ARG - Argosy Property.

[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/...WFRPVGUZSC2D4/

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.