3.25 hectares with 8,100m2 of future development land"
"Reviews 2.25% fixed annual, with market review in Year 7 and at renewal"
Sorry but I am quite underwhelmed. To buy with just a 4.3% running yield and a rent review clause like that that's heavily tilted in the tenants favour with inflation running at around 7% means they have paid top dollar at a time when their shares are probably trading at about a 20% discount to the new NTA to be announced next month. Why not buy back your own shares instead which would be guaranteed to be eps accretive ?
By way of contrast I am putting through a bi annual rent review next week on a service station I manage for a client. The rent is CPI adjusted with a 2% minimum so the review will probably look like this X x 1.02 (for inflation to the year ended 31/3/21) x 1.075 for about the 7.5% inflation rate to be announced by the reserve bank next week for the year ended 31 March 2022. The monthly rent will be increasing by about 9.5% next month.
If inflation stays high for years, as I expect it will, the rent review clause above will see their earnings from that building significantly decline in real terms in the years ahead until such time as there's a market rent review. I can't comment on what the vacant land could earn them but it looks like they've paid full price when the shares are very weak.
Good question for the forthcoming annual meeting. Why bother acquiring assets at full price when you can buy your own shares back @ 20% discount to NTA and its eps accretive for shareholders ?
excellent points by MR B!
Late to move into central WakaToo after prices have already moved. Many projects were in the planning stages several years ago by developers to take advantage of the growth in the central North Island along the New Motorway expansions.
A late splash but maybe adds nothing much at the moment.
Shows a lack of think big at a time when the central North Island is growing.
Yes it does mate but $1.335 at the close today with an NTA of $1.64 and ~ half their assets being industrial and a new valuation coming out when they report next month is a pretty tempting discount to NTA. I couldn't help myself hoovering up a few.
Me too. My 10k at the close this afternoon was hardly " hoovering up " but the pie yield is useful basic income when retired. If Beagle is not at the AGM I am happy to ask his question re buy back at these prices being better value to holders because I agree the terms of the latest acquisition suggest Management/the Board are not keeping up with the new normal!
" I couldn't help myself hoovering up a few."
might be some more down side if the interest rate continue to rise and some say RBNZ is behind the curve.
Image some at sub 1.30.
It is possible.
Growth in the central north island is continuing with new development across Hamilton area and south.
They need to push south ahead of the new developments.
Market seems to think there is value here at 1.30 to 1.34.
Still good support here at 1.30.
Markets thinks defence is back and with recessions looming out there? when and where who knows looks like the market wants commercial property maybe more than residential rental. After all the PIE income will be in demand if the DOOM's day book passed into law shortly.
https://en.wikipedia.org/wiki/Domesday_Book
the wealthy will be looking to move out to greener pastures.
Swizzy land looks good even got a cousin who married a trade builder there. You dont have to be wealthy to live in Swizzy land.
Bought a few more yesterday. Discount to last years NTA is now more than 20%.
Its a MR B; BBB+ rating.
If OCR rates keep hammering the market prices here might stay for a while.
Times of great turbulence are Oppo's.
Could be a load up again at these levels but will the stock be there to buy?
as the 10 Yr moves over 3 these could be under 1.30!!!
Market is scooping them up at 130. 10 YR or no 10 YR with the prospect of the US 10YR breaking higher.
Money flows from country to country and with the NZ dollar lower why keep it here.
.64 , what a shocker good for exports and nothing else.
Its more a $US strength story than a $NZ weakness one.
Many currencies are currently quite weak relative to the soaring $US.
I think we're getting close to the bottom of the range and I wouldn't be investing in $US denominated assets right at the minute.
Jeez 121 close today
Didn’t seem too long ago that 160 was cheap ….and last week 130 seemed ultra attractive
5 and 10 year govt stock fell today ….May signalling the top in the interest rate cycle …that be good for prop stocks
sub 120....soon... soon? ...
Ouch...yeah a good hard kick to the head with this one. I was pondering stepping in and hoovering up more because at $1.21 if they can pay 6.7cps next year that's 10 cps gross for those on a 33% tax rate like me and worth 10/121 = 8.26% gross yield. I think in an uncertain world that's extremely attractive but I decided to hold my horses with the annual result only a few days away on 18th May. Lets see what they have to say in terms of outlook commentary and go from there.
Its the after shock of a super inflation burst into the global markets...
like the sun emitting a
Coronal mass ejection
https://en.wikipedia.org/wiki/Coronal_mass_ejection
should be some after shocks ....
ARG's defensive walls will shudder but hopefully hold firm...
An incineration inflation event likely turn around on global markets wont be until 2023..
Rates should continue to hit these stocks allowing a slow average in. Cant see these returning to 170 ish any year soon.
Great DIV defensive stock if you AVE is under 1.15
The BIG instos arnt going to be buying at this point in time? They probably have the balance for the next 12 to 24 month set a while ago.
They just allocated to portfolio percentages as the money comes in?
Certainly 1.22 sparked some demand this week.
anything under 1.15 is very good value.
This is starting to look extremely enticing
110 could be hit if things get really bad with inflation.
Bottom's probably in I reckon. Mind you I thought that at $1.30 lol
felt 130 was just the start of AVE in.
If lots of those little bomblets drop through UTE sun roofs and grain starts shipping from ODESSA then sure.
But if rates hit 3.5 what another % comes off the prices in share panic.
Its a PIE though and MR B might be right but anything over 3.5 will push western markets down.
If someone drops dead then sure it might be a panic BUY!
Its a hard one to pick..its always hard to pick....
CNBC reactions from previous fed chair that tightening is late.
And that what will farther shock the markets if enough people start thinking the fed has to go HARDER and FASTER..
All the you tube clips I watch while avoiding doing something constructive suggest inflation will subside and we will see a downturn or recession and the central banks will cut and/or print once more. They seem to be all waiting for the CBs to give them a sign to dive back in. Hardly a bear market.
"cut and/or print once more"
a Volker moment and they have a big balance sheet to run off.
DOW looks like it has a way to go on the down side. Below 3000 is possible as the FED hikes.
The podcasts I hear said that Russia would not invade Ukraine, it was posturing to push up the oil price. Also that interest rates would not rise as the US treasury could not afford the interest bill on the 30 trillion. The same guy often gets the mood of the markets and short term timings very correct which is the only reason I persist with it.
US PPI is 11% so it will be interesting to see what happens... Also i see Bernanke is saying the FED made a mistake not raising rates last year..
https://www.cnbc.com/2022/05/12/whol...elerating.html
price holding up but hey there's hope at 1.10..
yep Helicopter Ben all over the Hoot and Holla..
https://www.youtube.com/watch?v=DGcgbMGCxEU
Numbers seem pretty good
Dividend 1.6% higher this year ..... what was inflation again?
Beautiful 46 page glossy presentation ....big fonts and lots of photos ..... but no people or cleavage pictures but if buildings are your thing plenty of seductive photos to get excited over .... and tempt you to buy more shares
http://nzx-prod-s7fsd7f98s.s3-websit...232/370744.pdf
FY22 Annual Result - NZX, New Zealand’s Exchange
Argosy Property Limited (‘Argosy’ or the ‘Company’) has reported its results for the 12 months to 31 March 2022.
Key highlights for the period include:
• Net profit after tax of $236.2 million;
• $163.7 million annual revaluation gain, an increase of 8% on book value;
• Increase in NTA per share to $1.74 from $1.53 at 31 March 2021, a 13.7% increase;
• Net property income for the period of $105.1 million;
• High occupancy (~98.7%) and WALT (5.7 years);
• Strong portfolio leasing and rent review outcomes, including 3% annualised rental growth on rents reviewed;
• 7WQ in Wellington is now 100% leased;
• Our continued focus on sustainability and progressive green developments with 8-14 Willis Street now substantially complete and 105 Carlton Gore Road, and 12-20 Bell Ave underway;
• A full year dividend of 6.55 cents per share, a 1.6% increase over FY21; and
• FY23 dividend guidance of 6.65 cents per share, a 1.5% increase on the prior year;
8.27% Gross yield for those on a 33% tax rate (based on 6.65 cps / 0.67 = 9.925% gross / $1.20).
8.63% @ $1.15
9.02% @ $1.10
9.93%% @ $1.00
8.00% @ $1.24
Those are the prospective yields for FY23 at various prices folks. Obviously its been in a steep downtrend and now trades at 31% discount to NTA.
Make your own decisions here for FY23 income...this is tricky. Never buy in a downtrend but on the other hand the yield is somewhere between very attractive to really compelling depending on the price you pay.
Don't forget to also factor into the equation the 1.6375 cps fourth quarter dividend which has a record date of 8 June.
Yes, numbers look compelling, good to see as well that they further reduced their debts to a still better manageable number.
On the other hand (and I am sure winner could show us some nice graphs for it) - earnings and RoE look cyclical to me - and just seem to have passed the (cyclical) top.
Add to that rising interest rates (i.e. holders will expect more return per invested dollar compared to rising bond rates) ... I think that the odds are good that shares will continue to drop before they go up again (and yes, they will, but I don't think they will do this now).
Good company, but not sure yet it is now the optimal time to buy ...
A few others things to factor in.
ARG has a good track record over many years of steadily rising dividends, albeit at lower than CPI, (especially at the moment).
The forecast yield at $1.20 of 8.27% gross is materially better than Investore Property which also reported this morning which is 7.86% Gross and the dividend is unchanged for FY23 compared to FY22 for them. (These are gross up yields reflecting the value of the PIE structure for 33% taxpayers)
ARG portfolio is 3.3% under rented compared to market rent.
65% of ARG's portfolio is subject to rent review in FY23.
Most rent reviews in FY22 were fixed reviews, (explains the steady rent review progress over many years of 2-3% per annum but won't work so well for as long as we have high inflation), some were market reviews and CPI reviews were only 16% of the reviews conducted as a percentage of annual rent review undertaken.
Investor Property...I need to spend a lot more time on this but from a preliminary examination seem to have their rent reviews linked to turnover which they make the claim they think will protect them better in a higher inflation environment...(but they then go on to forecast a zero increase in annual dividend for FY23...sorry I am struggling with that ?).
Good time to start AVE in. Hard to pick market bottoms.
5 years time could be a case i should have, would have , could have... Damn it missed that bottom again...
Probably dont want to get ahead of the Macro environment as forecasting DIV.
SP is now back to pre COVID crisis range.
Not sure ... maybe he just thought about a different aspect of the rising interest rates?
Forget for a moment what rising interest rates might do to the balance sheet of the company and think only about the impact of rising interest rates on the competitiveness of property shares compared to bonds as an investment instrument.
If a property fund pays you (say) 5 cents in the dollar, while bonds pay you 3 cents in the dollar, a property fund is a great investment.
However - if bonds pay you (with growing interest rates) 6 cents in the dollar and the property fund stays around 5 cents in the dollar, then not so much.
DYOR - obviously you need to consider taxes and similar things ... but the competitiveness of property funds compared to bonds is currently clearly dropping, which is likely to reduce their share price.
Dangerous thing picking bottoms without confirming TA...very rare you come out smelling like roses lol
On the other hand the yield is very attractive.
A full year dividend of 6.55 cents per share, a 1.6% increase over FY21;
and
o FY23 dividend guidance of 6.65 cents per share, a 1.5% increase on the
prior year;
Argosy is able to effectively redevelop existing buildings into green
buildings to help the reduction of its carbon footprint.
Argosy has a significant pipeline of green opportunities ahead of it,
particularly in Auckland's Industrial market.
We are focusing on our organic Value Add development pipeline due to scarcity of land driving very high bare land pricing. Given the pipeline of work
ahead, we've resourced our development team accordingly.
2007 was interesting in that OCR was very high but yields were probably matching?
SP handles were not effected until GFC arrived.
With Reserve banks in VOLKA mode not VODKA mode although some might say a good whisky or vodka is good for the nerves at the moment; they will fight the inflation fires and then then SP handles will swing back up.
TA is awful tracking below 9 day EMA and steepening down trend.
If you want to risk losing capital. Best to wait until the up trend starts, even if it leaves a few $ on the table. Averaging into a steep downtrend with no certainty where it will bottom is a mugs game.
I thought the result was slightly underwhelming, but at least the market appears to have reacted positively so far.
I notice that 7 Waterloo Quay facade repairs are recorded as requiring $1m expenditure in FY21 and $14.5m expenditure in FY22, being $15.5m all up not counting any residual costs yet to be incurred in FY23. That is a major maintenance outgoing for a single building, when maintenance capital expenditure for all the rest of the portfolio in FY22 is stated at $5.8m! This seems to be the underlying reason for the dividend payout ratio to AFFO being 114%.
NTA now $1.74 per share and with no DRIP currently being offered the number of shares on issue should remain stable in FY23. Guidance at 6.65cps for FY23 being a 1.5% increase is not great considering inflation is much higher, and no DRIP is a reduction for those shareholders who participated ( ie give with one hand and take away with the other ).
The completion of 8 - 14 Willis Street, the largest capital project by far, is a significant de-risking factor given occupation by Statistics NZ is just about underway. And hopefully rental abatements to tenants ( $1.6m in FY22 ) are a thing of the past?
Looking forward to the AGM on Tuesday 21 June, when I will ask a few questions.
You know me, I have the greatest respect for TA but there's one other consideration.
Retiree's or those approaching retirement like me might think 8.27% gross effective yield in a company that's pretty safe and has a track record of increasing dividends is pretty attractive income and if it goes a bit lower then can add some more. Its tempting...
Another way to look at this is that Kiwi's love property.
Johnny invests $1.2m in a residential property in Auckland and gets $700 per week in rent and after all the work involved managing the property himself and after all expenses and repairs gets $550 per week before tax = 2.4% Gross and he commands an investment with an NTA of $1,200,000. Don't forget that thanks to edicts from the socialist throne of power Johnny can't claim interest on his mortgage or depreciation on his property despite the fact that interest costs are real and properties do wear out over time.
Paul invests $1.2m in ARG and gets 8.27% gross with no work or risk of the tenant smoking meth, doing damage e.t.c. and gets a gross return of $99,000 and commands property worth $1,740,000.
I think its pretty clear who is the smarter investor.
And the yield will become more attractive the lower the buy price gets. If you can afford to miss a Div or two there's no reason why you'd risk capital buying or averaging in right now. But you know this, never buy a downtrend with no end in sight. Patience is the hardest lesson in investing, imo.
Yes the current down trend could go on for a while BA....
We have been trading this Company for since before the GFC....
If your just running a private portfolio for yourself as a private investor then your advise is on the MONEY.
our backends are automated and have inter company transfers.
not the same game....
expecting 110
and private investors mostly dont have forensic data parsing to backup any audit requirements.
Yes I know this but downtrend or not if Waltzing man is correct and it gets to $1.10 which is a 9% gross yield...its going to be awfully hard to resist getting the truck out and backing it up.
$1m @ 9% gives $90,000 retirement income = job done, retire early.
I've seen a lot of clients do extremely well with commercial property over the years. The coming recession won't last forever...
"is correct and it gets to $1.10 "
Its blowing in the wind as Balance said.
But the steeper the sell off the more likely it is to over sell on the down side... isnt that what the eXperts say?
The problem here is that the PIE at 33 will likely halt this. NZ investors have been making money on property for so long they are battled harden.. vets...
110 is where the chart was back in 2019.....
a lot of stocks on the NZX are now in a range trading environment for the next 12 months.
not a stat or chart eXpert but the little lines on the paper are there for all to see ......
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.
If next year dividend is 6.65 cents and its going to grow at 1.5% pa over time and beagle wants a 5.4% return (8.0% gross) then ......
............. then ARG intrinsic value is $1.74 using the Dividend Discount Model
ARG reported NTA is $1.74 ...... isn't that spooky, really spooky
a 100 handle on the SP would take the price back to 2018....
and that is only likely if there OCR hits 5 or over...
Its got to be the best value on the nZx at that price if your on 33.. plus every other insurance and tax thats coming... or was coming as the business, professional and farming communities panic ...
ARG has been around for a long time and isnt going bankrupt any time soon in the current climate.
an AP of sub 100 would only occur on a global financial crisis and there is always one of those just around the corner...
land use scarcity is only going to become more acute and finally one of the listed companies has stated it clearly.
They are finding it hard to get land where they need it. They are going to have to repurpose buildings and in some cases just cut then down and start again..
the market is shorting the stocks in relation to bonds..
but the NTA calculations have nothing to do with bond yields surely Winner(n)!
and this has lead to the "SHORT" or flight of capital.