Argosy advances green portfolio with steady FY26 income growth

Resilient Income Growth in a Cautious Market

Argosy Property Limited (NZX:ARG) has reported a solid FY26 performance with net property income climbing 3.3% to $120.8 million. Despite a cautious property market and geopolitical uncertainties, the company maintained steady occupancy at 94.6% and a weighted average lease term (WALT) of 5 years, underpinning income stability. Net distributable income rose 9.1% to $60.9 million, reflecting strong rent review outcomes and income from developments.

$58.5 Million Revaluation Gain Supports Asset Values

The portfolio’s value was bolstered by a $58.5 million revaluation gain, equating to a 2.7% uplift on book value. This gain was driven by modest cap rate firming and rental growth across sectors, with industrial assets up $27 million, office $16 million, and large format retail $11 million. The portfolio remains 9.3% under-rented, excluding market rent on developments, suggesting room for future income growth.

Green Buildings Drive Portfolio Transformation

Argosy is advancing its sustainability agenda, with green-certified buildings now representing 39% of the portfolio by market value, on track to reach 50% by 2031. The completion of the 224 Neilson Street development, featuring two warehouses with 6 Green Star Design and Built ratings and net-positive solar generation, marks a milestone. Similarly, Warehouse 6 at Mt Richmond, completed in May 2026 and fully leased to pharmaceutical distributor Viatris, also achieved a 6 Green Star Design rating. These developments embed energy efficiency, resilience, and tenant wellbeing into the portfolio, aligning with tenant demand for sustainable assets.

Leasing and Tenant Retention Remain Focus

Leasing activity saw 32 transactions covering 45,335 sqm, including 13 new leases, 13 renewals, and 6 extensions. Notable renewals include New Zealand Post’s six-year lease at 7 Waterloo Quay and MBIE’s nine-year extension at 15 Stout Street, the latter accompanied by a $13 million decarbonisation and façade upgrade project. Argosy is actively negotiating leases for key Wellington office assets at 147 Lambton Quay and 39 Market Place, aiming to improve occupancy and extend lease terms further.

Capital Management and Dividend Policy Update

Portfolio gearing stood at 37.2%, comfortably within the target 30-40% range, and fell to 36.1% after post-year-end property sales totaling $46 million. The Board has suspended the Dividend Reinvestment Plan (DRP) for the fourth quarter dividend, which was declared at 1.6625 cents per share, bringing the full year dividend to 6.65 cents per share in line with guidance. A shift in dividend policy targets a payout of 80-95% of Funds from Operations (FFO), aiming to reduce volatility compared to the prior AFFO-based approach. FY27 dividend guidance remains steady at 6.65 cents per share.

Governance and Leadership Transition Underway

Succession planning is progressing with CEO Peter Mence set to step down by the 2027 Annual Shareholders Meeting, allowing for a smooth transition. The Board has also agreed that Martin Stearne will succeed Jeff Morrison as Chair following the 2027 ASM. Both executives are actively involved in guiding Argosy’s strategic focus on sustainability, operational discipline, and portfolio resilience.

Climate Risk and Sustainability Leadership

Argosy’s 2026 Climate-related Disclosures highlight a comprehensive approach to managing transition and physical climate risks. The company’s portfolio is resilient to climate impacts, with scenario analysis indicating no material financial impact from physical risks over the short to long term. Transition risks are addressed through investment in green buildings and decarbonisation projects, supported by a captive insurance subsidiary enhancing risk management. Greenhouse gas emissions are actively monitored, with Scope 1 and 2 emissions reported at 270 tCO2e and Scope 3 emissions expanded to include capital goods, totaling 20,773 tCO2e for FY26.

Portfolio Overview and Sector Diversification

Argosy’s portfolio comprises 49 buildings with a net lettable area of 560,403 sqm valued at $2.24 billion. Industrial assets constitute 55% of the portfolio, office 35%, and large format retail 10%, with 72% of the portfolio located in Auckland. The portfolio enjoys a passing yield of 5.72% and a market yield of 6.62%, reflecting strong fundamentals. Key assets include 224 Neilson Street and Mt Richmond industrial developments, both green-certified and designed for long-term tenant appeal.