ARG - Argosy Property.

[LaserEyeKiwi]

But man on radio said this morning commercial property stocks might be in trouble due to increasing interest rates and dropping property values. Obviously nothing new, but now some more radio listeners will push the sell button.

Never fight the tide ...

both of the listed property companies reporting this morning had LOWER debt interest rates and RISING commercial property values, and RISING rents.

Like everyone else on the radio that person is full of ****e and doesn’t know what he’s talking about.

[BlackPeter]

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 ...

[Beagle]

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 ?).

[Waltzing]

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.

[BlackPeter]

both of the listed property companies reporting this morning had LOWER debt interest rates and RISING commercial property values, and RISING rents.

Like everyone else on the radio that person is full of ****e and doesn’t know what he’s talking about.

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.

[Beagle]

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.

[Waltzing]

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.

[Baa_Baa]

Good company, but not sure yet it is now the optimal time to buy ...

TA is awful tracking below 9 day EMA and steepening down trend.

Good time to start AVE in. Hard to pick market bottoms.

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.

[ronaldson]

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.

[Beagle]

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.

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.