Argosy Property: Navigating Geopolitical Storms with a Dividend Policy Reset
The REIT's FY26 results show resilience amid Iran-driven inflation, but the shift to FFO-based dividends signals a cautious outlook.
ARG.NZ · Earnings Call · 2026-05-19
A year buffeted by geopolitical storms
Argosy Property’s FY26 results, reported on 19 May, were framed by CEO Peter Mence as a year that "has not been without its challenges." The sudden outbreak of geopolitical events — specifically the war in Iran — and the return of imported inflation disrupted an otherwise stable portfolio. Mence noted that conversion rates in leasing had pushed out by over a month, but retention rates had climbed to a decade-high, as tenants chose to stay put. “It's fair to say that the year has not been without its challenges. We came back from a Christmas break, reasonably positive, and then we ended up with a war and Iran and the return of nonproductive imported inflation” — Peter Mence, CEO · 2026-05-19 The portfolio itself proved resilient. Net property income grew 3.3% to $120.8 million, helped by rent reviews that came in better than expected. The company also benefited from a revaluation gain, despite valuers flagging the conflict. Meanwhile, the green building segment continued to outperform, with strong tenant demand for 5- and 6-star rated space.Dividend policy reset
Perhaps the most significant strategic shift came with the Board’s decision to change the dividend policy from a Funds from Operations (FO) basis to the more common FFO measure. CFO David Fraser explained the rationale:The shift to new policy targets 80-95% of FFO, replacing the previous FO-based range. This allows for a more sustainable dividend profile, as the company can better buffer against the lumpiness of maintenance CapEx and tenant incentives. Fraser noted the change was modelled against a 10-year plan and that the midpoint of the new range provides ample buffer. Analysts pressed on whether the new policy could lead to over-distribution, but management maintained that sustainable dividend remains the priority. Guidance for FY27 was unchanged at $0.0665 per share, within the new target range.We moved to an FO 85% to 100% of FO 4 years ago, and it's no secret, we've really struggled with the volatility of the FO adjustments. And when we look back at the last 10 years and compared FFO and FO, it's quite clear that FFO is more stable. So the Board is quite keen to move to something that's a little bit more stable.
Leasing and portfolio resilience
Despite the macro headwinds, leasing activity showed pockets of strength. The Neilson Street development, which achieved a gold award and best-in-category for sustainability, is under a conditional agreement with a tenant, though the start date has slipped to March next year. At Albany Mega Centre, international tenant inquiry is strong, and rentals are showing upside. Industrial leasing remains slow, but high-quality green buildings are attracting interest. The office market, particularly in Wellington, has surprised on the upside. Management also highlighted a robust domestic buyer appetite for assets, with several divestments completed above book value. This echoes prior calls where analysts questioned the effectiveness of the DRP and the FO-based dividend policy. As one analyst noted, "Do you think the DRP is being overly conservative at this point in time? It's just a very expensive way to raise money where your share price is?" “Do you think the DRP is being overly conservative at this point in time? It's just a very expensive way to raise money where your share price is?” — Rohan Koreman-Smit, Analyst · 2025-11-18 — a concern that now seems addressed with the DRP suspended for the current dividend. The company also continued to shed noncore properties, and debt to total assets has fallen to just over 36% post-balance date.Outlook: Prepared for the worst
Looking forward, Peter Mence painted a cautious picture:The company expects construction costs to rise 10-15% on the back of oil prices, further dampening development. However, the portfolio is described as "nicely resilient," with strong tenant retention and a solid balance sheet. The dividend policy change aligns with a prudent approach to capital management, and management left the door open for share buybacks should the discount to NTA persist and noncore asset sales continue. This combination of geopolitical exposure, a strategic dividend reset, and a cautiously optimistic leasing story makes Argosy a name to watch in the NZ property sector.We do expect, therefore, there will be little development activity. The sector of stagflation is very real. Fuel costs, interest rates are not positive for the market, and we do expect to see some flow-through from that. So the reality is it's prepared for the worst and hope for the best.