Argosy Property

[BlackPeter]

NZ 10 Year Govt still creeping up

Not good for likes of Argosy

Do you still remember these 30 year US bonds with negative interest rates? Hey, markets have got as much idea as anybody else what the future might bring.

Not sure what interest rates did during WW2, but I know what happened afterwards. At least in some of the economies it was pretty bad to hold cash and much better to hold stocks and property. Which means that holding property stocks well might add a bit of security compared to holding cash.

[Apollo]

What sort of interest rate do you think the $100mill in green bonds due in Oct will roll over at? Currently 2.9%. Are ARG's bonds better than a 10yr Govt bond?. Shorter duration maybe.

If we said the 100,000,000 rolls over at 4.9% then that is an additional 2% on $100,000,000 or $2mill extra interest per year plus another $125mill currently at 2.2% rolling over in Oct 2027. Although $2mill is not much on a $59mill operating cash surplus although $4mill starts being noticeable.

I still reckon it would be good if we knew whether we have started the upward leg of a long term interest rate cycle. Sadly we will only know this in hindsight.

[Apollo]

Thinking about the 4.9% guess in my post above, looked at the ARG annual report weighted average interest rate on all debt is 5.11% so other debt is probably quite a bit higher. A 4% increase becomes $8mill.

I appreciate property companies do not like to have a greater than 40% LVR but based on the 2025 annual report the properties are valued on a 6.1% yield (132,732gross rental/2,148,896 investment properties) if this went to say 8% the property would be worth $1,659,150 while debt remain around $755,000mill which would take the LVR to 46%.

Not sure where I am going with this but I can see the need to keep interest rates permanently low. Sadly ARG is going to see the interest rates on $225,000,000 probably at least double over the next two years.

Winner will have to keep us posted on where the 10yr rate is going.

[BlackPeter]

Thinking about the 4.9% guess in my post above, looked at the ARG annual report weighted average interest rate on all debt is 5.11% so other debt is probably quite a bit higher. A 4% increase becomes $8mill.

I appreciate property companies do not like to have a greater than 40% LVR but based on the 2025 annual report the properties are valued on a 6.1% yield (132,732gross rental/2,148,896 investment properties) if this went to say 8% the property would be worth $1,659,150 while debt remain around $755,000mill which would take the LVR to 46%.

Not sure where I am going with this but I can see the need to keep interest rates permanently low. Sadly ARG is going to see the interest rates on $225,000,000 probably at least double over the next two years.

Winner will have to keep us posted on where the 10yr rate is going.

Oh dear. If you are worried about the impact of higher interest rates, then you better don't look at ARG's budget, but at the balance sheets of many large countries, where debt to GDP is ways above 100% (some, like Japan above 200%) - and many of them just keep the debt load rising (like US 124% and Trump keeps raising it). So, yes, if interest rates go up significantly, our world economy will have a problem, never mind the ARG balance sheet.

So, you are right - we will have a problem, but it probably better be discussed under world affairs. Never mind ARG.

[Basil]

Thanks Apollo for highlighting the interest rate risk on those bonds which are maturing in due course.  Your concerns are valid but they need to be considered in the context of the ongoing rental growth ARG has been achieving year over year and the fact that their portfolio as a whole according to the valuers is considerably under-rented in terms of existing leases relative to current open market rates for the portfolio which suggests solid rental growth will continue in the years ahead as leases roll off fixed term agreements and are renewed.

ARG management are some of the best and most experienced in the business and I am sure they can be relied upon to navigate the challenges ahead.

The dividend outlook for FY27 and other outlook commentary in the FY26 result coming late next month will give us valuable insights into the forward looking prognosis.  Noting the current yield at 6.65 cps on the $1.13 closing price yesterday gives a PIE net of tax return to investors of 5.9%, worth 8.8% and 9.7% gross for individuals on a 33 and 39% tax rate.  Those are very attractive effective gross yields.

Probably well worth noting that analysts who will already be modelling out changes to the cost of funding in the years ahead are predicting steady dividend payments for FY27 and FY28 consistent with FY26.  Average target price of 4 analysts is $1.28 and rating is "Outperform"
https://www.marketscreener.com/quote/stock/ARGOSY-PROPERTY-LIMITED-10859583/consensus/

[Apollo]

So, you are right - we will have a problem, but it probably better be discussed under world affairs. Never mind ARG.

Sorry I had thought interest rates might be important when considering property and utility companies, I want to get dividends out of them whereas I pay tax to fund govt debt, which, your right is a different conversation to be had on a different thread.

[Otago K]

Sorry I had thought interest rates might be important when considering property and utility companies, I want to get dividends out of them whereas I pay tax to fund govt debt, which, your right is a different conversation to be had on a different thread.

As above when Basil noted your thoughts held some merit, rightly in some regard or rather harshly wrongly on sentiment (too beat down type of thing) Mr Market treats the REITs very SP sensitive to interest rates. As a NZ tax resident holder the PIE impact particularly differentiates the after tax yield to the stated gross yield posted for these NZ REIT holdings.

Very true that at times the interest rates on debt can push or exceed the gross rental yields of their properties, and that some REIT managers will regrettably be happy to purchase commercial property within those parameters, so needs to be watched as an investor.

Regards your post 182 personally I don't appreciate REIT managers hitting 40% LVR type levels but sometimes find it's reflected in the discounts they trade to NTA. I try to construct my own valuation level and account for it as one factor within the discounts these vehicles need for me to see longer term values in whatever the current SP, I'm not looking to buy for today as much as the 12 to 24 plus months horizon.

News of the day saw PFI secure a 5.35% rate on some bonds to mature Oct 2032, which sits quite close to the existing 5.43% rate they have on the $150M of Sept 2030 maturity bonds. Will be interesting for me to see how market takes up the $150M on offer or additional over subscription optional $50M in these times.

Much as I know over the next 12 to 24 months there will undoubtedly be times the SP will see to be investing into quality REITs at present as not a bad decision, I'm still mindful that the current cycle low SP may not have been met for them. discl currently overweight into the sector, have a BUY on one ticker placed before trade on the 30th March that just missed to meet the day low price, and I am currently holding cash to match 6 months of my spending budget plus 15% to 28.xx% of my portfolio balances. Days of using a revolving credit facility are in the past for me, but wouldn't sit easy to be utilising it at the moment to invest in equities, things change and maybe in near term that thought would have changed,but not personally in that stage of life now days.

Hope coherent, just a little colloquial if not rambling I know.

[Apollo]

I was going to mention the 5.35% bond PFI offer this morning after I saw it in the herald, just because Blackpeter p*ssed me off yesterday. Not that I know or understand anything.

I do not know much about PFI but in the 30/06/2025 annual report the fixed rate bonds were 4.59 and 4.25%.

The share price has fallen 13% over the last six months for some reason.

Maybe I would be better discussing this under world affairs Blackpeter?

[BlackPeter]

I was going to mention the 5.35% bond PFI offer this morning after I saw it in the herald, just because Blackpeter p*ssed me off yesterday. Not that I know or understand anything.

I do not know much about PFI but in the 30/06/2025 annual report the fixed rate bonds were 4.59 and 4.25%.

The share price has fallen 13% over the last six months for some reason.

Maybe I would be better discussing this under world affairs Blackpeter?

Oh dear. P*ssing off an old greek god (but hey, the statues all show a young man ...) ... how bad can it get?

Look, if we both look at the same coin, than you  might see a number and I might see an eagle ... and we both could be right. I assume the same was the thing with my post which seems to have annoyed your divine meanings. Please accept my appology for not considering your different point of view in my rather short post.

You may or may not have noticed that basically all Real Estate shares dived in the last year or so ... so maybe its more than the one bond you mentioned. Maybe its even just the markets feeling that interest rates will go up and therefore reducing the stock price to keep the dividend appropriate ...?

If you look at which contributes to the price of a real estate company - than sure,

* higher interest clearly is a negative - even independent of low interest rates for the budget going up or not. Higher Interestrates clearly require a lower P/E for real estate stocks staying competitive.

But obviously - its not the only thing.

* If the market thinks real estate prices will go up, the price will be different from when the market thinks real estate goes down. Which one will it be? Omniscience might help in that, but not that sure about the greek gods.

* Company management and perspectives make a big difference, and  - and beagle wrote  a good post about that.
 
So, I guess I just looked at the eagle (and yes, too much public debt will be one of the biggies in the years and decades to come) ... and forgot that you see the other side of the coin (some more money for Argosy to pay). Absolutely - talking about this credit is appropriate for this thread. While I don't see it as a biggie for Argosy - it clearly will slightly add to their costs. You mentioned the number yourself. How the earnings look next year, we will see ... and the bigger issue probably will be whether the orange man's war will overall get interest rates up again or whether its just a short peak in an otherwise rather low interest environment.

OK - not quite sure about the redemption cycle for Greek gods. Is an appology good enough? I don't want to end up as Agamemnon ... but hey, there was as well the thing with Zeus, wasn't it? Amazing divine history ...

[Apollo]

No need for apologies, not that upset, just thought I might wind you up this morning, but Otago K beat me to it.

I agree govt debt across the western world is high and the likely solution is high inflation and low interest rates which should benefit the property companies unless their tenants go broke.

But if you believe in cycles perhaps lower and lower interest rates are a thing of the past 30-40years not for the future. Who buys bonds at less than the inflation rate??? central banks???

But that is a discussion for another thread.

[Dolcile]

Finally some green in my NZ REIT portfolio - hopefully we can claw back some of the shocking start to the year.

[Basil]

Hope so mate, its been like bashing your head against a brick wall over and over again so far this year with only temporary relief for pain killers from the March quarterly dividends..

[seaweed]

Hope so mate, its been like bashing your head against a brick wall over and over again so far this year with only temporary relief for pain killers from the March quarterly dividends..

Not to worry Basil. There will be $3.2 bil floating around next week from FSF payout looking for a home also a little 25c div from SEK the next day. Maybe some might go to ARG and TRA and a few others.   

[seaweed]

ARG having a NZ wide Retail Roadshow presentation starting in Auckland on 22/5/26.   

[Basil]

ARG having a NZ wide Retail Roadshow presentation starting in Auckland on 22/5/26.   

Are you planning on attending ?