Argosy first-half profit drops 58% on unchanged portfolio valuation

The year-earlier period was boosted by a $35.8 million unrealised gain in the value of its property portfolio.

Argosy Property posted a 58% decline in first-half profit as the firm became the latest listed property investor to report a little-changed portfolio valuation after several years of gains, and was faced with smaller rental income.

Net profit fell to $23.4 million, or 2.84c a share, in the six months ended September 30 from $56.2 million, or 6.9c a year earlier, the Auckland-based company said in a statement. The year-earlier period was boosted by a $35.8 million unrealised gain in the value of its property portfolio, which wasn't repeated in the latest period as the wider property market slows down after several years of rapid growth.

Distributable income, which strips out movements in the property portfolio, fell 14% to $31.2 million with the year-earlier period bolstered by a surrender payment from New Zealand Post after it exited three floors on the lease of NZ Post House in Wellington, offset by an insurance payment from the Kaikoura earthquake last November.

"There is now more visibility and certainty around New Zealand's medium-term position and we are confident there will be no material impact on our business," chairman Mike Smith said. "The outlook for the New Zealand property market remains positive, with rental growth being achieved and good levels of inquiry for vacant space."

Argosy has been diversifying its property portfolio outside Auckland, buying industrial sites which now make up 40% of its portfolio. The firm's 63 properties were valued at $1.46 billion as at September 30, with 185 tenants at a 98.1% occupancy rate. The weighted average lease term of 5.6 years was up from 5.26 years as at September 30, 2016.

The board declared a second-quarter dividend of 1.55c a share, payable on December 20 with a December 6 record date. The board affirmed its view that it will pay an annual return of 6.2c a share.

Argosy's directors also signalled plans to change the dividend policy, linking payments to an adjusted funds from operations earnings measure, which has become popular among listed property companies. The gauge "was considered by some investors to represent a measure of dividend sustainability." Distributable earnings has been the previous measure favoured by those firms. Argosy's adjusted funds from operations dropped 11% to $23.5 million.

The shares last traded at $1.045 and have increased 3.5% so far this year, lagging behind the 18% increase on the S&P/NZX 50 index over the same period.