NZX-listed Argosy Property Trust, the target of DNZ Property Group's hostile takeover moves, has come under fire in a Forsyth Barr report.
Analyst Jeremy Simpson said the $32.5 million that ANZ National Bank-owned OnePath wants for Argosy's management contract "is on the high side".
"Argosy has indicated that it will fund this via future asset sales. While it is not ideal to be selling assets at this stage of the cycle, Argosy does not have the balance sheet capacity to debt-fund the transaction, given it is already at its targeted maximum gearing level and raising new equity at a sizeable discount to NTA is not helpful." Argosy's gearing was close to 40%, in line with the manager's targeted maximum gearing level and the trust has announced that its banker (ANZ) has increased its maximum banking loan to value ratio from 45% to 50%.
Simpson said Argosy's 81 properties, valued at $900 million, were relatively evenly spread between industrial, office and bulk retail.
"The portfolio is sound given its spread of assets, 96% occupancy and 5.3-year weighted average least term.
"Argosy has rolled over its banking facilities, successfully divested smaller assets and has restructured its joint venture exposures, but its gearing remains at the high end for the sector. It is trading at a large discount to its asset backing and has an attractive dividend yield." Simpson gave the stock an "accumulate" rating.
That report was issued before DNZ's surprise move this week where it wants to issue Argosy unitholders with DNZ shares and de-list Argosy.
Stephen Ridgewell, of Macquarie, said a massive new entity was in the offing.
"DNZ has proposed to merge with Argosy, which, if successful, would create a property vehicle with $1.6 billion of total assets, the second largest listed on the NZX." He said both business had similar quality portfolios, characterised by older, smaller, lower quality assets well diversified by sector and geography.
- Annie Gibson
