Argosy profit drops 25% after returning to tax-paying position, rental income rises

Argosy Property [NZX: ARG] reported a 25% drop in annual profit, while its rental income rose, as the listed property investor returned to a tax paying position for the first time in four years and paid more interest.

Profit for the year fell to $64.4 million in the year ended March 31, from $85.6 million a year earlier, the Auckland-based company said in a statement. Distributable income, the preferred measure for property investors as it strips out unrealised movements in fair value, fell to $48 million, or 6.02c a share, from $50 million, or 6.69 cps.

The company's bottom line was weighed on by a $23.2 million loss on derivative financial instruments, compared to a gain of $20.6 million the year earlier, which Argosy said caused a loss on its interest rate swaps due to the lowering of the interest rate curve during the period. Distributable income dropped after the company faced an $11.6 million tax expense, the first time since 2011, Argosy said.

Net property income rose 11% to $90.9 million as it benefited from acquisitions in the year and a refurbished Stout St office block came online, starting a 12-year lease with the Ministry of Business.

The board declared a final dividend of 1.5c a share, taking the annual payout to 6c, in line with guidance.

Argosy shares rose 0.5% to $1.11 and have gained 2.3% since the start of the year. The stock is rated an average 'hold' based on five analyst recommendations compiled by Reuters, with a median target price of $1.13.

The property investor has been diversifying its portfolio outside Auckland, focusing on industrial sites rather than malls and retail investments. Last year it identified $70 million worth of property to divest. Argosy bought five Lower Hutt sites for $59 million in the year, marking its first Wellington-based industrial site renting foray.

Across its 68 properties, which have a market value of $1.3 billion, the occupancy rate was 99.2%, with a weighted average lease term of 5.54 years.

About 39% of the portfolio is industrial, 37% office space, and 11% retail, while the weighting to Auckland was 65% and 28% in Wellington. Of its properties, 83% are considered core, 11% were value-add, and 6% are properties or land the company is looking to sell.

(BusinessDesk)