Devaluations eat into rising revenue

Multibillion-dollar diversified landlord Argosy Property pushed up revenue in its latest half-year but in a sign of changing markets, revaluations became devaluations.

Last year’s $91 million revaluation gains turned to $23m devaluations or losses, pushing down bottom-line profit.

In the half-year to September 30, 2022, the listed real estate company reported a net profit after tax of $10.6m, down from the September 2021 half-year’s profit of $127m due to those changing property valuations, partly influenced by rising interest rates.

Yet gross property income from rents rose from $56m to $60m and pre-tax profit was up from $47m to $49m.

Other property and retirement village businesses reporting results lately are also recording devaluations including Goodman Property Trust whose $555m interim profit last year turned to just $41.1m this year when revaluations, up $504.7m in the September 2021 half-year, only rose $1.3m in the latest period.

Argosy’s portfolio is 98.9 per cent rent for a weighted average lease term of 5.5 years, it completed many new leasing deals and chairman Jeff Morrison said the board was pleased with how it continued to build on its foundations.

“While rising interest rates, inflation and cost of living concerns continue to create headwinds for the economy, Argosy has continued to deliver on strategy underpinned by a robust capital position and resilient portfolio,” Morrison said.

Argosy had struck a deal to sell its Albany Lifestyle Centre to Augusta, which defaulted.

It has since sold the property to Oyster Property Group and received $3m from the defaulting purchaser.

Auckland’s Citibank Centre, partly leased to the American Embassy, office buildings on Khyber Pass Rd, Grafton Rd and Carlton Gore Rd, Newmarket and its own headquarters at 39 Market Place, Viaduct Harbour are in its portfolio.

The office building at 82 Wyndham St, Auckland, Wellington’s 15-21 Stout St, large office blocks at 143 and 147 Lambton Quay and another at

Argosy has continued to deliver on strategy underpinned by a robust capital position and resilient portfolio. Chairman Jeff Morrison

8-14 Willis St are also owned by Argosy which holds many warehouses and logistics centres in Manukau, Silverdale, Onehunga, Tāmaki and elsewhere.

Argosy said the fact the business owned properties in different sectors and areas gave it strength.

“A key benefit of Argosy’s portfolio is the resilience that diversification by location and sector provides through various economic cycles.

“The bottom-up fundamentals of the Auckland industrial and Wellington office sectors remain strong, with both experiencing ongoing rental growth and low vacancy levels.

“Rental income from government tenancies also helps to underpin the company’s earnings and dividends,” it said.

In May, the Herald reported the full-year result when net profit dropped by 5 per cent annually mainly because of property income falling and expenses rising.

Last year’s $248.4m net profit after tax fell to $236.2m in the year to March 31, 2022.

The 2021 net property income of $106.5m fell to $105.1m in 2022 and administration expenses rose from $10.9m to $11.8m.

Yet valuations rose from $157.7m to $163.7m, indicating the strength of its portfolio.

Chief executive Peter Mence said yesterday the company had started the new financial year well.

“Operationally, the business is in good shape with several new leases and renewals being addressed.”

The Auckland office market was more resilient than some people expected, particularly in the non-CBD segment, he said.