Argosy Property Limited

Thank you for standing by and welcome to the Argosy Property Limited FY26 Annual Results Webcast. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Peter Metz, CEO. Please go ahead.

Thank you, good morning and thanks for joining us for the annual results presentation. It's fair to say that the year has not been without its challenges. We came back from a Christmas break reasonably positive and then we ended up with a war in Iran and the return of non-productive imported inflation and the effects of this are going to be with us for some time. The portfolio has actually performed reasonably well. What we're seeing though in the market is that conversion rates have pushed out by over a month. Uncertainty does reign across the leasing market and the flip of that is that the retention rate is up to a decade-long high because people are more likely to stay in the premise they're in. The green part of the portfolio is performing really well. We do expect to see continued growth in demand, particularly in the industrial space. And the surprise performer at the present in terms of inquiry levels is really the office area. We're getting relatively better inquiry there. Industrially, no surprise, relatively less so. And with retail, large format retail, principally for us, that's Albany, it's It's very much a site specific issue. The rich getting richer, the better locations doing better and it really is in a lot of ways dependent on the base from which each of those sectors have started. When we look at the results, the rent reviews have actually been a little bit better than we had expected and projected. Some of that is to do with tenants wanting to stay put. Net property income overall has been up 3.3%. The revaluation gain was a welcome positive piece of news and all of the valuers did mention the conflict in Iran but they haven't qualified their valuations accordingly. So what we're seeing is rental growth surprising on the upside in a couple of locations. particularly at the Albany Mega Centre, a little bit of cap rate firming, and overall a fairly tidy result for the year. Turning to the portfolio highlights, obviously the vacancy rate is a bit higher than we would have liked. That is going to change significantly when we get this Nielsen Street lease through, which I'll talk about shortly. and in a lot of ways that tenant retention rate is a comfortable payback for what has been a reasonably quiet leasing market. Overall the data is still looking reasonably secure. Looking at the revaluations, we're still seeing reasonably good investment demand from domestic buyers. If you're talking internationally, far less so. They're far more concerned about geopolitical events and so on. But domestic buyers are surprisingly firm, noting that there is some reasonable degree of appetite for a level of risk in that. So it's not only the vanilla assets that we're seeing interest in across the market. We've completed some sales during the year, obviously the Henderson Place sale was really positive. 143 Lambton Quay, nice to have the plug in the bar I guess, but that one sold a little under book, but not a lot of money when you consider that it was effectively a redevelopment site and the end value was much higher, so proportion of end value wasn't as much as it looked. And since then we've got interest, in fact under a conditional agreement for the warehouse in Taupo, again well over book value. So it's kind of illustrating that there is a level of risk appetite and domestic buyers remain reasonably active. And we look at what's happening in the development space. Development activity going forward is likely to be minimal really. We're expecting cost increases in the construction sector of 10-15% based on the oil price and that's a double whammy. One because the construction industry is quite a big user of oil products with plastics and so on and then of course there is the transport and delivery impact of the fuel cost itself. So there is some pressure in that space. And of course we're looking at a situation where economically it could be quite challenging and discretionary spend is already very constrained. Turning to 224 Nielsen Street, on the really good side, in the building awards last week we picked up in the industrial sector gold and best in category for this building. and took out the overall sustainability award. So that was really positive. We do have a conditional agreement to lease out at the moment. That agreement is with the tenant for signing. We were hoping to have it back by now. It hasn't appeared yet. Feeling fairly positive about it. That's not our only tenant. We do have two others who are already at an advanced stage of negotiations. Sorry we can't deliver a confirmed deal, but it's looking fairly close. 8 to 14, Mount Richmond Drive. Not a lot to talk about in a development that actually achieved all its targets. We have a very happy tenant with possession of the premises. Everything has gone very, very well, and the six green star rating has been confirmed on that asset. I'll move on to get Dave to talk about the financials.

Thanks Peter and hello everyone. The first slide from me is the gross property income waterfall. Gross property income was $137.5 million compared to $132.7 million last year, up by 3.6%. Rent reviews contributed strongly to the increase. There were 111 reviews in the period on existing rent of $81 million. 72% were fixed with an annualised increase of 3.1%. 25% were market with an annualised increase of 4.8% and 3% were CPI with an annualised increase of 2.8%. The amount being reviewed in FY27 is even higher at $109 million with 60% of those fixed. There was a solid contribution too from the acquisition of 291 East Hamergy Road and the completed and leased warehouse B development at 224 Nelson Street. Offsetting this somewhat was the lost income from the sale of 8 Forge Way in March 2025. So on to the next slide, net profit for the year. Net property income was up by 3.3% on the prior period to $120.8 million. Net property expenses were up by $900,000 as non-recoverable rates increases in Wellington and optics on vacancy more than offset insurance savings. Our insurance cap has been a great initiative allowing us to market directly to reinsurers and there's a lot more information on this in our sustainability report which was issued today. Expenses were flat. Management expense to NPI improved to 9.4% from 9.8% last year and the management expense ratio was 50 basis points down from 56 basis points last year. Net interest expense was 2.3 million. Down on last year, the rate savings are more than compensated for higher average debt this year. So Peter covered off the revaluation gain which included a $4.4 million gain on the two health for sale properties, Four Hennessy Place in Onehunga and 143 Lamping Quay in Wellington. We'll talk about tax in the next slide. Net profit after tax was $127.7 million compared to $125.9 million last year. The next slide from me is net distributable income. After the usual fair value adjustments, gross distributable income was $70.4 million, up by 9.8% on the prior year. Current tax expense was $9.5 million compared to $8.3 million last year. This is mainly due to higher taxable income. We did receive an investment boost tax benefit this year of $1.6 million related to the completion of warehouse A at Nelson Street. Offsetting this was lower deductions on development, leasing and incentives, lower depreciation and lower deductions for appeasement, maintenance and fit-out disposals. On a pre-shared basis, net distributable income was $7.05 per share compared to $6.58 per share last year, up by 7.1%. The next slide covers adjusted funds from operations, or AFO. AFO adjustments are reasonably consistent with last year. Amortisation is up due to the write-off of incentives and leasing costs from a terminated lease in the earlier half of this year. Maintenance expense is up by $1.4 million on last year, only due to more tenant fit-outs and a HVAC replacement at Favona Road. So AFO was $59.1 million. compared to 54.6 million last year, an increase of 8.3%. On a first year basis, AFO was 6.85 cents per share compared to 6.43 cents per share last year. The dividend payer ratio was 97% of AFO and 90% of FFO. The next slide covers the movement in investment property. The value of investment properties increased by $94 million over the year. Again, we've talked about the revaluation gain. We acquired 291 East Tamaki Road during the second half of the year and divested two assets. As I mentioned, capital spending was mainly on Mount Richmond and the completion of 224 Nelson Street. So the portfolio, after deducting the right of use asset in respect of 39 marketplace, was valued at $2.2 billion at 31 March. The next slide looks at debt to total assets. So the balance sheet's in pretty good shape. Debt to total assets was 37.2% at 31 March. but this has since fallen to just over 36% following the settlement of our for sale assets in April and May. We have another non-core property under conditional contract currently. It's Peter Meason. That's the property on the corner of Tunny Farr and Pottery Happy Streets in Taupo, and that property is expected to settle in October this year. On top of the Taupo property, there are a further five properties regarded as non-core. with a combined book value of $129 million, which we expected to best over the median term. Next slide covers interest rate management. The bankruptcy rates continue to fall over the period. Our weighted average cost of debt was 4.6% at 31 March compared to 5.1% in the prior year. The interest cover ratio has also improved 2.7 times from 2.5 times last year, and the bank carbonate is 2.6%. The level of fixed rate cover was 74% compared to 57% at the half year and 63% last year. So we've added $265 million in swaps in September and we continue to add cover as appropriate to stay within policy. There's a lot more information on our hedging profile in the appendix. The next slide looks at our debt profile. We refinanced our bank debt twice in FY26. pushing out tenor to 3.1 years and introducing a new tranche to pay back our ARG 010 bondholders. Bank margins remain very competitive as you'll see from the appendix. Our second green bond matures in October this year and this will be refinanced with either bank debt or a new bond depending on circumstances at the time. The final slide from there is on dividends. We announced this morning a fourth quarter dividend of 1.6625 cents per share, bringing the full year dividend to 6.65 cents per share in line with guidance. As noted previously, the balance sheet is in good shape, with further cash to come from divestments. As such, the DRP has been suspended for this dividend. The Board has looked at our dividend policy as they do annually. It's very clear that AFO is a much more volatile basis for dividends than a commonly used alternative Funds from Operations or FFO for short. As such the board has changed the policy to maintain dividends between 80-95% of FFO and the board is fully committed to paying sustainable dividends. Given current market uncertainty, guidance for FY27 is unchanged at 6.65 cents per share within our new target policy range. So I'll now pass you over to Peter for a leasing update.