Listed Property Trusts

[BlackPeter]

Cash cash cash

Not earnings. Anyone can post funny money revaluation earnings.

Show me the money.

No need to shout, it is impolite and just shows everybody that you are running out of arguments.

I am sure, if you sit down and think you might find the money yourself. The real money is whatever they receive as lease payments (minus admin costs) - ah yes ... and the real NTA for their assets (which may be more or less than the current valuation).

As long as customers need these buildings, they will be very happy to pay either the rent or buy or build them for themselves, i.e. the building costs are real money and belong into the valuation (and if they rise into the earnings) of the company.

It is real money they make and have on their balance sheets - unless nobody needs these buildings anymore - or they are available cheaper somewhere else. Are they?

[SailorRob]

No need to shout, it is impolite and just shows everybody that you are running out of arguments.

I am sure, if you sit down and think you might find the money yourself. The real money is whatever they receive as lease payments (minus admin costs) - ah yes ... and the real NTA for their assets (which may be more or less than the current valuation).

As long as customers need these buildings, they will be very happy to pay either the rent or buy or build them for themselves, i.e. the building costs are real money and belong into the valuation (and if they rise into the earnings) of the company.

It is real money they make and have on their balance sheets - unless nobody needs these buildings anymore - or they are available cheaper somewhere else. Are they?


The money is what they receive in lease payments minus ALL costs. Admin costs are just one component of total expenses. In many businesses these total expenses are not even known period to period and not accounted for properly. They are just invented but discovered sooner or later.

The real NT value of their assets is purely a function of what those assets can earn in cash either now or in the future. The NTA value is not cash flow or earnings and neither is the change in NTA. The NTA is ultimately whatever someone wants it to be based on their desired return.

The building costs are real money and belong into the valuation eh? So the building costs of a new Refinery belonged in the valuation of the existing well maintained refinery? Ok...

As I said show me the money.

Study the last 15 years of cash flow statements and tell me how much cash has been produced after ALL expenses (not admin).

Once you give me that number, tell me what return you want to make and I will tell you the NTA.

Replacement cost factors in but only in the context of what cash can be produced.

[BlackPeter]

The money is what they receive in lease payments minus ALL costs. Admin costs are just one component of total expenses. In many businesses these total expenses are not even known period to period and not accounted for properly. They are just invented but discovered sooner or later.

The real NT value of their assets is purely a function of what those assets can earn in cash either now or in the future. The NTA value is not cash flow or earnings and neither is the change in NTA. The NTA is ultimately whatever someone wants it to be based on their desired return.

The building costs are real money and belong into the valuation eh? So the building costs of a new Refinery belonged in the valuation of the existing well maintained refinery? Ok...

As I said show me the money.

Study the last 15 years of cash flow statements and tell me how much cash has been produced after ALL expenses (not admin).

Once you give me that number, tell me what return you want to make and I will tell you the NTA.

Replacement cost factors in but only in the context of what cash can be produced.

Look - you are clearly a man with an agenda ... and you don't even want to put in the effort to provide your numbers.

If you feel like messiah - behave like him and feed the poor who don't even understand their investment business as good as you think you do :p ;

It appears you don't agree with the market - and I can't blame you, so many idiots around shaping it.

However - if you want to prove something - put your numbers forward instead of holding empty lectures.

[SailorRob]

Look - you are clearly a man with an agenda ... and you don't even want to put in the effort to provide your numbers.

If you feel like messiah - behave like him and feed the poor who don't even understand their investment business as good as you think you do :p ;

It appears you don't agree with the market - and I can't blame you, so many idiots around shaping it.

However - if you want to prove something - put your numbers forward instead of holding empty lectures.


Give me a company sunshine.

[SailorRob]

Ok Argosy...

Generated 600 million in cash over the last 10 years, invested back into properties NET 660 million and by doing so have compounded cash generation at 4.5% for 10 years.

Then borrowed 400 million to pay a dividend while raising near 200 in equity.

Generating 70 million in cash off 2.3 billion total assets.

Is this a joke?

All the cash they earn they plow back at abysmal returns.

Where is your return coming from?

[BlackPeter]

Ok Argosy...

Generated 600 million in cash over the last 10 years, invested back into properties NET 660 million and by doing so have compounded cash generation at 4.5% for 10 years.

Then borrowed 400 million to pay a dividend while raising near 200 in equity.

Generating 70 million in cash off 2.3 billion total assets.

Is this a joke?

All the cash they earn they plow back at abysmal returns.

Where is your return coming from?

Just taking your numbers at face value ...

... didn't you forget that they sold from time to time some of their properties (with a nice gain I might say). Isn't this part of the profit as well?

.... and - didn't we forget that they currently own a lot of buildings. Just help us to understand what you think they are worth - and, if its less than book value - how you managed to calculate that number.

Just trying to understand how you measure profit:

If I used to buy a house for say 200k, put over some years (say) 400k in improvements and the house is now worth 1.2m - does this mean I made with your method a 200k loss?

Hmm ... I'd love to make more of these "losses".

[SailorRob]

Just taking your numbers at face value ...

... didn't you forget that they sold from time to time some of their properties (with a nice gain I might say). Isn't this part of the profit as well?

.... and - didn't we forget that they currently own a lot of buildings. Just help us to understand what you think they are worth - and, if its less than book value - how you managed to calculate that number.

Just trying to understand how you measure profit:

If I used to buy a house for say 200k, put over some years (say) 400k in improvements and the house is now worth 1.2m - does this mean I made with your method a 200k loss?

Hmm ... I'd love to make more of these "losses".


Didn't you forget that they sold from time to time some of their properties (with a nice gain I might say). Isn't this part of the profit as well?

Nope I netted all that out with the 660 NET addition... Google NET in financial terms.

and - didn't we forget that they currently own a lot of buildings. Just help us to understand what you think they are worth - and, if its less than book value - how you managed to calculate that number.

No we didn't forget, this is the entire point of my post, the budlings are worth only a capitalised amount on what they can return in cash. This is my entire argument.... Yes it's less than book value and I came to that by figuring out that even with an additional 660 million invested into them over the last 10 years they only generated 600 million in cash. It's a pittance on their supposed value.


If I used to buy a house for say 200k, put over some years (say) 400k in improvements and the house is now worth 1.2m - does this mean I made with your method a 200k loss?

It's worth what you can generate in rent less ALL expenses including a lot more depreciation than you ever thought possible and then capitalised at 8%. Someone will pay you 1.2m perhaps but unless you sell it now at a yield of 1% then it's not money or profit or earnings.

This silly game wont keep working, you've just ridden a once in history bid up to 1% returns...

Yes every cool guy has made 'money' over the last few years speculating in property, but it ain't earnings unless cash. The cool guy 200k plus 400k equals 1.2 million has only worked coz other cool guys have bid up the prices based on nothing buy speculation.

If you have bought a house for 200k and spent 400k on it and by doing so you have increased the rent to 200k per year then yes it's worth 1.2 and you've done well.

You're falling into the trap and this is why you've lost so much money that you will not get back.... as it was never there to begin with.

In aggregate investors can only earn what an asset produces in cash, so with your house all you can ever earn is what you can rent it for less all expenses. Unless you sell and then you may gain more or lose more.

[SailorRob]

Hmm ... I'd love to make more of these "losses".

Yeah I don't think you need to worry about that, you will!

[SailorRob]

I would never pay this much, but it could be argued that Argosy is worth as much as 700 million.

The only way it can make more money is by injecting massive amounts of additional capital and even so it's Earnings have increased incredibly slowly.

I think paying 700 would be a mistake, which would be 82c a share or something, but you'd maybe get a 10% return.

[Aaron]

I would never pay this much, but it could be argued that Argosy is worth as much as 700 million.

The only way it can make more money is by injecting massive amounts of additional capital and even so it's Earnings have increased incredibly slowly.

I think paying 700 would be a mistake, which would be 82c a share or something, but you'd maybe get a 10% return.

About 85cents per share for a roughly 8% yield. At current prices I think the yield is roughly 6% gross which is less than ARG bonds on the secondary market. In a rising interest rate environment more chance of the dividend decreasing than increasing and shareholders will be tapped for funds if we actually get quantitative tightening. That said once central banks pivot on interest rates and start providing "liquidity" current prices might look good.

I may be getting this wrong but since 2008 earnings and dividend per share have dropped, but this might be due to the trading in properties BP mentions. If the proceeds have been paid out then the shares now should be worth less than they were 15years ago. Is that right?

[SailorRob]

About 85cents per share for a roughly 8% yield. At current prices I think the yield is roughly 6% gross which is less than ARG bonds on the secondary market. In a rising interest rate environment more chance of the dividend decreasing than increasing and shareholders will be tapped for funds if we actually get quantitative tightening. That said once central banks pivot on interest rates and start providing "liquidity" current prices might look good.

With the caveat that this isn't a company or industry I really follow, I'll try and answer your question in 2 parts, though the second part of your question might take me too much time to look into.

So I wouldn't just focus on the dividend yield, rather where it comes from. They can borrow money or sell property to pay a dividend and obscure what's actually going on. So when I said it could be worth as much as 700 million, that was based off looking over some cash flow data from a data provider rather than the companies actual financial statements.

If we look at the 2022 report (nearly a year out of date but I daresay better than this year will be) they generated 73.5 million in actual cash from the operating business and this seems like a reasonably pure number to me, not swung too much by anything. So I had based my 700 on 10 x the cash earnings. However looking at the actual statement, they took in the 73.5 and spent 60 of it on 'capital additions' so youd have to know exactly what that was, how much was maintenance vs how much is actually going to grow the business going forward. They also generated nearly 96 million from property sales, but you'd assume that will lower the operating cashflows going forward.

So the actual business only generated 14 million from the operations that is able to be paid out as a dividend, even though they paid out 45 million in dividends.

So I take back the comment about being possibly worth 700 million, probably nothing close to that, would take me some time to work it out. But assuming half of that CAPEX was maintenance then she's only worth around 400 million.

[SailorRob]

I may be getting this wrong but since 2008 earnings and dividend per share have dropped, but this might be due to the trading in properties BP mentions. If the proceeds have been paid out then the shares now should be worth less than they were 15years ago. Is that right?

So super quick look back at 2008, the total assets were about a billion less (which means little to me) but the cash earnings were also nearly half what they are today, so the company is worth more today than 2008, but share price may have been overvalued then or who knows what, splits etc... but looking at the whole company, more valuable today.

[ronaldson]

ARG net property income (generated from tenants, less property operating expenditure but plus insurance proceeds for rental loss) for FY18 $101.0m, FY19 $102.5m, FY20 $99.7m, FY21 $106.5m and FY22 $105.1m. FY23 yet to be advised. So about 4% increase over four years.

ARG pie dividend FY18 (paid quarterly in arrear) 6.20cps. ARG pie dividend FY23 6.65cps. So about 7.25% growth over 5 years.

ARG share price on 31 March 2018 $1.00. ARG share price on 31 March 2023 $1.11. So 11% increase in 5 years. All in all, given inflation and the wider market increase in the capital and rental values of commercial/industrial/office buildings over that timeframe (particularly in the Auckland and Wellington areas where ARG's portfolio is concentrated) these are not great figures for holders.

So where did the value go?

[BlackPeter]

I think what many people tend to oversee is that REITS are a classical example for cyclicals. While applying a buy and hold strategy still will create some sort of acceptable income (obviously, depending on your entry and what you call acceptable), earnings from them bought at random times and hold forever will always be mediocre.

I would not expect them to create an outstanding return for a randomly selected 10 or 15 year period.

The time to buy cyclicals is when they are in the doldrums (interest rates high) ... and the time to sell when they are up (and interest rates are low).

Now would be the time to buy REITS, unless one believes that interest rates will further rise - and any linear extrapolation from the last 10 or 15 years is just non sense, unless you want to hold forever and are happy to receive just a mediocre (though rather safe) return.

[Aaron]

Looking at the 2022 cashflow statement it shows how buying and selling properties obfuscate's the long term performance and as Ronaldson has said the property companies have tended to over trade for some reason.

You would think that properties would not change that quickly and like FP has said, just keep building up rental cashflows instead of wheeling and dealing.

BP relying on crazy central bank policy has worked for the last thirty years but that might be coming to an end (although I doubt it) In which case it matters what sort of cashflow an investment generates and some bogus NTA figure should make absolutely no difference to the investment decision.

The linear extrapolation you mention is just looking at what the company has achieved over the last few years. I would assume anyone buying a business would look at how a business has been going and what it has or has not achieved in the recent past. Not random at all but an important part of any due diligence.

Looking on the negative even further probably does not apply so much to the large tenants the property companies have, but a recession will put pressure on businesses and one of their biggest costs will be rent, so with working from home, online shopping demand for what the property companies are offering may not be that strong.

I like the idea of investing in property companies but it would have to be at the right price.

[SailorRob]

ARG net property income (generated from tenants, less property operating expenditure but plus insurance proceeds for rental loss) for FY18 $101.0m, FY19 $102.5m, FY20 $99.7m, FY21 $106.5m and FY22 $105.1m. FY23 yet to be advised. So about 4% increase over four years.

ARG pie dividend FY18 (paid quarterly in arrear) 6.20cps. ARG pie dividend FY23 6.65cps. So about 7.25% growth over 5 years.

ARG share price on 31 March 2018 $1.00. ARG share price on 31 March 2023 $1.11. So 11% increase in 5 years. All in all, given inflation and the wider market increase in the capital and rental values of commercial/industrial/office buildings over that timeframe (particularly in the Auckland and Wellington areas where ARG's portfolio is concentrated) these are not great figures for holders.

So where did the value go?


Yeah I see those net property income numbers, but they dramatically differ from the cash flows from operating. Understandable over single years but over 5 years they should match up some what.

Any idea what's going on? Ultimately the net income is a story, but the cash is cash, so wondering how they can be so different for so long.

[SailorRob]

BP relying on crazy central bank policy has worked for the last thirty years but that might be coming to an end (although I doubt it) In which case it matters what sort of cashflow an investment generates and some bogus NTA figure should make absolutely no difference to the investment decision.

The linear extrapolation you mention is just looking at what the company has achieved over the last few years. I would assume anyone buying a business would look at how a business has been going and what it has or has not achieved in the recent past. Not random at all but an important part of any due diligence.

Great points.

In my world what I highlighted in Red is all that matters ever, as the bogus NTA figure is just a function of rates which cant be predicted.

You can't eat it unless you sell it and if you sell it you can't buy it back cheaper unless you're going to trade rates.

[Lego_Man]

Yeah I see those net property income numbers, but they dramatically differ from the cash flows from operating. Understandable over single years but over 5 years they should match up some what.

Any idea what's going on? Ultimately the net income is a story, but the cash is cash, so wondering how they can be so different for so long.


Putting aside development, it's just a zero sum game between debt and equity holders. You have an asset that produces annuity cashflows with a small level of cashflow growth. You leverage up and pocket the difference as a nice compound return.

However this only really works in a steady or declining interest rate environment. In times like the current, the economics of the asset are just accruing to debt/bondholders and the residual equity holder gets less.

This is why equities that can actually grow their revenues double digits via new product sales are far better investments. And its why historically the REITs (and unlisted commercial property) traded at a considerable spread premium to bonds. The sector is still a giant value trap.

[BlackPeter]

BP relying on crazy central bank policy has worked for the last thirty years but that might be coming to an end (although I doubt it) In which case it matters what sort of cashflow an investment generates and some bogus NTA figure should make absolutely no difference to the investment decision.


Look - central bank policy may or may not be crazy, but I suppose they have to look at a bigger picture than at our small and selfish world of investors (or - shudder - traders ;) ): Crazy is in the eye of the beholder.

I agree that using any bogus figures in the investment decision is - well, bogus ... However not considering the value of the assets used to generate a return is just - well, crazy.

But this is where the problem lies, given that not just crazy and bogus, but as well value is in the eye of the beholder.

A glass of drinking water is worth - say - 0.01 cents, until you sell it to somebody who is thirsty and has no access to alternatives.

An office or storage building is worth whatever you dream up or hammer down, until you find somebody who needs it.

Clearly - all listed property trusts (well, the ones I do follow) have a significant values on their books, but whether it is more or less than NTA depends on the future demand of these buildings. Which means, determining this value is as futile as predicting future stock prices. Everybody has a strong opinion, but nobody knows

Nobody can do it, and fighting over stuff nobody knows is just a religious war - costing lots of resources without adding any value.

Anyway - lots of big egos fighting on this thread at the moment ... probably time to take some time out and enjoy the sunshine :) ;

[SailorRob]

Putting aside development, it's just a zero sum game between debt and equity holders. You have an asset that produces annuity cashflows with a small level of cashflow growth. You leverage up and pocket the difference as a nice compound return.

However this only really works in a steady or declining interest rate environment. In times like the current, the economics of the asset are just accruing to debt/bondholders and the residual equity holder gets less.

This is why equities that can actually grow their revenues double digits via new product sales are far better investments. And its why historically the REITs (and unlisted commercial property) traded at a considerable spread premium to bonds. The sector is still a giant value trap.


One of the best posts I have ever seen.

Simplicity is the ultimate in sophistication and often is best to step way back and just look at the big picture business model.

In some ways similar to a bank, where they need a upward sloping yield curve.

This is why I like OCA as the leverage is mostly interest free.

[Lego_Man]

One of the best posts I have ever seen.

Simplicity is the ultimate in sophistication and often is best to step way back and just look at the big picture business model.

In some ways similar to a bank, where they need a upward sloping yield curve.

This is why I like OCA as the leverage is mostly interest free.

Thanks! I agree the retirement villages are a far better way of playing the property theme, as they have an operating model that clips the ticket on the way through and an extremely strong demand tailwind.

[SailorRob]

However not considering the value of the assets used to generate a return is just - well, crazy.

Isn't it the other way around though?

That the return generated determines the value of the asset.

What you perhaps mean is considering the value of capital invested to generate the return, of course this is everything.

[SailorRob]

Thanks! I agree the retirement villages are a far better way of playing the property theme, as they have an operating model that clips the ticket on the way through and an extremely strong demand tailwind.


Do you know the answer to the question I replied to Ronaldson, how the property income figures differ so much from the operating cashflows?

I'd be interested to know.

[fungus pudding]

Isn't it the other way around though?

That the return generated determines the value of the asset.

What you perhaps mean is considering the value of capital invested to generate the return, of course this is everything.

The return determines value - precisely, but of course there is a correlation between the value and the return it can generate.

[Aaron]

Do you know the answer to the question I replied to Ronaldson, how the property income figures differ so much from the operating cashflows?

I'd be interested to know.

"Property income" does not include "admin expenses" , "interest" & "Gain/loss on derivatives". This plus some accruals maybe accounts for most of this difference in the 2022 accounts.

$105-12-26+12 = $79 c.f. $73 operating cashflow

Note 21 covers net profit to cashflow operating earnings.

[SailorRob]

"Property income" does not include "admin expenses" , "interest" & "Gain/loss on derivatives". This plus some accruals maybe accounts for most of this difference in the 2022 accounts.

$105-12-26+12 = $79 c.f. $73 operating cashflow

Note 21 covers net profit to cashflow operating earnings.

Makes sense thanks.

So no point in posting the property income over the years without subtracting the other expenses.

[Aaron]

But this is where the problem lies, given that not just crazy and bogus, but as well value is in the eye of the beholder.

Your right BP but why would an investor accept a return on investment less than the inflation rate?? Return free risk is not something a sane person would accept.

Looks like property company prices are on the way back up anyway so my view might be the insane one.

https://www.nzherald.co.nz/business/rate-cuts-by-november-kiwibank-economists-expect-recession-to-see-off-inflation/T62P4RR4Y5AYNPGKVKYT7V6HFY/

Rate cuts by November according to Kiwibank. I guess if investment returns were allowed to creep above the inflation rate we couldn't get rid of all the debt.

[BlackPeter]

Your right BP but why would an investor accept a return on investment less than the inflation rate?? Return free risk is not something a sane person would accept.

...


Many investors are happy to accept a return on investment below the rate of inflation.

Any (non junk-) bond these days would qualify ... and investors are queuing up (typically oversubscribed).

Remember the investors happy enough to buy some years ago bonds with negative interest rate running for 30 years?

So, I guess if you doubt there are investors around doing that, than I think we settled this question. If you however want to know WHY they do that, than I must pass as well. You need to ask them.

OK - this was a bit cheeky. I did buy myself a small amount of (non junk-) bonds paying something like 5+ %, i.e. below the current rate of inflation. The rational: They still make more money than money in a cash account ... and assuming inflation goes down, they might be a good investment in a year or so.

[SailorRob]

Many investors are happy to accept a return on investment below the rate of inflation.

Any (non junk-) bond these days would qualify ... and investors are queuing up (typically oversubscribed).

Remember the investors happy enough to buy some years ago bonds with negative interest rate running for 30 years?

So, I guess if you doubt there are investors around doing that, than I think we settled this question. If you however want to know WHY they do that, than I must pass as well. You need to ask them.

OK - this was a bit cheeky. I did buy myself a small amount of (non junk-) bonds paying something like 5+ %, i.e. below the current rate of inflation. The rational: They still make more money than money in a cash account ... and assuming inflation goes down, they might be a good investment in a year or so.


Fair post but real value is not in the eye of the beholder. It's in cash returns. That's what everyone agrees on, the eye of the beholder can change.

You keep on keeping on about the 'value' of the properties, they are worth nothing if they can't produce cash.

Take a drive through Europe.

[BlackPeter]

Fair post but real value is not in the eye of the beholder. It's in cash returns. That's what everyone agrees on, the eye of the beholder can change.

You keep on keeping on about the 'value' of the properties, they are worth nothing if they can't produce cash.

Take a drive through Europe.

I think we are taking about two completely different things. Measuring cash returns (one thing you seem to be really keen on) is, while more or less objective (remember creative accounting?) always looking backwards. While the past might be interesting to extrapolate into the future, it is just one sometimes more and sometimes less relevant input into the future performance of a company.

Remember: "Past performance is not indicative of future results" We all read this regularly in any fincncial disclosure, and it is one of the important lessons to learn in investing..

The value of an investment I am talking about is forward looking - describing the forward expected cash generation as well as any intrinsic value.

Your exclusive focus on cash generation is obviously non-sense. Take one extreme: gold - it generates no cash at all - and there are still droves of people happy to pay money for it. For some funny (and not measurable reason) did people always consider it over millennia as safe harbour of value ... and hey, it never generated any cash, but it still worked.

But even if we just consider your very narrow definition of value: NOBODY (not even you) is able to predict future cash generation, given that the future is not known. Meaning - value always will be subjective.

QED

Past cash generation (something one can measure) and future value (something nobody can measure at the time) are totally different things, but it sounds your focus is on the past. Nothing wrong with that, however - share prices are forward looking.

On a different note - I didn't get your remark re driving through Europe. You mean, values can change? That's what I said ... and not just in Europe. Has something to do with the future being unknowable.

[LaserEyeKiwi]

Weekly update:

14346

================================================== ==

14347

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Diesel prices finally starting to ease up a bit:

14348

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Shipping costs continue to plummet - now down 80% over last 12 months.

14349

Been almost exactly 6 months since my last “weekly update” - will post another after we get Stride’s results on Friday.

Interesting to see how much things have changed since then in regards to OCR & negative portfolio revaluations, and the relative lack in share price movement. Apparently a lot of the interest rate rises and valuation falls were indeed mostly priced in already 6 months ago.

Also nice to see my thoughts back then that inflation will drive increases in rental income has played out as hoped.

gearing has also remained well in check.

[Rawz]

Been almost exactly 6 months since my last “weekly update” - will post another after we get Stride’s results on Friday.

Interesting to see how much things have changed since then in regards to OCR & negative portfolio revaluations, and the relative lack in share price movement. Apparently a lot of the interest rate rises and valuation falls were indeed mostly priced in already 6 months ago.

Also nice to see my thoughts back then that inflation will drive increases in rental income has played out as hoped.

gearing has also remained well in check.

That would be great LEK. Those updates were really helpful

[LaserEyeKiwi]

Hot dog! That Reserve bank statement today that there are no more planned OCR hikes is quite something. Most unexpected. Top of the interest rate cycle all but confirmed (at least in the reserve banks eyes).

[Habits]

Hot dog! That Reserve bank statement today that there are no more planned OCR hikes is quite something. Most unexpected. Top of the interest rate cycle all but confirmed (at least in the reserve banks eyes).

KPG certainly benefited with an overdue but welcome lift to 92.5. In Feb the stock had rallied to $1 which I expect is the next target price.

[LaserEyeKiwi]

6 month update:

14613

We have had the annual results now reported from the 5 names on our watchlist that end there financial year on March 31st. The other 3 (VHP, PFI, PCT) next report in August/September.

- Operating income & rental income have risen thanks to rent reviews.
- Occupancy rates remain very good at 99-100% occupied.
- All names have had sizable drops in portfolio values, which under NZ accounting rules translated to net income losses.
- Despite the valuation drops, share prices remain way below the lowered NTA values.
- Gearing remains well under control (33% average), nowhere near breaching lending covenants (and far lower than what one sees in the disastrous USA market)
- No one has had to perform a capital raise. Some have sold non-core assets, and some have reinstated dividend reinvestment programs.
- A wide disparity in gross dividend yields remain, seemingly uncorrelated with growth.

In the last 6 months the OCR has increased from 4.25% to 5.5%.

[Muse]

thanks LEK - well appreciated.

[SPC]

Appreciate the update LEK, thankyou.

[bull....]

might be some bargains if property market does stabilize this yr

[BlackPeter]

might be some bargains if property market does stabilize this yr

True, more importantly if interest rates stop rising (which obviously is closely linked). RBNZ seems to think so.

Anyway - I am optimistic ... and buying. Don't really believe in joining the queue only when everybody is already chasing the price up.

[Snoopy]

Not that Kiwi will show a net profit anyway in the upcoming half year report given the portfolio devaluation.


I am interested in how property devaluations have hit the big eight listed property companies over their most recent reporting year. The only one of the 'big eight' not to report a significant devaluation is Precinct properties. But that is merely because it has a later reporting date than the others of 30th June 2023. Not all of the big eight property companies are created equal, in terms of the size and composition of their portfolios. For analysis purposes, my preference is to present the devaluation data 'as is', rather than attempt any clever (that turns out to be not so clever) equalising adjustment process.




FY Balance DateFY Property Write-down (A)EOFY Property Book Value (B)
Percentage Writedown (B)/(B+A)Weighted Average Lease Expiry
Incremental 'FY'O'FY' One Year Government Stock Rate movement


Goodman
31/03/2023-$238m$4,791m
-4.73%6.4 years
+1.59pp


Vital Healthcare
30/06/2023-$216m$3,339.2m
-6.47%Not Available
+1.88pp


Property for Industry
31/12/2022-$56.7m$2,117.2m
-2.61%5.1 years
+2.80pp


Precinct Properties
30/06/2022Not Applicable$2,731.6m
Not Applicable7.4 years
+1.61pp


Argosy Properties
31/03/2023-$148.6m$2,184.9m
-6.29%5.4 years
+1.59pp


Investore
31/03/2023-$185.2m$1,070.5m
-14.8%8.1 years
+1.59pp


Stride (SPL only)
31/03/2023-$118.5m$1,254.1m
-8.63%5.5 years
+1.59pp


Kiwi Property Group
31/03/2023-$317.8m$3,063.8m
-8.87%4.4 years
+1.59pp



Lots of data above. So what is the significance of it all? My clock has ticked past the 9:30pm witching hour aka my 'stupid hour' after which I am likely to post nonsense. So I am going to leave my commentary until tomorrow. Sleep well.

SNOOPY

[SailorRob]

True, more importantly if interest rates stop rising (which obviously is closely linked). RBNZ seems to think so.

Anyway - I am optimistic ... and buying. Don't really believe in joining the queue only when everybody is already chasing the price up.

What is the RBNZ record of predicting future interest rate moves?

That's right, so why even mention them?

What free cash flow yields are you getting when you make these purchases, and why are you happy with 2%?

[Snoopy]

Precinct Properties has a financial year ending 30th June.

I want to start this sector review by looking at the one company that hasn't (or more correctly hasn't yet) suffered a signification 'valuation hit' on its property portfolio: Precinct Properties. Here is what Precinct Properties said about their valuation gain over FY2022.

-------------

Precinct recorded an annual revaluation gain in FY22 of $19.4 million (2021: $282.9 million), equating to a 0.5% increase on the year end book values, driven mainly by development profit recognition. The revaluation gains for the period were predominantly attributed to market rental growth and positive leasing activity but partially offset by capitalisation rates remaining flat or slightly softening year-on-year. This outcome reflects greater confidence in the office market but impacted by rising interest rates over recent months.

-----------------

Precinct were saying that higher interest rates were hitting them, but this was being offset by profits on developments and modest operational improvements.

The period under review saw reference government stock 1 year rates rise from 1.72% to 3.33% (I am using government 1 year stock rates as an indicator proxy for portfolio valuation discount rates). According to AR2022 p90, this underlying change did increase the 'discount rate' used from 5.4-7.4% to 5.6-8.0% and the 'terminal capitalisation rate' from 4.5-7.0% to 4.6-7.3%. The government one year stock rate rose 3.33%-1.72%=1.61 percentage points over the period. Yet that affected the discount rate by a mere 0.2 to 0.6 percentage points? I am not expert in determining discount rates but something isn't adding up here. Why was the property valuation discount rate increased by such a tiny amount, compared to what was going on with interest rates in the rest of the market?

a/ Were the valuers 'behind the times' and not using up to date market interest rate information?
b/ Were they looking through the obvious interest rises, being of the opinion the market was getting ahead of itself (if that was the case, history has shown they were badly mistaken)? I find it very strange that such a significant interest rate rise was downplayed for whatever reason.
c/ Were overseas valuers sniffing around looking at Precinct Properties as a possible investment prospect with overseas partners, (which has now come to pass by PCP shares being split into stapled security to allow capital investment from a Singaporean partner)? And were those overseas investors valuing the property portfolio higher than what a local valuer would?

I don't understand what went on here. No such repeat hiding from interest rate rises will be possible when the FY2023 results are released.

SNOOPY

[LaserEyeKiwi]

I want to start this sector review by looking at the one company that hasn't (or more correctly hasn't yet) suffered a signification 'valuation hit' on its property portfolio: Precinct Properties. Here is what Precinct Properties said about their valuation gain over FY2022.

-------------

Precinct recorded an annual revaluation gain in FY22 of $19.4 million (2021: $282.9 million), equating to a 0.5% increase on the year end book values, driven mainly by development profit recognition. The revaluation gains for the period were predominantly attributed to market rental growth and positive leasing activity but partially offset by capitalisation rates remaining flat or slightly softening year-on-year. This outcome reflects greater confidence in the office market but impacted by rising interest rates over recent months.

-----------------

Precinct were saying that higher interest rates were hitting them, but this was being offset by profits on developments and modest operational improvements. The period under review saw government stock 1 year rates rise from 1.72% to 3.33% (I am using government 1 year stock rates as an indicator proxy for portfolio valuation discount rates). According to AR2022 p90, this underlying change did increase the 'discount rate' used from 5.4-7.4% to 5.6-8.0% and the 'terminal capitalisation rate' from 4.5-7.0% to 4.6-7.3%. The government one year stock rate rose 1.61 percentage points over the period, yet that affected the discount rate by a mere 0.2 to 0.6 percentage points? I am not expert in determining discount rates but something isn't adding up here. Why was the property valuation discount rate increased by such a tiny amount, compared to what was going on with interest rates in the rest of the market?

a/ Were the valuers 'behind the times' and not using up to date market interest rate information?
b/ Were they looking through the obvious interest rises, being of the opinion the market was getting ahead of itself (if that was the case, history has shown they were badly mistaken)? I find it very strange that such a significant interest rate rise was downplayed for whatever reason.
c/ Were overseas valuers were sniffing around looking at Precinct Properties as a possible investment with overseas partners, (which has now come to pass by PCP shares being split into stapled security to allow capital investment from a Singaporean partner)? And were those overseas investors valuing the property portfolio higher than what a local valuer would?

I don't understand what went on here. No such repeat hiding from interest rate rises will be possible when the FY2023 results are released.

SNOOPY

They did record a small property revaluation on two of thier properties in their interim results, but in terms of overall portfolio I also think they are coming across as somewhat disingenuous given the statement in the interim report:

“An internal review of the 30 June 2022 property valuations undertaken at 31 December 2022 indicated no material value movement in the period for all assets apart from Commercial Bay Retail in Auckland and Defence House in Wellington. Accordingly, an independent valuation as at 31 December 2022 was completed for both these assets.”

[Snoopy]

Before I begin this 'close combatant comparison', I would like to note that for GMT, the financial years ends on 31st March, whereas for PFI the financial year ends on 31st December.

I now wish to turn my attention to what I would loosely term 'the big warehousing providers', 'Property For Industry' and 'Goodman Property Trust'. Weighted Average Lease Expiry (WALE) profiles are broadly similar although GMT at 6.4 years (verses PFI at 5.1 years) has the advantage.

From the AR2022 for Property For Industry on page 6
"Valuations across PFI’s portfolio decreased by just $56.7 million, or 2.6%, resulting in a portfolio value of $2.117 billion, down from the
high point last year of $2.169 billion."

I wonder why the word 'just' was inserted in the above sentence? The sentence would read completely accurately without that qualifier. Perhaps it was because the PFI share price had slumped from the $2.60 level in August/September down to $2.30 at the years end, and it was management's way of saying that the market have over-punished them?

On page 64 of AR2022 for PFI

We learn that over the year, the market capitalisation rate range for various properties changed from 3.48%-7.50% (average 5.49%) to 3.25%-7.75% (average 5.50%), effectively unchanged over the year, and
we learn that over the year, the discount rate range for various properties remained exactly the same compared to the previous year: 5.00% to 9.00%. (avg 7.0%)
Unusually the terminal discount rate widened in range, from 3.62-7.75% (average 5.69%) to 3.50-8.25% (average 5.88%), but without much change in the down the middle average rate. This nevertheless represented an increase of 0.19 percentage points.

Reference Government one year interest rates rose by 5.15%-2.35%= 2.80 percentage points over the year, yet there was almost no effect on PFI's discount rates used! Hmmm.

Now moving across to the Goodman Property Trust p7 AR2023, we get 'the admission'.
"a $237.7 million or 4.7% reduction in the fair value of its property assets (following independent valuations) has resulted in a statutory loss of $135.4 million after tax."

Followed by 'the explanation'
"After a long period of sustained value growth, rising interest rates have negatively impacted real estate investment yields. The quality of the Trust’s property assets and the continued strong rental growth being achieved, has significantly reduced the valuation impacts of increased capitalisation rates."

Turning to p63 in Goodman Report,
the market capitalisation rate over the year rose from 4.2% to 5.2%, an incremental rise of 1 percentage point
the discount rate over the year rose from 6.1% to 7.2%, an incremental rise of 1.1 percentage points
and the terminal capitalisation rate increased from 4.3% to 5.5%., an incremental rise of 1.2 percentage points.

Over the reporting period, government one year interest rates rose by: 4.97%-3.38%= 1.59 percentage points.

Comparing the two protagonists

I do find it intriguing that comparing GMT and PFI, a smaller rise in government reference interest rates at GMT over their reporting period gave rise to a larger increase in both the discount rate and the terminal capitalisation rate. One explanation could be that PFI are being 'a little less conservative' with their write downs.

Nevertheless, if you compare the actual discount rates and terminal capitalisation rates for both companies at the end of each respective reporting period, then you will find they are quite similar. This might suggest that in past periods Goodman were too optimistic with their discounting rates (i.e. setting them too low to boost their unit price) and it is only now with interest rates rising sharply they have seen the error of their ways and are fixing the situation.

Depending on how you view the comparative evolution of events, that will determine which company, either PFI or GMT, gets sent to the figurative 'naughty corner'.

SNOOPY

[Snoopy]

Next up under the Snoopy snout is Argosy Properties. The balance date at Argosy is 31st March.

This company's property ownership covers a diverse collection of properties incorporating three different sub sectors: Industrial, Office and Big Box Retail. The overall weighted average lease term of 5.4 years is further broken down looking at the three sub-sectors (AR2023 p20): Industrial 6.1 years, Office 5.2 years and Big Box retail 2.9years.

The overall portfolio was written down (AR2023 p35) by -$146.6m/($2,185m+$146.6m) = -6.29% over the year. But it is the sub-sector write downs that make particularly interesting reading :



Industrial: -$49.108m / ($1,139.359m + $49.108m)= -4.13%


Office: -$78.998m / ($857.289m + $78.998m)= -8.44%


Big Box Retail: -$18,451m / ($206.819m + $18.451m)= -8.19%



From AR2023 p37 we learn how the underlying property valuations are done:
"The valuations are prepared using a combination of the Capitalisation of Contract Income, Capitalisation of Market Income and Discounted Cash Flow methodologies. Discounted Cash Flow methodology is based on the estimated rental cash flows expected to be received from the property adjusted by a discount rate that appropriately reflects the risks inherent in the expected cash flows."

This is good detail on the valuation method. Yet, unlike the other protagonists so far, we are not told what discount rates were used! The information that is given is (from AR2023 p39 & p40:




Industrial FY2023Industrial FY2022Office FY2023Office FY2022Big Box Retail FY2023Big Box Retail FY2022
Total FY2023Total FY2022



Contract yield (what they are charging)
5.07%4.67%6.10%6.04%6.51%5.61%5.60%5.23%
.

Market yield (what they should be charging)
5.68%4.87%6.96%6.29%6.29%5.62%6.21%5.43%



Sometimes 'market yield' can be used as a discount rate. But in the case of GMT (where both figures are given) the market capitalisation rate is a good 2% below the discount rate, and that is the rule of thumb I would use here. However what is of most concern is the change in market capitalisation or discount rate over the year, and how that squares up with the one year change in government bond rate. We are told that the change in market capitalisation rate for the whole portfolio 'softened' (i.e. increased) by 0.68 percentage points to a level of 5.84% (AR2023 p17).

The change in reference government bond rate over FY2023 was: 4.97% - 3.38% = 1.59 percentage points. But the overall discount rate at Argosy (as indicated by the market rate) increased by only: 6.21% -5.43% = 0.8 percentage points. If we compare this to PFI (a 2.8% reference rise lead to a 0.2% discount rate rise) and GMT (a 1.59% reference rate rise lead to a 1.1% discount rate rise), we can see that the resulting discount rate rise effect aligned with GMT much more closely than PFI.

What I think is interesting (as noted by Habits, post 1796) is that of the three property sub-categories, industrial property looks to have held up its value best. Yet the nearest equivalent pure industrial property play (GMT) saw a greater discount rate rise than our mixed category property investor Argosy. This is very surprising to me. I would have thought that the substantial 'office' component of the Argosy property portfolio, with its 'higher interest depreciation whack', would increase the discount rate at Argosy relative to GMT. How has the opposite happened?

I see that 'government sector rental income', probably office buildings, make up 34% of all rental income (AR2023 p11). Given the total office portfolio mix is 38% (AR2013 p19), does this indicate that 34/38= 89% of the office portfolio is rented to government departments? If so, does that reduce the future income risk profile, and hence 'discount factor'?

Next up we have the big box retail stores with a surprisingly low WALE of just 2.9 years. Does the short average lease duration mean less is liable to go wrong with the tenancies, which in turn demands a lower discount factor?

I admit I am just casting my thoughts on paper here. I don't really know why Argosy is implicitly using such a relatively low implied discount rate. If there is no good reason (apart from not wanting to see the value of the property portfolio drop more - and so 'protect' shareholders) then maybe there is a place for Argosy too in that figurative 'naughty corner'?

SNOOPY

[Habits]

Office and Big Box are the worst hit at over 8 percent

Thanks for your thoughts and reports snoop

[SailorRob]

Next up under the Snoopy snout is Argosy Properties. This company's property ownership covers a more diverse collection of properties incorporating three different sub sectors: Industrial, Office and Big Box Retail. The overall weighted average lease term of 5.4 years is further broken down looking at the three sub-sectors (AR2023 p20): Industrial 6.1 years, Office 5.2 years and Big Box retail 2.9years.

The overall portfolio was written down by 6.92% over the year. But it is the sub-sector write downs that make particularly interesting reading (AR2023 p35):



Industrial:
-$49.108m / ($1,139.359m + $49.108m)
= -4.13%


Office:
-$78.998m / ($857.289m + $78.998m)
= -8.44%


Big Box Retail:
-$18,451m / ($206.819m + $18.451m)
= -8.19%



From AR2023 p37 we learn how the underlying property valuations are done:
"The valuations are prepared using a combination of the Capitalisation of Contract Income, Capitalisation of Market Income and Discounted Cash Flow methodologies. Discounted Cash Flow methodology is based on the estimated rental cash flows expected to be received from the property adjusted by a discount rate that appropriately reflects the risks inherent in the expected cash flows."

This is good detail on the valuation method. Yet, unlike the other protagonists so far, we are not told what discount rates were used! The information that is given is (from AR2023 p39 & p40:




Industrial FY2023
Industrial FY2022
Office FY2023
Office FY2022
Big Box Retail FY2023
Big Box Retail FY2022
Total FY2023
Total FY2022


Contract yield (what they are charging)
5.07%
4.67%
6.10%
6.04%
6.51%
5.61%
5.60%
5.23%


Market yield (what they should be charging)
5.68%
4.87%
6.96%
6.29%
6.29%
5.62%
6.21%
5.43%



Sometimes 'market yield' can be used as a discount rate. But inProgress the case of GMT (where both figures are given) the market capitalisation rate is a good 2% below the discount rate, and that is the rule of thumb I would use here. However what is of most concern is the change in discount rate over the year, and how that squares up with the one year change in government bond rate.

The change in government bond rate over FY2023 for Argosy was: 4.97% - 3.38% = 1.59 percentage points. But the overall discount rate at Argosy (as indicated by the market rate) increased by only: 6.21% -5.43% = 0.8 percentage points. If we compare this to PFI (a 2.8% reference rise lead to a 0.2% discount rate rise) and GMT (a 1.6% reference rate rise lead to a 1.1% discount rate rise), we can see that the resulting discount rate rise effect aligned with GMT much more closely than PFI.

What I think is interesting (as noted by Habits, post 1796) is that of the three property sub-categories, industrial property looks to have held up its value best. Yet the nearest equivalent pure industrial property play (GMT) saw a greater discount rate rise than our mixed category property investor Argosy. This is very surprising to me. I would have thought that the substantial 'office' component of the Argosy property portfolio, with its 'higher interest depreciation whack', would increase the discount rate at Argosy relative to GMT. How has the opposite happened?

I see that 'government sector rental income', probably office buildings, make up 34% of all rental income (AR2013 p11). Given the total office portfolio mix is 38% (AR2013 p19), does this indicate that 34/38= 89% of the office portfolio is rented to government departments? If so, does that reduce the future income risk profile, and hence 'discount factor'?

Next up we have the big box retail stores with a surprisingly low WALE of just 2.9 years. Does the short average lease duration mean less is liable to go wrong with the tenancies, which in turn demands a lower discount factor?

I admit I am just casting my thoughts on paper here. I don't really know why Argosy is implicitly using such a relatively low implied discount rate. If there is no good reason (apart from not wanting to see the value of the property portfolio drop more - and so 'protect' shareholders) then maybe there is a place for Argosy too in that figurative 'naughty corner'?

SNOOPY



How much cash can it produce after ALL expenses are properly counted for.

And what is this number in relation to market cap.

[Snoopy]

How much cash can it produce after ALL expenses are properly counted for.

And what is this number in relation to market cap.


We are sailing on a different ship on this thread SailorRob. In isn't about counting the 'cash stash'. This thread is all about consuming PIEs, and getting fat on the good ship 'Rent Collection', while keeping the tax man (bless him) confined to his cabin as much as legally possible, as the good ship sails on.

SNOOPY

[kiwikeith]

I went to see the Argosy roadshow in Palmy today. Peter Mence is a polished presenter. He seemed upbeat about the bigbox low lease expiry number. He said a lot of it was currently under-rented ie the current rent is lower than the market rent - so as these leases expire we can expect an increase in rents from new tenants.

[Snoopy]

The balance date for the Kiwi Property Group is 31st March

Relying on the signal from my sniffer, it was a bit of a smelly year at the Kiwi Property Group. Here is the Chairman's 'note to the teacher' explaining what happened (AR2023 p7):

"Unfortunately, despite this strong operational performance, rising capitalisation rates have negatively impacted the value of our property portfolio, which declined by 4.2% or $139.3 million in the second half of FY23 and contributed to a subsequent full-year net loss after tax of $227.7 million. These numbers are disappointing, however they are not unexpected given the stage of the property cycle and current economic headwinds. By continuing to drive sales, grow rents and diversify our income streams, we will help mitigate further devaluations."

Not a bad excuse letter and carefully worded given the circumstances. Just as well Chairman Mark Ford didn't mention the $178.6m of write downs in the first half of the year, or the report would have sounded much worse (actual annual decline in property portfolio was 8.87%)! And I like it how Mark is softening up shareholders for potential 'further devaluations' going forwards. The best way to mitigate the drag of 'headwinds' is to chop off your head. With KPG's culling of various high yielding blue chip shopping malls from their portfolio, to instead allow investment in unknown yielding development projects (like Drury), some might say Kiwi Property Group has already had a 'good go' with the guillotine.

Today's 'Kiwi Property Group' falls under a dual vision:
i/ 'Mixed use sites', like Sylvia Park which has a shopping mall, an office hub and a living tower accommodation component, AND
ii/ 'Stand alone office towers'.

On a segmented basis, the size of the write down over the year was (AR2023 p61):

'Mixed Use': $154.392m / ($154.392m+$1,912.649m) = -7.5%
('Sylvia Park only' $91.634m / ($91.634m+$1,510.324m) = -5.7%)
('Lynmall only' $60.130m / ($60.130m+$206.000m) = -22.6%)

'Office Towers': $116.679m / ($116.679m+$879.110m) = -11.7%

For 'mixed use'

the core capitalisation rate has risen over the current financial year (AR2023 p67) from 5.3%-6.5% (Avg 5.9%) to 5.5%-7.3% (Avg 6.4%), a rise of 6.4%-5.9%= 0.5 percentage points.
the discount rate has risen over the current financial year (AR2023 p67) from 7.3%-8.0% (Avg 7.65%) to 7.3%-9.3% (Avg 8.3%), a rise of 8.3%-7.65%= 0.65 percentage points.
Meanwhile the 'terminal capitalisation rate' jumps from 5.6%-6.6% (Avg 6.1%) to 5.8% -7.3% (avg 6.55%), a rise of 6.55%-6.1%= 0.45 percentage points.

For 'office towers'

the core capitalisation rate has risen over the current financial year (AR2023 p67) from 4.5%-5.8% (Avg 5.15%) to 5.1%-5.8% (Avg 5.45%), a rise of 5.45%-5.15%= 0.3 percentage points.
the discount rate has risen over the current financial year (AR2023 p67) from 6.0%-6.8% (Avg 6.4%) to 6.5%-7.5% (Avg 7.0%), a rise of 7.0%-6.4%= 0.6 percentage points.
Furthermore, the 'terminal capitalisation rate' jumps from 4.8%-6.0% (Avg 5.4%) to 5.4% -6.3% (avg 5.85%), a rise of 5.85%-5.4%= 0.45 percentage points.

These discount rate and terminal capitalisation changes should be compared to the jump in the reference interest rate: 3.38% to 4.97% (the one year government bond rate), which represents a rise in underlying interest rates of: 4.97%-3.38%= 1.59 percentage points.

So what to make of all these numbers? The writedown of the KPG office blocks (-11.7% + outlook more) is a lot. KPG have marked down their office properties more savagely than what happened to the office units at Argosy (-8.44%). Yes these figures are directly comparable, because the write downs happened over the same time period. Yet the discount rate that increased more over the year was at ARG (by 0.8%) rather than KPG (by 0.6%). Is this a signal that the office portfolio at KPG is noticeably of lower grade value than at ARG?

The office portfolio at KPG consisted of:
i/ The Vero Centre (Auckland): Mixed tenancy principally legal insurance and investment firms, including Russell McVeagh, Vero, Bell Gully, Asteron Life, NIB and Craigs.
ii/ ASB North Wharf (Auckland): ASB Bank Head Office
iii/ The Aurora Centre (Wellington): Ministry of Social Development
iv/ 44 The Terrace (Wellington): All office floors leased by government tenants, including the commerce commission (sold December 2022 for $48m to RJH).
(Note: The Aurora Centre was sold after the financial year end 31-03-2023)

All of these look like high quality stable tenants to me. Why didn't Argosy write down their office properties at an equivalent rate to KPG, as exposed here? Could it be Argosy's commitment to 'Green Assets' 31% of the portfolio, including '6 star buildings', that is making the discounted valuation difference? Another possibility for the write down discrepancy relates to Kiwi Property Group transitioning from being a 'property owner' to an 'all purpose town centre developer'. KPG may have marked down their office properties to the low end of the valuers range. That way, should they find a buyer for their two remaining office buildings, it is much more likely those buildings will sell at a profit. A profit, in this market, will make management will look heroic.

Of note is that KPG has the shortest weighted lease expiry date of the eight at just 4.4years. AR2023 p43 would suggest this is a bit of an aberration. possibly not helped by the portfolio rationalising and restructuring. The FY2019 to FY2022 WALEs look to be hovering around five years, which is more normal for property companies.

The following excerpt from AR2023 p15 allays my initial concern:
"Our property portfolio was almost entirely leased on 31 March 2023, with occupancy sitting at 99.3%. Rental growth was similarly robust, with rent reviews and new leasing up 5.3% and 4.4% respectively, despite the challenging economic environment. Together, these figures reinforce the strength of tenant demand for space in Kiwi Property’s mixed-use and office assets, and with our speciality gross occupancy cost ratio (a key measure of tenancy affordability) remaining at a conservative 12.9%, there is scope for the company to drive further rental growth in the future."

KPG is the only one of the 'big eight' promoting the 'working', 'living' and 'shopping' balance dream on one site. Right now it is a dream because even the most advanced of the four greater development sites (Sylvia Park, Lynmall , The Base and Drury), -which is Sylvia Park- has no rent-able accommodation available yet. It sounds good. But will tenants buy into the model? Managing accommodation requires quite a different skillset to managing retail shops. Can the KPG management structure adapt? With the blowout in construction costs, what will the return on investment look like? KPG looks like the member of the top eight with the biggest execution risk. Mt Market knows this and has priced KPG at the biggest discount to NTA.

The revaluing downwards of these 'village' development site assets (-7.5%) has been less severe than equivalent devaluations of shopping malls, office buildings and accommodation assets held as stand alone entities. KPG has therefore already baked in the hoped for synergies into these new downsized property valuations. And if the synergies don't work out as planned......?

Returning to our analogy of the 'classroom of eight', I don't see any danger of KPG becoming the 'teachers pet'. But what about the 'teachers mup-pet'? That remains a distinct possibility, even if KPG haven't done enough for a standing stint in the naughty corner yet.

SNOOPY

[SailorRob]

We are sailing on a different ship on this thread SailorRob. In isn't about counting the 'cash stash'. This thread is all about consuming PIEs, and getting fat on the good ship 'Rent Collection', while keeping the tax man (bless him) confined to his cabin as much as legally possible, as the good ship sails on.

SNOOPY


For every dollar PIE you eat you lose only about 10 in share price.

[SailorRob]

I went to see the Argosy roadshow in Palmy today. Peter Mence is a polished presenter. He seemed upbeat about the bigbox low lease expiry number. He said a lot of it was currently under-rented ie the current rent is lower than the market rent - so as these leases expire we can expect an increase in rents from new tenants.


Just what you want to see is a polished presenter.

Better still if it was in a cheap hotel.

Did the folk around you look to be sophisticated investors?

[Rawz]

I often look in the mirror and wonder if I look like a sophisticated investor

Not today. One day

[Snoopy]

Just what you want to see is a polished presenter.
Better still if it was in a cheap hotel.

Did the folk around you look to be sophisticated investors?


They were wearing big hats and smoking cigars. And one of them, named Scrooge McDuck, had just returned from swimming twenty laps in his money bin. So I guess the answer is - yes!

SNOOPY

[LaserEyeKiwi]

Relying on the signal from my sniffer, it was a bit of a smelly year at the Kiwi Property Group. Here is the Chairman's 'note to the teacher' explaining what happened (AR2023 p7):

"Unfortunately, despite this strong operational performance, rising capitalisation rates have negatively impacted the value of our property portfolio, which declined by 4.2% or $139.3 million in the second half of FY23 and contributed to a subsequent full-year net loss after tax of $227.7 million. These numbers are disappointing, however they are not unexpected given the stage of the property cycle and current economic headwinds. By continuing to drive sales, grow rents and diversify our income streams, we will help mitigate further devaluations."

Not a bad excuse letter and carefully worded given the circumstances. Just as well Chairman Mark Ford didn't mention the $178.6m of write downs in the first half of the year, or the report would have sounded much worse (actual annual decline in property portfolio was 8.87%)! And I like it how Mark is softening up shareholders for potential 'further devaluations' going forwards. The best way to mitigate the drag of 'headwinds' is to chop off your head. With KPG's culling of various high yielding blue chip shopping malls from their portfolio, to instead allow investment in unknown yielding development projects (like Drury), some might say Kiwi Property Group has already had a 'good go' with the guillotine.

Today's 'Kiwi Property Group' falls under a dual vision:
i/ 'Mixed use sites', like Sylvia Park which has a shopping mall, an office hub and a living tower accommodation component, AND
ii/ 'Stand alone office towers'.

On a segmented basis, the size of the write down over the year was (AR2023 p61):

'Mixed Use': $154.392m / ($154.392m+$1,912.649m) = 7.5%
'Office Towers': $116.679m / ($116.679m+$879.110m) = 11.7%

For 'mixed use' the discount rate has risen from 7.3%-8.0% (Avg 7.65%) to 7.3%-9.3% (Avg 8.3%), a rise of 8.3%-7.65%= 0.65 percentage points. Meanwhile the 'terminal capitalisation rate' jumps from 5.6%-6.6% (Avg 6.1%) to 5.8% -7.3% (avg 6.55%), a rise of 6.55%-6.1%= 0.45 percentage points.

For 'office towers' the discount rate has risen from 6.0%-6.8% (Avg 6.4%) to 6.5%-7.5% (Avg 7.0%), a rise of 7.0%-6.4%= 0.6 percentage points. Furthermore, the 'terminal capitalisation rate' jumps from 4.8%-6.0% (Avg 5.4%) to 5.4% -6.3% (avg 5.85%), a rise of 5.85%-5.4%= 0.45 percentage points.

These discount rate and terminal capitalisation changes should be compared to the jump in the reference interest rate: 3.38% to 4.97% (the one year government bond rate), which represents a rise in underlying interest rates of: 4.97%-3.38%= 1.59 percentage points.

So what to make of all these numbers? The writedown of the KPG office blocks (-11.7% + outlook more) is a lot. KPG may have marked down their office properties to the low end more savagely than what happened to the office units at Argosy (-8.44%). Yes these figures are directly comparable, because the write downs happened over the same time period. Yet the discount rate that increased more over the year was at ARG (by 0.8%) rather than KPG (by 0.6%). Is this a signal that the office portfolio at KPG is noticeably of lower grade value than at ARG?

The office portfolio at KPG consists of:
i/ The Vero Centre (Auckland): Mixed tenancy principally legal insurance and investment firms, including Russell McVeagh, Vero, Bell Gully, Asteron Life, NIB and Craigs.
ii/ ASB North Wharf (Auckland): ASB Bank Head Office
iii/ The Aurora Centre (Wellington): Ministry of Social Development
iv/ 44 The Terrace (Wellington): All office floors leased by government tenants, including the commerce commission (sold December 2022 for $48m to RJH).
(Note: The Aurora Centre was sold after the financial year end 31-03-2023)

All of these look like high quality stable tenants to me. Why didn't Argosy write down their office properties at an equivalent rate to KPG, as exposed here? Could it be Argosy's commitment to 'Green Assets' 31% of the portfolio, including '6 star buildings', that is making the discounted valuation difference? Another possibility for the write down discrepancy relates to Kiwi Property Group transitioning from being a 'property owner' to an 'all purpose town centre developer'. KPG may have marked down their office properties to the low end of the valuers range. That way, should they find a buyer for their two remaining office buildings, it is much more likely those buildings will sell at a profit. A profit, in this market, will make management will look heroic.

KPG is the only one of the 'big eight' promoting the 'working', 'living' and 'shopping' balance dream on one site. Right now it is a dream because even the most advanced of the four greater development sites (Sylvia Park, Lynmall , The Base and Drury), -which is Sylvia Park- has no rent-able accommodation available yet. It sounds good. But will tenants buy into the model? Managing accommodation requires quite a different skillset to managing retail shops. Can the KPG management structure adapt? With the blowout in construction costs, what will the return on investment look like? KPG looks like the member of the top eight with the biggest execution risk. Mt Market knows this and has priced KPG at the biggest discount to NTA.

The revaluing downwards of these 'village' development site assets (-7.5%) has been less severe than equivalent devaluations of shopping malls, office buildings and accommodation assets held as stand alone entities. KPG has therefore already baked in the hoped for synergies into these new downsized property valuations.

(continuing)

Thanks for these excellent posts Snoops.

The Vero centre & ASB north wharf left in their standalone office portfolio. They will sell these too no question about that - they are 100% all in in mixed use plan of collocated retail, big box, office & residential units. Other than the two remaining office towers, the plaza in palmy is left to sell after remediation work is complete (or might even sell before that like northlands did).

‘would recommend watching the kiwi AGM Q&A from last week - they were very honest about how much of a dog the Christchurch & Wellington portfolio had been over last decade due to the constant earthquake strengthening work ($250m+) which provided no return.

Of course the honesty only came after they had exited the Christchurch & Wellington market.

FYI the first build to rent residential complex at Sylvia is most of the way done structurally, aiming to be open in May.

[Rawz]

Yes thanks Snoopy. the cap rate vs risk free rate stuff is interesting.

Looks like more devaluations coming for all of the reits

[Snoopy]

Next two under the nose are the 'Stride Property Group' (SPG) and 'Investore' (IPL). The listed Stride is a stapled security, one part being a property management company Stride Management International Limited (SMIL) and the other part a 'property owning company' Stride Property Limited (SPL). SMIL Group is also the management company of Investore, and provide all people functions to Investore under contract. Investore itself has no staff of its own.

This review will concentrate on the SPL part of SPG, and IPL. SPL directly holds a portfolio of town centre and office property, as well as an 18.83% equity stake in Investore. Investore is an owner of Big Box Retail outlets. These are predominately Countdown supermarkets, but also "big boxes" owned by Bunnings, Foodstuffs, Mitre Ten and Briscoes (amongst others). SPL further, also owns a 51.7% stake in 'Industre' an industrial investment property holding company vehicle. Stride's 'Industre' has a minority partner in the business: JPMAM (a group of international investors in an asset management vehicle, administered by by JP Morgan).

There is extensive disclosure of SPL's property portfolio under note 3.2 of the Stride Property AR2023, including information on the 'discount rate' and 'terminal yield' used for property valuation purposes. I have added the equivalent big box retail valuation figures from section 2.2 in the Investore Annual Report 2023. This gives a unique insight into the differing treatment of four property sub classes under one property management company (SMIL). Cap rate, Discount rate and Terminal rate information below may be found in Stride AR2023 p60 and Investore AR2023 p42.

i/ The 'office' portfolio

has been valued at a capitalisation rate of 5.25-7.0% (Avg 6.13%), up from 4.50-6.13% (Avg 5.32%) the previous year. This represents an increase of 6.13%-5.32%= 0.81 percentage points over the year.
has been valued at a discount rate of 6.50-8.0% (Avg 7.25%), up from 6.00-7.25% (Avg 6.63%) the previous year. This represents an increase of 7.25%-6.63%= 0.62 percentage points over the year.
Likewise the Terminal Yield is now 5.50-7.25% (Avg 6.38%), up from the 4.88-6.38% (Avg 5.63%). This is an increase of 6.38%-5.63% =0.75 percentage points.

ii/ The 'town centre' portfolio

has been valued at a capitalisation rate of 6.63-7.38% (Avg 7.01%), up from 5.63-8.38% (Avg 7.01%) the previous year. This represents 'no change': 7.01%-7.01%= 0.0 percentage points.
has been valued at a discount rate of 8.00-8.38% (Avg 8.19%), up from 7.13-8.00% (Avg 7.57%) the previous year. This represents an increase of 8.19%-7.57%= 0.62 percentage points.
Likewise the Terminal Yield is now 7.00-7.63% (Avg 7.32%), up from the 5.00-6.63% (Avg 5.82%). This is an increase of 7.32%-5.82% =1.50 percentage points.

iii/ The 'industrial' portfolio

has been valued at a capitalisation rate of 4.88-5.50% (Avg 5.19%), up from 3.87-4.50% (Avg 4.19%) the previous year. This represents an increase of 5.19%-4.19%= 1.00 percentage points
has been valued at a discount rate of 7.13-7.35% (Avg 7.24%), up from 5.63-5.90% (Avg 5.77%) the previous year. This represents an increase of 7.24%-5.77%= 1.47 percentage points.
Likewise the Terminal Yield is now 5.63-5.79% (Avg 5.71%), up from the 4.13-5-4.50% (Avg 4.32%). This is an increase of 5.71%-4.32% =1.39 percentage points.

iv/ The 'big box retail' portfolio

has been valued at a capitalisation rate of 5.00-10.0% (Avg 7.50%), up from 4.00-10.0% (Avg 7.00%) the previous year. This represents an increase of 7.50%-7.00%= 0.50 percentage points.
has been valued at a discount rate of 5.38-11.0% (Avg 8.19%), up from 3.00-8.50% (Avg 5.75%) the previous year. This represents an increase of 8.19%-5.75%= 2.44 percentage points.
Likewise the Terminal Yield is now 4.75-10.25% (Avg 5.5%), up from the 4.00-11.0% (Avg 7.00%). This is an decrease of 5.50%-7.00% =-1.50 percentage points.

The reference interest rate rise, being the change in the one year government bond rate over the financial year(s) in question is: 4.97%-3.38%= +1.59 percentage points.

The corresponding net change in fair value of these property asst sub classes are as follows (ref Stride AR2023 p57).

Office Portfolio: $65.574m / ($547.400m+$65.574m) = -10.7%
Town Centre Portfolio: $5.921m / ($309.410+$5.921m) = -1.88%
Industrial Portfolio: $32.233m / ($150.010m+$32.223m) = -17.7%
Big Box Retail: $185,246m / ($1,070.451m + $185.246m) = -14.8%

So there is the 'base data' (and quite a lot of it). How does this fit with what has occurred at the 'other protagonists' we have inspected so far?

SNOOPY

[LaserEyeKiwi]

I want to start this sector review by looking at the one company that hasn't (or more correctly hasn't yet) suffered a signification 'valuation hit' on its property portfolio: Precinct Properties. Here is what Precinct Properties said about their valuation gain over FY2022.

-------------

Precinct recorded an annual revaluation gain in FY22 of $19.4 million (2021: $282.9 million), equating to a 0.5% increase on the year end book values, driven mainly by development profit recognition. The revaluation gains for the period were predominantly attributed to market rental growth and positive leasing activity but partially offset by capitalisation rates remaining flat or slightly softening year-on-year. This outcome reflects greater confidence in the office market but impacted by rising interest rates over recent months.

-----------------

Precinct were saying that higher interest rates were hitting them, but this was being offset by profits on developments and modest operational improvements. The period under review saw government stock 1 year rates rise from 1.72% to 3.33% (I am using government 1 year stock rates as an indicator proxy for portfolio valuation discount rates). According to AR2022 p90, this underlying change did increase the 'discount rate' used from 5.4-7.4% to 5.6-8.0% and the 'terminal capitalisation rate' from 4.5-7.0% to 4.6-7.3%. The government one year stock rate rose 1.61 percentage points over the period, yet that affected the discount rate by a mere 0.2 to 0.6 percentage points? I am not expert in determining discount rates but something isn't adding up here. Why was the property valuation discount rate increased by such a tiny amount, compared to what was going on with interest rates in the rest of the market?

a/ Were the valuers 'behind the times' and not using up to date market interest rate information?
b/ Were they looking through the obvious interest rises, being of the opinion the market was getting ahead of itself (if that was the case, history has shown they were badly mistaken)? I find it very strange that such a significant interest rate rise was downplayed for whatever reason.
c/ Were overseas valuers were sniffing around looking at Precinct Properties as a possible investment with overseas partners, (which has now come to pass by PCP shares being split into stapled security to allow capital investment from a Singaporean partner)? And were those overseas investors valuing the property portfolio higher than what a local valuer would?

I don't understand what went on here. No such repeat hiding from interest rate rises will be possible when the FY2023 results are released.

SNOOPY

PRECINCT (DE)VALUATION UPDATE:

Preliminary FY23 valuation movement

7/7/2023, 9:08 am GENERAL

Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) today reported a draft revaluation loss on its property portfolio of approximately $250 million, a decrease of 7.1% (2022: $19 million gain). The forecast valuation movement will decrease the value of Precinct’s portfolio to around $3.2 billion at 30 June 2023 and is expected to reduce net tangible assets by 16 cents per share.

Draft asset valuations at 30 June 2023 were undertaken by independent valuers, are subject to final audit, finalisation of year end book values and will be confirmed in the financial results for the year ending 30 June 2023, expected to be announced on 23 August 2023.

On a like for like basis, asset valuations decreased by around 8.6% and 5.3% in Auckland and Wellington respectively, compared with 30 June 2023 forecast book values. The decrease across the property portfolio was mainly attributable to an expansion in capitalisation rates.

Scott Pritchard, Precinct’s Chief Executive, said, “We have continued to see the rising interest rate environment place increasing pressure on investment returns and impact property valuations across all real estate sectors. For Precinct, this has resulted in a forecast $250 million reduction in Precinct’s property assets for the full year.”

“While property valuations are being impacted by expanding capitalisation rates, we continue to observe significant demand for Precinct’s assets and our view is that premium-grade real estate will continue to outperform. Precinct’s portfolio is benefiting from strong market rental growth being achieved across our leasing transactions which has partially offset the impact of the capitalisation rate expansion on our asset valuations.”

The weighted average capitalisation rate of Precinct’s portfolio is forecast to be 5.6%, compared to 4.9% at 30 June 2022.

[LaserEyeKiwi]

OOF. Precinct NTA likely fairly close to current share price.

Interesting situation given the discount to NTA other names are curerntly trading at after their recent valuation updates.

[Snoopy]

PRECINCT (DE)VALUATION UPDATE:

Preliminary FY23 valuation movement

7/7/2023, 9:08 am GENERAL

Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) today reported a draft revaluation loss on its property portfolio of approximately $250 million, a decrease of 7.1% (2022: $19 million gain). The forecast valuation movement will decrease the value of Precinct’s portfolio to around $3.2 billion at 30 June 2023 and is expected to reduce net tangible assets by 16 cents per share.

Draft asset valuations at 30 June 2023 were undertaken by independent valuers, are subject to final audit, finalisation of year end book values and will be confirmed in the financial results for the year ending 30 June 2023, expected to be announced on 23 August 2023.





OOF. Precinct NTA likely fairly close to current share price.

Interesting situation given the discount to NTA other names are currently trading at after their recent valuation updates.


So Precinct Properties finally coming clean on their property values at last? I looked back at your post 1785 LEK, and saw that at a share price of at $1.215, PCT were trading on an historical gross yield of 5.5%. Today the share price has 'come down' to $1.255 as I write this. PCT doesn't stand out against the other members of the class of eight, except that relatively, it looks like poor value now based on yield. But surely a big property write-down was a question of 'when' not 'if'. So I am surprised that Mr Market had apparently not priced this fall in asset value into the share price already. Mind you, a fall in value of 7.1% was probably at the upper end of expectations. Although some might say Precinct Property are simply being 'more honest' about declining property values than others.

We should bear in mind that this valuation fall has occurred over a period 30-06 2022 to 30-06-2023 where reference interest rates (I use the one year government stock rate) have risen from 1.77% to 4.67%, i.e. a rise of 2.90 full percentage points.

It doesn't sound as though we will know about the underlying re-alignment of discount rates that caused this asset price fall until 23 August 2023. I can re-evaluate how PCT stacked up against the 'class of seven others' then.

SNOOPY

[Snoopy]

Next two under the nose are the 'Stride Property Group' (SPG) and 'Investore' (IPL). The listed Stride is a stapled security, one part being a property management company Stride Management International Limited (SMIL) and the other part a 'property owning company' Stride Property Limited (SPL). SMIL Group is also the management company of Investore, and provide all people functions to Investore under contract. Investore itself has no staff of its own.

This review will concentrate on the SPL part of SPG, and IPL. SPL directly holds a portfolio of town centre and office property, as well as an 18.83% equity stake in Investore. Investore is an owner of Big Box Retail outlets. These are predominately Countdown supermarkets, but also "big boxes" owned by Bunnings, Foodstuffs, Mitre Ten and Briscoes (amongst others). SPL further, also owns a 51.7% stake in 'Industre' an industrial investment property holding company vehicle. Stride's 'Industre' has a minority partner in the business: JPMAM (a group of international investors in an asset management vehicle, administered by by JP Morgan).

There is extensive disclosure of SPL's property portfolio under note 3.2 of the Stride Property AR2023, including information on the 'discount rate' and 'terminal yield' used for property valuation purposes. I have added the equivalent big box retail valuation figures from section 2.2 in the Investore Annual Report 2023. This gives a unique insight into the differing treatment of four property sub classes under one property management company (SMIL). Cap rate, Discount rate and Terminal rate information below may be found in Stride AR2023 p60 and Investore AR2023 p42.

i/ The 'office' portfolio

has been valued at a capitalisation rate of 5.25-7.0% (Avg 6.13%), up from 4.50-6.13% (Avg 5.32%) the previous year. This represents an increase of 6.13%-5.32%= 0.81 percentage points over the year.
has been valued at a discount rate of 6.50-8.0% (Avg 7.25%), up from 6.00-7.25% (Avg 6.63%) the previous year. This represents an increase of 7.25%-6.63%= 0.62 percentage points over the year.
Likewise the Terminal Yield is now 5.50-7.25% (Avg 6.38%), up from the 4.88-6.38% (Avg 5.63%). This is an increase of 6.38%-5.63% =0.75 percentage points.

ii/ The 'town centre' portfolio

has been valued at a capitalisation rate of 6.63-7.38% (Avg 7.01%), up from 5.63-8.38% (Avg 7.01%) the previous year. This represents 'no change': 7.01%-7.01%= 0.0 percentage points.
has been valued at a discount rate of 8.00-8.38% (Avg 8.19%), up from 7.13-8.00% (Avg 7.57%) the previous year. This represents an increase of 8.19%-7.57%= 0.62 percentage points.
Likewise the Terminal Yield is now 7.00-7.63% (Avg 7.32%), up from the 5.00-6.63% (Avg 5.82%). This is an increase of 7.32%-5.82% =1.50 percentage points.

iii/ The 'industrial' portfolio

has been valued at a capitalisation rate of 4.88-5.50% (Avg 5.19%), up from 3.87-4.50% (Avg 4.19%) the previous year. This represents an increase of 5.19%-4.19%= 1.00 percentage points
has been valued at a discount rate of 7.13-7.35% (Avg 7.24%), up from 5.63-5.90% (Avg 5.77%) the previous year. This represents an increase of 7.24%-5.77%= 1.47 percentage points.
Likewise the Terminal Yield is now 5.63-5.79% (Avg 5.71%), up from the 4.13-5-4.50% (Avg 4.32%). This is an increase of 5.71%-4.32% =1.39 percentage points.

iv/ The 'big box retail' portfolio

has been valued at a capitalisation rate of 5.00-10.0% (Avg 7.50%), up from 4.00-10.0% (Avg 7.00%) the previous year. This represents an increase of 7.50%-7.00%= 0.50 percentage points.
has been valued at a discount rate of 5.38-11.0% (Avg 8.19%), up from 3.00-8.50% (Avg 5.75%) the previous year. This represents an increase of 8.19%-5.75%= 2.44 percentage points.
Likewise the Terminal Yield is now 4.75-10.25% (Avg 5.5%), up from the 4.00-11.0% (Avg 7.00%). This is an decrease of 5.50%-7.00% =-1.50 percentage points.

The reference interest rate rise, being the change in the one year government bond rate over the financial year(s) in question is: 4.97%-3.38%= +1.59 percentage points.

The corresponding net change in fair value of these property asst sub classes are as follows (ref Stride AR2023 p57).

Office Portfolio: $65.574m / ($547.400m+$65.574m) = -10.7%
Town Centre Portfolio: $5.921m / ($309.410+$5.921m) = -1.88%
Industrial Portfolio: $32.233m / ($150.010m+$32.223m) = -17.7%
Big Box Retail: $185,246m / ($1,070.451m + $185.246m) = -14.8%

So there is the 'base data' (and quite a lot of it). How does this fit with what has occurred at the 'other protagonists' we have inspected so far?



The balance date for both Stride and Investore is 31st March.

Stride

Starting from the top, the 'office tower' write-down is at -10.7%, a little less than at KPG (-11.7%), but more than Argosy (-8.4%), and what has been revealed over the last few days by Precinct (-7.9%). Note that all of these companies have the same end of financial year balance dates (31-03-2023) and hence the same reference rises in interest rates to deal with, except for Precinct (EOFY30-06-2023). The latest reporting year at Precinct was against a background of reference interest rate rises of 2.90 percentage points, compared to 1.56 percentage points for the others. So we would expect the write-downs at Precinct to be higher than at the others (Afternote: My expectation was wrong, the PCT property write-downs were in fact lower! Is this a continuation of the trend where Precinct are stubbornly keeping their office properties overvalued to placate the new Singapore Sovereign Wealth Fund co-investors who have come on board in a soft market?)

The flagship 'office property' in the Stride portfolio is 20 Customhouse Quay in Wellington, completed in 2018, with major tenants: Deloitte, IAG, Chapman Tripp, Kiwibank and Marsh (insurance brokers). Apart from the lack of a government department tenant, it is hard to get more blue chip than this. The second flagship is an office block at 46 Sale Street in Auckland, national headquarters for the AA, Colmar Brunton and Ezibuy. Real estate agent listings suggest the Sale Street building is not currently fully tenanted. The third most valuable property is 215 Lambton Quay, a fifteen story office block with lead tenants Grant Thornton, GHD (multi disciplinary engineering and architecture), and the Privacy Commission. A great building but on a short WALE of just 3.2 years. My reason for detailing these tenancies is to show that they are 'high quality' and there is no real reason for the percentage write-downs at Stride office buildings to be greater than the other office market players. Having said that, the average contract yield for Stride offices sits at 5.34%, verses 6.04% for Argosy. So maybe the greater write-downs at Stride are just the reflection of a fact that the Stride office portfolio had previously been ramped up to an unjustifiably high price? My view is that the Stride Office portfolio is, even now, overvalued.

The principal asset of the 'town centre' portfolio is the Northgate Shopping Centre, opened in the Westgate suburb of northwest Auckland. It is a relatively new development, opened 8 years ago and houses well over 100 retail outlets, including food court operators. Suffering a mere 1.9% fall in value, this could be an indication of strong tenant demand within 'anchor malls'. The contract yield for 'town centre' is a very respectable 6.79%. Looking around at comparative real estate, we aren't told what the contract yield was at KPG's Sylvia Park. But at Stride, the contract rate is typically 0.5 percentage points above the capitalisation rate. Taking that figure as a guide, I estimate the contract rate at Sylviia Park to be: 5.75%+0.5%=6.25%. So even though the write down at the 'town centre'/shopping mall' side of Stride is very low, these assets look IMV undervalued, when stacked up against comparable properties managed under other ownership.

Moving on to Stride's 'industrial property' group, Industrial tenants at Stride's 'Industre' (51.7% owned by Stride) include multinational companies such as 'Waste Management' and 'Arnotts'. Stride's flagship property is bounded by 15 Rockridge Road and 25 O'Rorke Road in Penrose and is rented out over multiple units to: "CCL Label Limited"- 'the largest label company in the world', the AA Insurance Customer Service Centre, Capital Smart Repairs Penrose, and Bascik Storage Penrose (amongst others), The Stride contracted yield is a scant 3.76% , which is apparently after the industrial building portfolio was written down a massive 17.7%(!) Of the other property sector combatants, Argosy wrote down their industrial property by 4.13% (contracted yield now 4.67%), the Property for Industry write down was 2.6% (portfolio yield now 4.62%), and the Goodman Property Trust wrote down its (industrial, they all are) properties by 4.7% (portfolio yield $177m/$4,791.2m = 3.69%, (all property assets, including uncompleted developments)). According to Stride, their 'Industre' subsidiary (AR2023 p4,p26):
"has a further development in progress." (34 Airpark Drive, Auckland) and has "10 further properties with development potential, (albeit with total current estimated development costs of more than $300m)."

Stride have partnered with strong tenants. But the contracted yields agreed to by the company look desperately low, unless un-contracted future development potential is being valued into those industrial portfolio site prices. Yet looking at the google map of the flagship industrial property outlined above, it appears fully built up and tenanted!

Looking across at reference property sector protagonist Goodman Property Trust: GMT stabalised properties are being run on a commercial yield of 5.2%+0.5%=5.7% (GMTAR2023 p64, using my 'rule of thumb' of the commercial yield rate being 0.5% above the capitalisation rate).

At GMT cash earnings (GMT AR2023 p48) are forecast to grow a mere 4% for FY2024. Yet the company is currently on an historical 'cash earnings' PE of 221c/7.1cps = 31.1. This equates to a PIE gross cash earnings yield of (7.1c/0.72)/221 = 4.5%, or a gross dividend yield of (5.9c/0.72)/221 = 3.7%. One factor on these low yields is an apparent 'present day' 25% undercharging (p12 GMT AR2023) on the rent received today compared to 'market rents'. As confirmation of this, p11 of GMT AR2023 suggests a 23% rental figure growth on new leases and lease renewals was actually achieved over FY2023. Could Stride achieve that kind of rental growth in their industrial property? Perhaps, as they are in the same geographic market as GMT. Yet my overall conclusion is that Stride's industrial portfolio is significantly overvalued, despite the savage write downs during the year.

Bringing it altogether, we have a mixed bag with Stride: Office and industrial property portfolios looking over valued, while town centre retail (shopping centres) look good value, and big box retail 'fair value'. Office property is the one area where Stride do not yet have an investment partner 'sharing the risk'. This is following on from the abandonment of the 'Fabric'' float of office assets in 2021. The fact that Stride are currently 'stuck' with their office assets may be weighing on the company's value. When there are unfavoured or overvalued assets on the books, Mr Market can adjust for that by not agreeing to pay Stride's book value. In fact 'Mr Market' has expressed his disagreement by giving Stride shares the biggest discount to net asset backing of all the property fund protagonists (even considering this years big write-downs).

-------------------

Investore

Finally the sniffing bristling nose hairs start rustling over the accounts of Strides's 'significant other', 'Investore'. 'Investore' was set up as the 'Big Box' retailing arm of Stride, but is now listed on the sharemarket in its own right (although Stride continue to own an 18.83% stake). This company has taken the biggest hit of all the property fund protagonists, with valuations down a massive 14.8% for the reporting year. Yet apart from Vital Healthcare Properties, it has the longest WALE of 8.1 years at balance date - quite a numeric dichotomy. So what 'went wrong' at Investore over FY2023?

Investore's 'excuse' for their $185.2m property write down may be found in IPLAR2023 on p4.
"This decrease is primarily due to the average portfolio capitalisation rate increasing to 5.7%, up 0.9% from 31 March 2022."

Remember that this increase in capitalisation rate of 0.9% is set against a background of the rise in the reference rate, "1 year government bonds" of 1.59 percentage points over the reference period. Investore's 'contract yield' on their portfolio is now 5.81%. The Argosy Big Box retail portfolio (contract yield now of 5.62%) fell in value as well, but 'only' by 8.19% over the YE31/03/2023 period. I notice the Argosy WALE was a lowly 2.9 years, verses 8.1 years for Investore.

Rent reviews at Argosy's Big Box stores saw rents rise by 4.71% (ARGAR2023 p17) over the year, verses a 3.3% rent review rise at Investore (IPLAR2023 p4). Perhaps the smaller rent review rise at Investore, echoed down the multi-year valuation table at a smaller rate than what happened during the Argosy Big Box Retail property valuation process?

The other 'retail comparison' of note is the 'in house' one of Stride's 'town portfolio' (shopping malls). From SPGAR2023, p58,59, the contract rate for the 'town portfolio' has risen from 6.79% to 6.98%. That end of year contract rate is significantly higher than the Big Box retail comparatives. I guess sticking a number of smaller tenants together in a shared retail space will provide a better contract yield than one large tenant in a similarly sized but 'stand alone' retail space?

Given the similarity of contract yields' at Investore and Argosy today, I am of the opinion that the real reason for the much more savage falls in property values at Investore, was that the 'Investore' stores were valued at far too high a price to start with. Whether that much higher FY2022 valuation at Investore was exaggerated by the long tail, time wise, of rental contracts, I am not sure (the end of the long tail would be diminished -in present value terms- relatively substantially by 'interest rate rises', compared to the situation where no long tail existed - i.e. if all the rent contracts were shorter term). Nevertheless right here, right now, those contract rates at Investore of 5.81% look 'property industry satisfactory', which means so do the current property valuations. But keep in mind the brand new five star green rated Countdown supermarket at Kaiapoi, where Investore are boasting about their 5.5% yield on cost. If that is indicative of new deals going forwards, I wouldn't be holding my breath for Big Box property price revaluations heading back upwards again, any time soon.

------------------

SNOOPY

[SailorRob]

Starting from the top, the 'office tower' writedown is at -10.7%, a little less than at KPG (-11.7%), but more than Argosy (-8.4%), and what has been revealed over the last few days by Precinct (-7.9%). Note that all of these companies have the same end of financial year balance dates (31-03-2023) and hence the same reference rises in interest rates to deal with, except for Precinct (30-06-2023). The latest reporting year at Precinct was against a background of reference interest rate rises of 2.90 percentage points compared to 1.56 percentage points for the others. So we would expect the write-downs at Precinct to be higher than at the others (Afternote: My expectation was wrong, the PCT property write-downs were in fact lower! Is this a continuation of the trend where Precinct are stubbornly keeping their office properties overvalued to placate the new Singaporean investors who have come on board in a soft market?)

The flagship 'office property' in the Stride portfolio is 20 Customhouse Quay in Wellington, completed in 2018, with major tenants: Deloitte, IAG, Chapman Tripp, Kiwibank and Marsh (insurance brokers). Apart from the lack of a government department tenant, it is hard to get more blue chip than this. The second flagship is an office block at 46 Sale Street in Auckland, national headquarters for the AA, Colmar Brunton and Ezibuy. Real estate agent listings suggest the Sale Street building is not currently fully tenanted. The third most valuable property is 215 Lambton Quay, a fifteen story office block with lead tenants Grant Thornton, GHD (multi disciplinary engineering and architecture), and the Privacy Commission. A great building but on a short WALE of just 3.2 years. My reason for detailing these tenancies is to show that they are 'high quality' and there is no real reason for the percentage write-downs at Stride to be greater than the other players. Having said that, the average contract yield for Stride offices sits at 5.34%, verses 6.04% for Argosy. So maybe the greater write-downs at Stride are just reflection of a fact that the Stride office portfolio had previously been ramped up to an unjustifiably high price?

The principal asset of the 'town centre' portfolio is the Northgate Shopping Centre, opened in the Westgate suburb of northwest Auckland. It is a relatively new development, opened 8 years ago and houses well over 100 retail outlets, including food court operators. At a mere 1.9% fall in value, this could be an indication of strong tenant demand within 'anchor malls'. The contract yield for 'town centre' is a very respectable 6.79%. Looking around at comparative real estate, we aren't told what the contract yield was at KPG's Sylvia Park. But at Stride the contract rate is typically 0.5 percentage points above the capitalisation rate. Taking that figure as a guide, I estimate the contract rate at Sylviia Park to be: 5.75%+0.5%=6.25%. So even though the write down at the 'town centre'/'shopping mall' side of Stride is very low, these assets look IMV undervalued, compared to similar properties managed under other ownership.


Who cares about all this BS. How much cash can they produce and is this enough for you. End of story.

Jake said it. Too much weights not enough speed work.

The he said something else after that. What was it again?

[Habits]

The analysts rate PCT as in the top three LPT. Which is funny as there is only about 5 that I can think of

[RTM]

Who cares about all this BS. How much cash can they produce and is this enough for you. End of story.

Jake said it. Too much weights not enough speed work.

The he said something else after that. What was it again?

Hard to know why you are bothering to look at this thread Sailor Boy.
No interest for you.

[LaserEyeKiwi]

Who cares about all this BS. How much cash can they produce and is this enough for you. End of story.

Jake said it. Too much weights not enough speed work.

The he said something else after that. What was it again?

I for one appreciate Snoopys detailed posts.

[BlackPeter]

Who cares about all this BS. How much cash can they produce and is this enough for you. End of story.

Jake said it. Too much weights not enough speed work.

The he said something else after that. What was it again?

Well, I do.

Snoopy's analysis is relevant, interesting and clearly adding value.

I wish one could say the same about your posts, but you have a tendency to slip too often into quite irrelevant personal attacks and personal posturing. The post above is a great example for you adding no value to the discussion at all.

[SailorRob]

Hard to know why you are bothering to look at this thread Sailor Boy.
No interest for you.

Well it's the study of others behaviour that is of interest.

No interest in Gamestop as an investment but hugely interesting story. Same thing with NZ property I guess.

And if I can stop just one person making a mistake then there is value added as well.

And then there's my lack of understanding of why anyone could be happy with a 2% yield, and my hope someone could explain that to me, which so far hasn't happened.

[ValueNZ]

Healthy debate around financial analysis makes threads interesting to read. Besides whats wrong with asking how much cash an asset is able to produce?

[SailorRob]

All these 'valuations' are a joke.

All that matters is the net cash the assets are able to produce in the future, discounted to today.

If you need zero interest rates to make your investment work, change your investment.

[bull....]

i enjoy snoopy's analysis so i would enjoy seeing the figure's snoopy would provide around cash generation

[SailorRob]

i enjoy snoopy's analysis so i would enjoy seeing the figure's snoopy would provide around cash generation

Agreed, so would I.

As that is ALL that matters.

Not what someone says a similar company is worth.

Not the moon phase.

Not lines on a screen.

Cash in fist.

[Snoopy]

For every dollar PIE you eat you lose only about 10 in share price.




Who cares about all this BS. How much cash can they produce and is this enough for you. End of story.


I think you might be a 'sausage roll man' SailorRob. You haven't poked your finger into enough PIEs to fully know what is going on down at the PIE cart.

Did you know for instance that if you own a PIE, which is being taxed at the company tax rate of 28%, then no matter how high your marginal tax rate is above 28%, you will only be taxed at 28% on any distributions from that PIE? Actually I'll bet you are well informed enough to know that. You seem on the ball with many things investment wise.

But how is this for a dessert PIE offering? Let's say you owned a PIE that paid no tax. This is not a joke. My records show Precinct Properties did just this (or rather they didn't pay any income tax) over CY2021. Yet they still paid a dividend/distribution over that calendar year. Guess what? As a unit-holder, you got to keep all of the distribution that was paid to you. All courtesy of Precinct being part of the PIE tax structure, allowing no withholding tax to be deducted, - despite Precinct Properties paying no tax. How good was that! A 100% legal way to boost your cashflow by not paying tax, all courtesy of buying a PIE!

SNOOPY

[SailorRob]

I think you might be a 'sausage roll man' SailorRob. You haven't poked your finger into enough PIEs to fully know what is going on down at the PIE cart.

Did you know for instance that if you own a PIE, which is being taxed at the company tax rate of 28%, then no matter how high your marginal tax rate is above 28%, you will only be taxed at 28% on any distributions from that PIE? Actually I'll bet you are well informed enough to know that. You seem on the ball with many things investment wise.

But how is this for a dessert PIE offering? Let's say you owned a PIE that paid no tax. This is not a joke. My records show Precinct Properties did just this (or rather they didn't pay any income tax) over CY2021. Yet they still paid a dividend/distribution over that calendar year. Guess what? As a unit-holder, you got to keep all of the distribution that was paid to you. All courtesy of Precinct being part of the PIE tax structure, allowing no withholding tax to be deducted, - despite Precinct Properties paying no tax. How good was that! A 100% legal way to boost your cashflow by not paying tax, all courtesy of buying a PIE!

SNOOPY

Agreed good in some cases, but when your income is so tiny from these companies, in proportion to what you have invested even if instead of not paying tax, the government felt sorry for you and credited you 100% of what you'd earned, so your income has now doubled and tax free as well, it still wouldn't make any sense.

If you are thinking about quoting dividend yields then I'll destroy thst argument but will have to wait until tomorrow.

So in case you didn't understand, I'm saying double 2% tax free (that's 4%) is still pathetic. I'll take the 15% and pay tax thanks.

Or in the case of Stellantis, I'll take 70% and pay tax.

[winner69]

You don't even have have made a successful investment anymore, in order to start talking about what a successful investment you just made.

Seems appropriate

[GTM 3442]

One of my reasons for investing is New Zealand dollar income, paid in New Zealand. Asset class diversification puts me into New Zealand Property.

Yes, I know I can make a better return elsewhere based on current share/unit prices, but them's the rules. . . and it's not as if I bought in at the current (overpriced) unit/share prices.

[Snoopy]

When your income is so tiny from these companies, in proportion to what you have invested even if instead of not paying tax, the government felt sorry for you and credited you 100% of what you'd earned, so your income has now doubled and tax free as well, it still wouldn't make any sense.

If you are thinking about quoting dividend yields then I'll destroy that argument but will have to wait until tomorrow.

So in case you didn't understand, I'm saying double 2% tax free (that's 4%) is still pathetic.


1/ GMT quoted on 31st December 2021 (getting on towards EOFY2022) at $2.58. Net historical yield 2.10% - Ugh! Ugh! Ugh!
2/ Add back imputation credits: Gross historical yield; 2.53% - Ugh! Ugh!
3/ Add back allowance for tax paid at 28% (whether actually paid or not) as allowed under the PIE regime: Gross historical PIE yield 2.91% - Ugh!
4/ Wait for share price to fall to $2.21 (trading price during today). Gross historical PIE yield on FY2022 earnings: 3.40% - (mediocre at best)
5/ But dividend was bumped up during the year. Gross historical PIE yield on FY2023 earnings: 3.70% (still low)
6/ Contracts rolling over and average tenant rent increase is 25%. Prospective Gross future yield: 4.63% -(on the radar).
7/ 17% of actual earnings held back for portfolio development. Assuming these development assets can 'earn out' like the rest:: Future gross yield: 5.56% (respectable!)

And all on a spread of Blue Chip tenanted warehouses in the logistics capital of New Zealand - Auckland!

SNOOPY

P.S. Dividend yield calculations based on information in post 1178, and GMTAR2023.

[Snow Leopard]

One of the great theoretical benefits of having someone on Ignore is that you don't read some *****'s post and then decide to quote it and point out what an ********* type they are.

Unfortunately sometimes other people quote the post that you haven't read and you get to read it and think 'What a ******'.

You could be tempted to hit the view post, quote the post, and give your honest appraisal of the ***** it contains.

But it is easier and better not to so do.

So I won't. :mellow:

Instead I will continue to read interesting posts from Snoopy.

[Baa_Baa]

One of the great theoretical benefits of having someone on Ignore is that you don't read some *****'s post and then decide to quote it and point out what an ********* type they are.

Unfortunately sometimes other people quote the post that you haven't read and you get to read it and think 'What a ******'.

You could be tempted to hit the view post, quote the post, and give your honest appraisal of the ***** it contains.

But it is easier and better not to so do.

So I won't. :mellow:

Instead I will continue to read interesting posts from Snoopy.

Agree, though this, will also be interesting. Not everyone knows our history here.

Safe travels, log scale. Bless.

[SailorRob]

1/ GMT quoted on 31st December 2021 (getting on towards EOFY2022) at $2.58. Net historical yield 2.10% - Ugh! Ugh! Ugh!
2/ Add back imputation credits: Gross historical yield; 2.53% - Ugh! Ugh!
3/ Add back allowance for tax paid at 28% (whether actually paid or not) as allowed under the PIE regime: Gross historical PIE yield 2.91% - Ugh!
4/ Wait for share price to fall to $2.21 (trading price during today). Gross historical PIE yield on FY2022 earnings: 3.40% - (mediocre at best)
5/ But dividend was bumped up during the year. Gross historical PIE yield on FY2023 earnings: 3.70% (still low)
6/ Contracts rolling over and average tenant rent increase is 25%. Prospective Gross future yield: 4.63% -(on the radar).
7/ 17% of actual earnings held back for portfolio development. Assuming these development assets can 'earn out' like the rest:: Future gross yield: 5.56% (respectable!)

And all on a spread of Blue Chip tenanted warehouses in the logistics capital of New Zealand - Auckland!

SNOOPY

P.S. Dividend yield calculations based on information in post 1178, and GMTAR2023.


Yes fair enough, if 5.56% is respectable to you then it's possible you could get that.

5.56% in a ZIRP world was maybe ok for some but in the real world it will be a extremely low real return.

My point has been with these companies the dividend and 'earnings' are irrelevant as it's all funny money and fresh debt.

I look at actual cash generated.

But if through all the things you highlighted, you could see 5.56% actually covered by cash earnings then if that is ok for you... ok.

But god damn would it not just be easier to buy OCA bonds at 8%??

[SailorRob]

One of the great theoretical benefits of having someone on Ignore is that you don't read some *****'s post and then decide to quote it and point out what an ********* type they are.

Unfortunately sometimes other people quote the post that you haven't read and you get to read it and think 'What a ******'.

You could be tempted to hit the view post, quote the post, and give your honest appraisal of the ***** it contains.

But it is easier and better not to so do.

So I won't. :mellow:

Instead I will continue to read interesting posts from Snoopy.


Interesting character we have here, called me pretentious for posting about the importance of considering returns on capital over many years (the full cycle) and the capital intensity of an industry, then I go to the Air NZ thread and he/she/it has copied exactly what I had said and re posted it for themselves in the context of airlines.

At least they learned something.

An Blackpeter can you stop privately messaging me, get a GF or something. What are your thoughts on Stellantis?

[Sideshow Bob]

The Britomart building where the shooting was, is owned by Precinct Properties.

Very unfortunate/sad for all.

[Snoopy]

Vital Healthcare Properties is a little different from our other top eight property owner and property management protagonists in two important ways:

1/ It is a specialist sub-category property investor, concentrating entirely on opportunities in the healthcare sector. This comprises buildings in Acute Hospitals (53%), Specialty Hospitals (Mental Health and Rehabilitation) (27%), Outpatient Care (16%) and Aged Care (4%)
2/ 72% of the assets owned by value are in Australia, with only 28% in New Zealand.

VHP, with Precinct Properties, share a 30th June reporting date. That means the most recent annual report we can analyze is dated 30th June 2022, for FY2022. The reported increase in VHP's portfolio value over FY2022 of 15.3% (while others' property values are decreasing) is tied in with reporting timing, which is 'out of phase' with the other protagonists (bar PCT). ~77% of VHP's portfolio valuation gain over FY2022 was from the Australian portfolio and ~23% was from New Zealand. Total revaluation gains for the year were $244m in NZ dollar terms (NZ dollars is the chosen reporting currency for all VHP company affairs). Revaluation gains included ~$100m from rental increases, new leasing activity and ~$10m of development margins. Furthermore there was a 30 basis points 'capitalisation rate' compression since the start of the financial year dating from 30 June 2021. What does that mean? The 'capitalisation rate' is generally calculated as a percentage figure from the following ratio:

(Net operating income) / (Current market value), of all investment property.

That means a ''capitalisation rate compression' could either arise from:

a/ A decrease in the value of rent received (It sounds like rental rates were flat, as explained later in this post (*)) OR
b/ An increase in the current market value of the properties.

In fact over FY2022, the capitalisation rate over the whole portfolio decreased from 4.8% to 4.5%, a fall of 0.3 percentage points (AR2022 p105), which is almost certainly as a result of increasing property valuations over FY2022.

Now, what were background reference interest rates doing over the FY2022 financial year? The Australian 52 week bond rate rose from an indicative 0.05% to 2.50% over the period 30-06-2021 to 30-06-2022, a rise of 2.45 percentage points. Meanwhile NZ government stock 1 year rates rose from 1.72% to 3.33% over the same period, a rise of 1.61 percentage points.
The blended two country background one year interest rate point rise is as follows:
0.72x2.45+0.28x1.61= a 2.21 percentage point rise.
An increase in background interest rates would normally be associated with an increase in capitalisation rate, all other things being equal. Clearly over FY2022, all other things were not equal!

Property income increased significantly from $110m (FY2021) to $123m (FY2022), an increase of 12.8% (although this does reduce to 12.2% when exchange rate adjustments are removed).

80% of VHPs rental contracts have some form of CPI indexation, although almost all of those (77/80 tenancies) had a 3.7% maximum average increase cap for any single year. This is typical of so called 'Collar and cap' rent resetting arrangements, where annual rent increments are agreed, but within a tight band (that means CPI linked, but for example an increase between 2.5% and 5% is what has been agreed to in the new case of the Tasman Medical Centre in Hobart, AR2022 p41). Does that mean as long as inflation remains at 3.7% or higher, average rent increases are going backwards in inflation adjusted terms? Or is there a 'catch up' mechanism? A 17.2 year average WALE is good for income stability. But it also means that upside potential of rental contract renegotiation is limited. 'On average', only 1.7% of the portfolio's rent contracts expire per annum over the next 10 years (p16, AR2022).

(*) Total assets on the balance sheet rose from $2.663b to $3.400b over FY2022. We are told the property portfolio increased in value by 15.3% over the year, which implies a 'steady state' property valuation increase to $2.663b x 1.153 = $3.070b at the end of FY2022. In fact, the gain in property value 'year to year' was greater than this. So the difference must be due to net purchases and incremental development projects finished over the year, adding up to a net incremental property asset gain of: $3.400b-$3.070b= $330m. $330m represents an incremental increase of: $330m/$2,663m = 12.4% of net new assets over FY2022. This figure is very close to the 12.2% currency adjusted rental increase for the year. If my maths is right, that means the increase in rent on a 'per existing building basis' was close to zero over the year FY2022! Something to ponder?



Next, moving ahead to what we know about FY2023.

Although the FY2023 results are not yet released, Northwest Healthcare Properties Management Limited, the manager of Vital Healthcare Property Trust (Vital), advises that it expects Vital to record a property revaluation loss of ~NZ$160m for the six months ending 30 June 2023 (refer 29th June 2023 market announcement). This needs to be added to the $56m fall in property values booked in the first half, for a total full year fall in value of ~$216m. This represents a prospective fall in VHP property values over the entirety FY2023 of: -$216m/$3,400m= -6.4%.

These property value falls largely reflect the indicative weighted average capitalisation rate which has risen to 5.06% as at 30 June 2023, reflecting a blending of 4.87% noted for the Australian portfolio and 5.48% for the New Zealand portfolio. Using just the percentage of company property assets at the end of year balance date, my take on the calculation used to blend the Australian and New Zealand portfolio capitalisation rates is as follows:
0.72x4.87%+0.28x5.48%=5.04%
This 'country blending method' is close enough calculation method to use (given the rounding errors inherent in using asset distribution figures limited to two significant figures). The two country blended 5.06% capitalisation rate for the whole portfolio represents a rise from the 4.5% figure from then previous balance date, of 0.56 percentage points.

Now, what were background reference interest rates doing over the FY2023 financial year? The Australian 52 week bond rate rose from an indicative 2.50% to 4.30% over the period 30-06-2022 to 30-06-2023, a rise of 1.80 percentage points. Meanwhile NZ government stock 1 year rates rose from 3.33% to 5.42% over the same period, a rise of 2.09 percentage points.

The blended two country background one year interest rate point rise is as follows:
0.72x1.80+0.28x2.09= a 1.88 percentage point rise.

Unlike the previous year, an increase in background reference interest rates has lead to an associated increase in capitalisation rate (which is what we would expect).



Comparative Assessment

The uniqueness in the categories that VHP properties manage -outlined in the introduction to this post-, means a comparative assessment against the other property fund protagonists is difficult. Perhaps the closest, because it is also in a high demand resilient sector is the Goodman Property Trust (GMT). In this comparison, a lower rise in capitalisation rate at VHP vs GMT (0.56 vs 1.0 percentage points) has lead to a higher fall in portfolio valuation (-6.4% vs -4.7%). That is opposite effect to the result I would have expected. I could speculate on an explanation, given that capitalisation rate is only one -albeit usually the most significant- input into property valuation. It could be the rather extraordinary rental gains being booked at 'contract renegotiation time' (last year 23%, reflecting the fact that the industrial market is more 'site constrained'?) at GMT, verses what has looked like half the inflation rate rent gain 'at best' at Vital Healthcare Properties. This fact may be fed by only 1.7% of leases expiring for the purpose of 'rolling over' during FY2022 (AR2022 p19) compared to 20% at GMT (GMT AR2023 p12). Thus incremental changes in overall market rent are reflected much faster at GMT. Perhaps the conclusion to reach is that the very long WALE (Weighted Average Lease Expiry) at VHP is a double edged sword. A long WALE provides unparalleled security on the property managers' income stream. But it also means that unexpected market changes, such as the 'surge of inflation outside of what were regarded as normal boundaries' that we have had, will be either very slow to be reflected as 'increased income streams'. Or rent increases to account for such inflation may never be reflected at all.

SNOOPY

[Snoopy]

This post is a rearrangement of data first posted in section 1 of this series, but this time realigned with 'like with like' sub sector groups of property grouped together. This allows an easier comparison between 'like and like'.




FY Balance DateFY Property Write-down (A)EOFY Property Book Value (B)
Percentage Writedown (B)/(B+A)Weighted Average Lease Expiry
Incremental 'FY'O'FY' One Year Government Stock Rate movementChange in Capitalisation Rate



Healthcare


Vital Healthcare
30/06/2023-$216m$3,339.2m
-6.47%Not Available (1)
+1.88pp+0.56pp









Industrial



Goodman Property Trust (Industrial)
31/03/2023-$238m$4,791m
-4.73%6.4 years
+1.59pp+1.00pp




Property for Industry
31/12/2022-$56.7m$2,117.2m
-2.61%5.1 years
+2.80pp0 (no change)



Stride Industre (Industrial)
31/03/2023-$133.5m$715.9m
-15.7%9.7 years
+1.59pp+1.00pp



Argosy Properties (53% industrial)
31/03/2023-$148.6m$2,184.9m
-6.29%5.4 years
+1.59pp+0.68pp











Office




Precinct Properties
30/06/2023-$250m$3,200m
-7.81%Not Available (2)
+2.90ppNot Available (2)



Stride Office
31/03/2023-$120.1m$748.4m
-13.8%7.5 years
+1.59pp+0.81pp



Kiwi Property Group Office
31/03/2023-$116.8m$879.1m
-11.7%Not Available (3)
+1.59pp+0.30pp (3)










Retail



Investore
31/03/2023-$185.2m$1,070.5m
-14.8%8.1 years
+1.59pp+0.90%



Stride Auckland Shopping Centres
31/03/2023-$31m$293.5m
-9.6%4.5 years
+1.59pp0 (no change)



Kiwi Property Group Shopping
31/03/2023-$154.4m$1,912.6m
-7.5%Not Available (3)
+1.59pp+0.50pp





Notes

1/ Vital Healthcare Properties WALE 'not available' because the full annual result of VHP for FY2023 was not released at the time of compiling this table. At EOFY2022 this figure was 17.6 years. Due to the low number of lease contracts rolling over, I would not expect this to change materially for FY2023.

2/ Precinct Properties WALE 'not available' because the full annual result of PCT for FY2023 was not released at the time of compiling this table. At EOFY2022 this figure was 7.1 years. None of the existing lease contracts are due to roll over until FY2025. I would therefore expect the WALE to roll back to something approaching 6 years. Changes to the company's capitalisation rate will similarly not be available until the full annual results for the year are released.

3/ Kiwi Property Group release WALE figures for their overall portfolio (for FY2023 this figure is 4.4years). But they do not break this down between property sub-sectors.

-----------------------------------------

OK the table looks complete. However I have gone past my 'stupid hour' when compiling it. So I may wake up tomorrow and discover a 'stupid error'. Consequently I will leave my 'sign off' until tomorrow.

[Habits]

Good work indeed snoop. What were the beg or ending govt stock rates. Maybe also, what were the average cap rates used by the entity. Helps to put in perspective

[Snoopy]

Good work indeed snoop. What were the beg or ending govt stock rates. Maybe also, what were the average cap rates used by the entity. Helps to put in perspective


I am still working on the table as I write this. The beginning and ending government stock rates were listed on the original version of this table. But I changed it to just reflect the difference as it was the difference that was more important IMV. However, if you wish to find out what the beginning and ending government stock rates were, they are still listed in parts 2-8 of this series, where I go through each company individually. Information on the capitalisation rates at the start and finish of each period for each individual property entity are there as well. In a table such as this it is a balancing act between putting in enough information so that relevant comparisons can be made, but not so much that unnecessary workings make the table more difficult to follow than it should be. IOW make the table as simple as it can be to get the message across, but no simpler.

To finish off the table, I intend to add a column stating the 'change in capitalisation rate' over the period for each table entry, putting those figures alongside the 'change in reference interest rates'. I think that is the most appropriate 'interest rate comparisons' to make.

All this takes time to work through so please be patient with my 'work in progress'. The table is not finished until I 'sign it off' with my name, as per this post.

SNOOPY

[Habits]

Total columns A and B and show avrg write-down percent please.
Is there a formula or coefficient to calculate change in Govt stock rate with change in cap rate. So we can estimate $ or % changes to LPT asset values based on rises and falls in govt stock.

[Snoopy]

Total columns A and B and show avrg write-down percent please.


You want me to total up all the 'write downs' (ΣA), then total up all the 'end of year portfolio values' (ΣB) and work out an overall 'average' write down expressed as a percentage ( ΣA/(ΣA+ΣB) )? The problem with doing that is that you are presupposing that all the constituent pieces you are summing are completely comparable (i.e. it is meaningful to add them), and that a 'weighted average calculation' such as that based on the size of data element that this calculation would produce has meaning. I am not sure either is true. So I don't think I will take up your suggestion.

This sounds to me like a case of producing data because it 'can be done', without considering if it 'should be done'.



Is there a formula or coefficient to calculate change in Govt stock rate with change in cap rate. So we can estimate $ or % changes to LPT asset values based on rises and falls in govt stock.


No, there is more than one input into determining a capitalisation rate (not just background interest rates), although in most instances changes in 'background interest rates' would be the most significant determining input factor. Some might say that using the one year government stock rate is not the right 'comparative rate' to use either. I use that, because when I was reading about valuing the PGW employee benefits scheme (yes I am drawing an extended bow here), this was the figure that accounting standards mandated should be used. PGW did not like being told to use the one year government stock figure at the time (saying it was too sensitive) , and I am pretty sure that any property managers from the companies I have tabulated reading this would not like it either. But I haven't written up my table to please property managers.

The way I would use the 'comparative data' of the 'changes in capitalisation rate' verses the 'change in reference interest rate' is to look at how a change in reference rate can produce different changes in capitalisation rates, and ask why. If you can answer those questions, then you will have gone a long way to understanding the differing effects on comparative companies in a tough 'property shock' investment climate.

SNOOPY

[SailorRob]

Forrest


Trees

[LaserEyeKiwi]

Forrest


Trees

Another greatly informative post from you rob, that contributes magnificently to the discussion.

[LaserEyeKiwi]

This post is a rearrangement of data first posted in section 1 of this series, but this time realigned with 'like with like' sub sector groups of property grouped together. This allows an easier comparison between 'like and like'.




FY Balance Date
FY Property Write-down (A)
EOFY Property Book Value (B)
Percentage Writedown (B)/(B+A)
Weighted Average Lease Expiry
Incremental 'FY'O'FY' One Year Government Stock Rate movement
Change in Capitalisation Rate


Healthcare


Vital Healthcare
30/06/2023
-$216m
$3,339.2m
-6.47%
Not Available (1)
+1.88pp
+0.56pp








Industrial


Goodman Property Trust (Industrial)
31/03/2023
-$238m
$4,791m
-4.73%
6.4 years
+1.59pp
+1.00pp


Property for Industry
31/12/2022
-$56.7m
$2,117.2m
-2.61%
5.1 years
+2.80pp
0 (no change)


Stride Industre (Industrial)
31/03/2023
-$133.5m
$715.9m
-15.7%
9.7 years
+1.59pp
+1.00pp


Argosy Properties (53% industrial)
31/03/2023
-$148.6m
$2,184.9m
-6.29%
5.4 years
+1.59pp
+0.68pp








Office


Precinct Properties
30/06/2023
-$250m
$3,200m
-7.81%
Not Available (2)
+2.90pp
Not Available (2)


Stride Office
31/03/2023
-$120.1m
$748.4m
-13.8%
7.5 years
+1.59pp
+0.81pp


Kiwi Property Group Office
31/03/2023
-$116.8m
$879.1m
-11.7%
Not Available (3)
+1.59pp
+0.30pp (3)








Retail


Investore
31/03/2023
-$185.2m
$1,070.5m
-14.8%
8.1 years
+1.59pp
+0.90%


Stride Auckland Shopping Centres
31/03/2023
-$31m
$293.5m
-9.6%
4.5 years
+1.59pp
0 (no change)


Kiwi Property Group Shopping
31/03/2023
-$154.4m
$1,912.6m
-7.5%
Not Available (3)
+1.59pp
+0.50pp




Notes

1/ Vital Healthcare Properties WALE 'not available' because the full annual result of VHP for FY2023 was not released at the time of compiling this table. At EOFY2022 this figure was 17.6 years. Due to the low number of lease contracts rolling over, I would not expect this to change materially for FY2023.

2/ Precinct Properties WALE 'not available' because the full annual result of PCT for FY2023 was not released at the time of compiling this table. At EOFY2022 this figure was 7.1 years. None of the existing lease contracts are due to roll over until FY2025. I would therefore expect the WALE to roll back to something approaching 6 years. Changes to the company's capitalisation rate will similarly not be available until the full annual results for the year are released.

3/ Kiwi Property Group release WALE figures for their overall portfolio (for FY2023 this figure is 4.4years). But they do not break this down between property sub-sectors.

-----------------------------------------

OK the table looks complete. However I have gone past my 'stupid hour' when compiling it. So I may wake up tomorrow and discover a 'stupid error'. Consequently I will leave my 'sign off' until tomorrow.

Excellent summary and data rich post Snoopy - thanks for sharing!

[SailorRob]

Another greatly informative post from you rob, that contributes magnificently to the discussion.


If you search my posts in this forum and Agrosy you will see some very informative posts which nobody has been able to challenge as it is simple math.

Cash

Cash

Cash

If only someone could post such detailed analysis of something that actually matters.

[Rawz]

If you search my posts in this forum and Agrosy you will see some very informative posts which nobody has been able to challenge as it is simple math.

Cash

Cash

Cash

If only someone could post such detailed analysis of something that actually matters.

It has been debated but you didn’t get it so we all moved on

[SailorRob]

It has been debated but you didn’t get it so we all moved on


By the time you understand it will be too late. Clearly the market is wrong and this is your opportunity to make a lot of money for once.

Don't worry, rates will drop for another 40 years and you'll eat well from your revaluations.

[Baa_Baa]

By the time you understand it will be too late. Clearly the market is wrong and this is your opportunity to make a lot of money for once.

Don't worry, rates will drop for another 40 years and you'll eat well from your revaluations.

REITs are only an interesting buy when the market hates on them. Whether people like it or not, property in NZ is an important investment plank in any portfolio. Funny that value investing and the market seem to often have such divergent opinions. Once in a lifetime has recently been dumbed down to once in every couple of years.

[SailorRob]

property in NZ is an important investment plank in any portfolio.

What if someone isn't happy with returns of 1.5%.

Property in NZ is the most dangerous asset class anyone could have in their portfolio unless it's development or a specific business model like the retirements.

[SailorRob]

What if someone isn't happy with returns of 1.5%.

Property in NZ is the most dangerous asset class anyone could have in their portfolio unless it's development or a specific business model like the retirements.


Anyway, not getting into that debate.

Math will determine the outcome, pretty damn straight forward.

[ValueNZ]

Anyway, not getting into that debate.

Math will determine the outcome, pretty damn straight forward.
Seems straight forward but in practice it seems like the whole damn country is obsessed with owning property as an investment. Rental yield is far too low and relying on leveraged capital gain is far too speculative and uncertain to be considered investing.

Property development can be very profitable on the other hand.

[Lego_Man]

What if someone isn't happy with returns of 1.5%.

Property in NZ is the most dangerous asset class anyone could have in their portfolio unless it's development or a specific business model like the retirements.

I barbell Winton Land with OCA and a bit of RYM as my NZ Property exposure.

[SailorRob]

Seems straight forward but in practice it seems like the whole damn country is obsessed with owning property as an investment. Rental yield is far too low and relying on leveraged capital gain is far too speculative and uncertain to be considered investing.

Property development can be very profitable on the other hand.


You are learning young.

[Rawz]

By the time you understand it will be too late. Clearly the market is wrong and this is your opportunity to make a lot of money for once.

Don't worry, rates will drop for another 40 years and you'll eat well from your revaluations.

You keep thinking nominal rates. Need to think real rates

[troyvdh]

ValueNZ....With respect...Who are you speaking on behalf of...And how old are you...cheers.

[ValueNZ]

ValueNZ....With respect...Who are you speaking on behalf of...And how old are you...cheers.
Speaking on behalf of myself... I am 17 so take what I wrote with a grain of salt.

[SailorRob]

property in NZ is an important investment plank in any portfolio.


I had always thought when something was the most expensive in the world, this would be a time to shun from a portfolio.

When you could find virtually anything anywhere far cheaper...

[SailorRob]

Seems straight forward but in practice it seems like the whole damn country is obsessed with owning property as an investment. Rental yield is far too low and relying on leveraged capital gain is far too speculative and uncertain to be considered investing.

Property development can be very profitable on the other hand.


And the hilarious thing is that as Rental yield is so tiny, the entire industry quotes gross yields, and 'investors' don't know the difference. They think they have a 100% margin business!

[LaserEyeKiwi]

And the hilarious thing is that as Rental yield is so tiny, the entire industry quotes gross yields, and 'investors' don't know the difference. They think they have a 100% margin business!

Why are you talking about residential property on a forum about property trusts containing industrial/commercial/retail property?

i agree that buying residential houses in the current market based on rental yield is ludicrous in nearly all situations, more so since interest is no longer deductible.

However this particular forum does not involve that asset class at all. This thread instead focuses on listed entities that in some cases are yielding over 9% in PIE advantageous tax vehicles, trading well below net asset values, and where these businesses whose interest costs are of course tax deductible.

[SailorRob]

Why are you talking about residential property on a forum about property trusts containing industrial/commercial/retail property?

i agree that buying residential houses in the current market based on rental yield is ludicrous in nearly all situations, more so since interest is no longer deductible.

However this particular forum does not involve that asset class at all. This thread instead focuses on listed entities that in some cases are yielding over 9% in PIE advantageous tax vehicles, trading well below net asset values, and where these businesses whose interest costs are of course tax deductible.

I'm not talking about residential property sport.

Nothing you own yields 9%. They may pay that out, but it's not from earnings.

My entire point.

Anyone can pay a massive dividend...

[Habits]

Are you sure about that "sport". So according to you Kpg does not pay dividends from cash earnings

[SailorRob]

Are you sure about that "sport". So according to you Kpg does not pay dividends from cash earnings

No, that's not according to me at all. The record of what I said is available for you to read sport.

[LaserEyeKiwi]

I'm not talking about residential property sport.

Nothing you own yields 9%. They may pay that out, but it's not from earnings.

My entire point.

Anyone can pay a massive dividend...

That’s just nonsense - KPG pays 9%, which is actually less than 100% of their net rental income.

Perhaps junior, you should stop making incorrect statements like they are facts and people might stop criticizing your posts.

[SailorRob]

That’s just nonsense - KPG pays 9%, which is actually less than 100% of their net rental income.

Perhaps junior, you should stop making incorrect statements like they are facts and people might stop criticizing your posts.

I sense a bet coming on. Name your terms.

[Rawz]

I sense a bet coming on. Name your terms.

He said dividends are less than net rental income. $200k bet is your standard?

I’m just the witness lol

[winner69]

He said dividends are less than net rental income. $200k bet is your standard?

I’m just the witness lol

Hey rawz, what happens if both Rob and lek are correct?

[Rawz]

Hey rawz, what happens if both Rob and lek are correct?

It then moves to tie breaker REIT trivia questions

[SailorRob]

That’s just nonsense - KPG pays 9%, which is actually less than 100% of their net rental income.

Perhaps junior, you should stop making incorrect statements like they are facts and people might stop criticizing your posts.


So from their own annual report...

Total net profit GAAP over the last 5 years is 144.3 million

Total dividends paid out 413 million.

Laser eyes eh...

Net rental income means NET. After ALL expenses.

[SailorRob]

In 2023 they brought in 113 million in cash.

Then spent 162 million on maintaining and improving the dogs

And paid out 112 in dividends.

Whatever you are smoking, I'll have some mate.

[SailorRob]

Looks like the ultimate irony here in that 'Laser eyes' is taking their 'net rental income' as plastered over their annual report in amongst the glossy pictures as gospel without actually thinking it through.

So glad to have such people in the market alongside us.

May as well say that dividends are paid out of revenue!

I guess Laser bought Wework due to its amazing 'community adjusted EBITDA'?

[Neophyte]

In 2023 they brought in 113 million in cash.

Then spent 162 million on maintaining and improving the dogs

And paid out 112 in dividends.

Whatever you are smoking, I'll have some mate.

"Improving" would be classified as CapEx and be excluded from your 'net' would it not? Accountants seem to have rules for all sorts

[Snoopy]

So from their own annual report...

Total net profit GAAP over the last 5 years is 144.3 million

Total dividends paid out 413 million.

Laser eyes eh...

Net rental income means NET. After ALL expenses.


SailorRob, That sum of the last five years of GAAP after tax profits (KPG AR2023 p41):
($227.7m)+$224.3m+$196.5m+($186.7m)+$138.1m= $144.5m are not CASH profits, because they include property revaluations (and very importantly devaluations).

If you look on KPG AR2023 p40, there is an explanation of how 'profit before income tax' morphs to 'operating profit before tax'. Using that 'five year information', I have compiled the following table:



Kiwi Property GroupFY2023FY2022FY2021FY2020FY2019Total


Operating Profit Before Tax$129.6m$116.5m$107.1m$129.7m$124.5m$607.4m


less Tax Paid$(12.9m)$(36.4m)$(25.9m)$(16.6m)$(24.0m)$115.8 m


Operating Profit After Tax$116.7m$80.1m$81.2m$113.1m$100.5m
$491.6m


Dividend$89.5m$87.9m$80.8m$55.3m$99.5m$413.0m



Plenty of CASH generated over the five years, more than enough to cover all of the dividends declared.

Now where was that $200,000 donation of yours going to again?

SNOOPY

[SailorRob]

"Improving" would be classified as CapEx and be excluded from your 'net' would it not? Accountants seem to have rules for all sorts


Good point, maintaining and improving are all part of it, they certainly do have a lot of rules and the important thing is to think independently of the rules - as if you owned the entire business yourself. The 'improving' is all part of the equation but more nuanced, ultimately you need cash returns on every cent of improvement spending and large cash returns too. So without the improving, how would rental income be affected over time vs competitors etc...

I've seen the Refinery blow hundreds of millions in 'Improving' capex that never was going to make a return.

If you look at the revenue over the years - all the hundreds of millions of 'improving' is actually doing nothing, so we have to factor in that it's in fact just part of maintenance capital really.

I'm not familiar enough with this business to say much more but my basic understanding will allow me to make a bet up to $500,000 NZD that this business cannot dish out a 9% dividend fully covered out of cash earnings after ALL expenses that are required to sustainably generate that cash are taken into consideration.

[Rawz]

So Rob owes LEK $200k then?

[SailorRob]

SailorRob, That sum of the last five years of GAAP after tax profits (KPG AR2023 p41):
($227.7m)+$224.3m+$196.5m+($186.7m)+$138.1m= $144.5m are not CASH profits, because they include property revaluations (and very importantly devaluations).

If you look on KPG AR2023 p40, there is an explanation of how 'profit before income tax' morphs to 'operating profit before tax'.



Kiwi Property Group
2023
2022
2021
2020
2019
Total


Operating Profit Before Tax
$129.6m
$116.5m
$107.1m
$129.7m
$124.5m
$607.4m


less Tax Paid
$(12.9m)
$(36.4m)
$(25.9m)
$(16.6m)
$(24.0m)
$115.8m


Operating Profit After Tax
$117.0m
$80.1m
$81.2m
$113.1m
$100.5m
$491.9m


Dividend
$89.5m
$87.9m
$80.8m
$55.3m
$99.5m
$413.0m



Plenty of CASH generated over the five years, more than enough to cover all of the dividends declared.

Now where was your $200,000 donation going to again?

SNOOPY


I've raised it to 500k, lets get a contract!

You're not including all expenses.... That's not net cash.

[Rawz]

So Rob owes LEK $200k then?

LEK can buy more KPG and get even more of that 9% cash return

[SailorRob]

LEK can buy more KPG and get even more of that 9% cash return


If only... I probably would too. No I wouldn't actually I'd buy OCA bonds. But 9% is nearly going backwards - nowhere near enough.

[winner69]

So Rob owes LEK $200k then?

I thought is was $500,000 NZD as per his post

[ValueNZ]

SailorRob, That sum of the last five years of GAAP after tax profits (KPG AR2023 p41):
($227.7m)+$224.3m+$196.5m+($186.7m)+$138.1m= $144.5m are not CASH profits, because they include property revaluations (and very importantly devaluations).

If you look on KPG AR2023 p40, there is an explanation of how 'profit before income tax' morphs to 'operating profit before tax'. Using that 'five year information', I have compiled the following table:



Kiwi Property Group
2023
2022
2021
2020
2019
Total


Operating Profit Before Tax
$129.6m
$116.5m
$107.1m
$129.7m
$124.5m
$607.4m


less Tax Paid
$(12.9m)
$(36.4m)
$(25.9m)
$(16.6m)
$(24.0m)
$115.8m


Operating Profit After Tax
$117.0m
$80.1m
$81.2m
$113.1m
$100.5m
$491.9m


Dividend
$89.5m
$87.9m
$80.8m
$55.3m
$99.5m
$413.0m



Plenty of CASH generated over the five years, more than enough to cover all of the dividends declared.

Now where was your $200,000 donation of yours going to again?

SNOOPY
What about the $182 million in finance expenses over the last 5 years which wouldn't be included in the operating profit?

[Baa_Baa]

I've raised it to 500k, lets get a contract!

You're not including all expenses.... That's not net cash.

Hang on, gotta get some popcorn and a beer. Looking forward to this one. :t_up:

I am happy holding some KPG, even loaded up a few more recently, with it's quarterly dividends and now DRP reinstated, one of the best payouts of all.

[Snoopy]

In 2023 they brought in 113 million in cash.

Then spent 162 million on maintaining and improving the dogs

And paid out 112 in dividends.

Whatever you are smoking, I'll have some mate.




"Improving" would be classified as CapEx and be excluded from your 'net' would it not? Accountants seem to have rules for all sorts


Exactly Neophyte. SailorRob is conflating operating cashflow from a single year, measured against investment cashflow spent in a single year that the KPG company will get the benefit from hopefully over many decades. If SailorRob is up with the play, he will know that KPG is in the midst of a vast transformation program at Sylvia Park, Lynmall and Drury.

SNOOPY

[Snoopy]

What about the $182 million in finance expenses over the last 5 years which wouldn't be included in the operating profit?


'Operating Profit' is a non GAAP measure that can be defined differently by different companies. If you look in KPG AR2023 p40, the finance expenses look to have been taken off as the "(Loss)/Profit before Income Tax" is calculated.

If you then move down to the bottom of page 40 the "(Loss)/Profit before Income Tax" figure of $214.8m (with finance expenses deducted) is repeated before it transforms into 'Operating Profit before Income Tax'. So it looks like in this instance the operating profit HAS seen the finance expenses already deducted from it.

You were right to bring up this point though, because if operating profit is used in the sense of EBIT or EBITDA, then the finance expenses would NOT have been deducted.

SNOOPY

[SailorRob]

Exactly Neophyte. SailorRob is conflating operating cashflow from a single year, measured against investment cashflow spent in a single year that the KPG company will get the benefit from hopefully over many decades. If SailorRob is up with the play, he will know that KPG is in the midst of a vast transformation program at Sylvia Park, Lynmall and Drury.

SNOOPY

No, he looks over many years, but he will guarantee that all the capex you're talking about with this vast transformation won't provide a return above inflation.

[SailorRob]

Hang on, gotta get some popcorn and a beer. Looking forward to this one. :t_up:

I am happy holding some KPG, even loaded up a few more recently, with it's quarterly dividends and now DRP reinstated, one of the best payouts of all.

Explain why you would do this vs invest more into free money retirement companies...

There can be no rational explanation.

The payout is awful...

Ask why the payout 'looks' one of the best. A ratio is made from two numbers.

[Snoopy]

No, he looks over many years, but he will guarantee that all the capex you're talking about with this vast transformation won't provide a return above inflation.


Any investment has risk to be sure. KPGs move to making building complexes where living. working and shopping all within the same precinct may or may not be 'successful' (provide returns above inflation). But if you really know what will happen, five, ten, twenty years down the track, why are you still here? Why are you not that gazillionaire cruising the world on his yacht with a crew of 100?

SNOOPY

[Rawz]

I can’t believe LEK just made $500k tonight

[SailorRob]

Any investment has risk to be sure. KPGs move to making building complexes where living. working and shopping all within the same precinct may or may not be 'successful' (provide returns above inflation). But if you really know what will happen, five, ten, twenty years down the track, why are you still here? Why are you not that gazillionaire cruising the world on his yacht with a crew of 100?

SNOOPY


No matter how wealthy I become, I'll carry my own bags and pull my own ropes.

I will be cruising the world on one of my yachts but not with a crew. That would be a nightmare, not something to aspire to. And I will always be here on Sharetrader to straighten out the BS.

The big money is figuring out what will stay the same, not what will change. Of course their investments won't provide a decent return, very very few do... it's not easy. Anything with Kiwi Property in it's name is guaranteed to be rubbish for obvious reason.

You never invest in something that requires a specific insight into the future that far ahead.

Baa-Baa knows damn well that every dollar into this crap will pale in comparison to something with a balance sheet like OCA.

[ValueNZ]

'Operating Profit' is a non GAAP measure that can be defined differently by different companies. If you look in KPG AR2023 p40, the finance expenses look to have been taken off as the "(Loss)/Profit before Income Tax" is calculated.

If you then move down to the bottom of page 40 the "(Loss)/Profit before Income Tax" figure of $214.8m (with finance expenses deducted) is repeated before it transforms into 'Operating Profit before Income Tax'. So it looks like in this instance the operating profit HAS seen the finance expenses already deducted from it.

You were right to bring up this point though, because if operating profit is used in the sense of EBIT or EBITDA, then the finance expenses would NOT have been deducted.

SNOOPY
You are correct. I was thinking that operating profit meant EBIT but obviously not in this case.

[Baa_Baa]

Explain why you would do this vs invest more into free money retirement companies...

There can be no rational explanation.

The payout is awful...

Ask why the payout 'looks' one of the best. A ratio is made from two numbers.


...
Baa-Baa knows damn well that every dollar into this crap will pale in comparison to something with a balance sheet like OCA.

In the meantime SailorRob the KPG payout is not awful, KPG returns to 'me' as an investor, a much larger amount (% of holdings) of capital than OCA or any of my other investments. The DRP reinstated gives me the option of taking the quarterly payout, or taking up more KPG shares.

It doesn't mean I won't change my mind at some stage in the future. But for now, I'm happy to be overweight OCA for its future potential and be balanced on KPG for its superior returns, to me, however they make that happen. KPG is literally funding my investments into higher conviction longer term holdings.

I'm not sure you heard me when I said that there's a lot of 'investors' who really don't give a toss how a company comes up with the money, as long as they pay a regular earning to them. That might not be a perfect reason but it is what it is here in NZ for many who invest in the NZX listed companies. Many people just want a peaceful no stress life with a reliable income on their investment, and KPG delivers that. OCA so far doesn't, albeit I like the DRP for accumulation and avoiding dilution.

[Habits]

The sailor says that property development is the place to be. But however Kiwi Property will never be successful, even though it manages to combine regular income stream with development gains.

He says "anything with 'kiwi property' in its name is guaranteed." There fixed

[SailorRob]

In the meantime SailorRob the KPG payout is not awful, KPG returns to 'me' as an investor, a much larger amount (% of holdings) of capital than OCA or any of my other investments. The DRP reinstated gives me the option of taking the quarterly payout, or taking up more KPG shares.

It doesn't mean I won't change my mind at some stage in the future. But for now, I'm happy to be overweight OCA for its future potential and be balanced on KPG for its superior returns, to me, however they make that happen. KPG is literally funding my investments into higher conviction longer term holdings.

I'm not sure you heard me when I said that there's a lot of 'investors' who really don't give a toss how a company comes up with the money, as long as they pay a regular earning to them. That might not be a perfect reason but it is what it is here in NZ for many who invest in the NZX listed companies. Many people just want a peaceful no stress life with a reliable income on their investment, and KPG delivers that. OCA so far doesn't, albeit I like the DRP for accumulation and avoiding dilution.

Might not be a perfect reason! It's the stupidest thing I've heard... And I know your not one of those people.

It's not KPG that's technically funding you... Its some other poor sucker. As KPG doesn't make net money.

Well perhaps it makes a bit, we won't know till we see the results of the massive spending, my point has been it doesn't make 9% on the cap.

Why the hell you lot are interested in these dogs when there's so much better out there!

[SailorRob]

The sailor says that property development is the place to be. But however Kiwi Property will never be successful, even though it manages to combine regular income stream with development gains.

He says "anything with 'kiwi property' in its name is guaranteed." There fixed

I'm not a fan of property development at all.

But if its done with free money, makes a lot of sense.

[Rawz]

Might not be a perfect reason! It's the stupidest thing I've heard... And I know your not one of those people.

It's not KPG that's technically funding you... Its some other poor sucker. As KPG doesn't make net money.

Well perhaps it makes a bit, we won't know till we see the results of the massive spending, my point has been it doesn't make 9% on the cap.

Why the hell you lot are interested in these dogs when there's so much better out there!
Sailor you just need to accept that there is more than one way to skin a catfish.

Ps. You should never ever look at a typical NZ farmers financials. You wouldn’t get this business model either.

[Muse]

Any investment has risk to be sure. KPGs move to making building complexes where living. working and shopping all within the same precinct may or may not be 'successful' (provide returns above inflation). But if you really know what will happen, five, ten, twenty years down the track, why are you still here? Why are you not that gazillionaire cruising the world on his yacht with a crew of 100?

SNOOPY

It's more fun to jump in the submarine and torpedo threads.

[SailorRob]

Sailor you just need to accept that there is more than one way to skin a catfish.

Ps. You should never ever look at a typical NZ farmers financials. You wouldn’t get this business model either.

Oh believe me I do. It's the same thing.

Hope and prey for a bigger mug to come along while the government attacks your margin.

Show me a farm in NZ that makes more than a 2% return on cap. And show me a farmer that's an intelligent investor.

With Kpg spending incredible amounts of capex... Why is revenue flat in real terms?

[LaserEyeKiwi]

LOL - is that 500k in NZD or SRB (SailorRobBucks)?

https://www.sharetrader.co.nz/blob:https://www.sharetrader.co.nz/6f85a406-6408-43f0-8bd5-77a3bdfc556c
https://www.sharetrader.co.nz/blob:https://www.sharetrader.co.nz/4932f2bd-4919-462f-898e-2073e9797a8a
14694

Looking forward to hearing from SailorRob how KPG is committing massive fraud with all these false financial statements.

Acknowledge yes i used the wrong term for funds generated from continuing operations, but that is incidental to my retort to Robs argument that KPG does not generate enough from continuing operations to cover its dividend. Which is of course a bunch of nonsense as I said.

It is a debate as to whether or not it is silly that Property Portfolio revaluations (both upwards and downwards) are included in net income calculations in New Zealand, but that is just a fact of life, and as such people who merely look at net income to try and determine these companies underlying cashflow are going to fail miserably, that much is evident.

[SailorRob]

LOL - is that 500k in NZD or SRB (SailorRobBucks)?

https://www.sharetrader.co.nz/blob:https://www.sharetrader.co.nz/6f85a406-6408-43f0-8bd5-77a3bdfc556c
https://www.sharetrader.co.nz/blob:https://www.sharetrader.co.nz/4932f2bd-4919-462f-898e-2073e9797a8a
14694

Looking forward to hearing from SailorRob how KPG is committing massive fraud with all these false financial statements.


No fraud, just you don't understand how to interpret financial statements.

Accounting is a story.

Cash is real.

As I said NZD.

9% cash return after ALL expenses on current market cap - I'm saying BS

[SailorRob]

BETTING AGREEMENT


This Betting Agreement ("Agreement") is made on this [Date], by and between:




"Sailor Rob," hereafter referred to as "Party A"
"Laser Eyed Kiwi," hereafter referred to as "Party B"


Collectively referred to as the "Parties."


WHEREAS, the Parties desire to enter into a bet regarding the financial performance of Kiwi Property Group, hereinafter referred to as the "Company."


NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:




BET: Party A is betting that the Company does not and cannot pay a 9% dividend (based on market cap as of 31st July 2023) out of cash net of ALL expenses, and Party B is betting that it does.

STAKE: The stake for this bet is $500,000 NZD. The loser shall pay the winner the aforementioned stake within ten (10) business days of the determination of the bet.

DETERMINATION: The determination of the bet shall be made by reviewing the official financial statements of the Company for the relevant fiscal year, as audited and reported by a recognized accounting firm.

DISPUTE RESOLUTION: Any disputes arising out of or in connection with this Agreement shall be resolved through arbitration in accordance with NZ law.

ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written.

AMENDMENTS: This Agreement may only be amended in writing, and such amendment must be signed by both Parties.

SEVERABILITY: If any provision of this Agreement is found by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such provision shall be modified to the extent necessary to make it enforceable, and the remaining provisions shall continue in full force and effect.



IN WITNESS WHEREOF, the Parties have executed this Betting Agreement as of the date first above written.
"Sailor Rob" (Party A) "Laser Eyed Kiwi" (Party B)
Witness
Date

[Rawz]

:lol::lol::lol::lol::lol::lol:

[LaserEyeKiwi]

In 2023 they brought in 113 million in cash.

Then spent 162 million on maintaining and improving the dogs

And paid out 112 in dividends.

Whatever you are smoking, I'll have some mate.

Maintenance cost over last 5 years (2023, was 6.6m):

14695

Majority of capex is on major new assets: Sylvia Park medical park (3 te kehu way - now complete), Sylvia park BTR1 (2024 completion), Drury earthworks and creation of superlots.

[SailorRob]

Maintenance cost over last 5 years (2023, was 6.6m):

14695

Majority of capex is on major new assets: Sylvia Park medical park (3 te kehu way - now complete), Sylvia park BTR1 (2024 completion), Drury earthworks and creation of superlots.


Understood regarding majority of Capex - but does the 6.6 million pass the sniff test for maintaining the total asset value?

[LaserEyeKiwi]

Understood regarding majority of Capex - but does the 6.6 million pass the sniff test for maintaining the total asset value?

There will also presumably be regular non-capex maintenance in the “Direct Property Expenses”, which totaled $52.8m in 2023:

(Would be interested to hear from others what sort of items make up what portions of “direct property expenses”)

14696

==========

However last decade KPG had large earthquake strengthening costs in its Wellington & Christchurch Assets (which have since been sold), which could fairly be said to have been a large drag on operating returns back then as that cost was often required simply to retain the ability to tenant these assets at the same rate (KPG management talked about this history at this years AGM).

They have one remaining asset with potentially some earthquake strengthening work to do (The Plaza Mall in Palmerston North) - which they are/were trying to sell. As we have seen from the Northlands mall sale, EQ strengthening work is not necessarily needed to be done before a sale and can instead be reflected in a sale price reduction and/or conditions attached to a sale.

[LaserEyeKiwi]

BETTING AGREEMENT


This Betting Agreement ("Agreement") is made on this [Date], by and between:




"Sailor Rob," hereafter referred to as "Party A"
"Laser Eyed Kiwi," hereafter referred to as "Party B"

Collectively referred to as the "Parties."


WHEREAS, the Parties desire to enter into a bet regarding the financial performance of Kiwi Property Group, hereinafter referred to as the "Company."


NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:




BET: Party A is betting that the Company does not and cannot pay a 9% dividend (based on market cap as of 31st July 2023) out of cash net of ALL expenses, and Party B is betting that it does.
STAKE: The stake for this bet is $500,000 NZD. The loser shall pay the winner the aforementioned stake within ten (10) business days of the determination of the bet.
DETERMINATION: The determination of the bet shall be made by reviewing the official financial statements of the Company for the relevant fiscal year, as audited and reported by a recognized accounting firm.
DISPUTE RESOLUTION: Any disputes arising out of or in connection with this Agreement shall be resolved through arbitration in accordance with NZ law.
ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written.
AMENDMENTS: This Agreement may only be amended in writing, and such amendment must be signed by both Parties.
SEVERABILITY: If any provision of this Agreement is found by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such provision shall be modified to the extent necessary to make it enforceable, and the remaining provisions shall continue in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Betting Agreement as of the date first above written.
"Sailor Rob" (Party A) "Laser Eyed Kiwi" (Party B)
Witness
Date

ha ha ha - no way I am entering into any sort of wager with this sort of language on an anonymous message board!

Appreciate the debate though, considering this was all triggered from your post from 2 days ago which contained this hot take in reference to the listed NZ property entities: “What if someone isn't happy with returns of 1.5%”

[winner69]

ha ha ha - no way I am entering into any sort of wager with this sort of language on an anonymous message board!

Appreciate the debate though, considering this was all triggered from your post from 2 days ago which contained this hot take in reference to the listed NZ property entities: “What if someone isn't happy with returns of 1.5%”

Probably format not approved by Dept of Internal Affairs anyway

[Sideshow Bob]

Probably format not approved by Dept of Internal Affairs anyway

Do they have a format for betting agreements between individuals on anonymous message board??

Asking for a friend. :mellow:

[SailorRob]

ha ha ha - no way I am entering into any sort of wager with this sort of language on an anonymous message board!

Appreciate the debate though, considering this was all triggered from your post from 2 days ago which contained this hot take in reference to the listed NZ property entities: “What if someone isn't happy with returns of 1.5%”


Yeah, I stand behind that in real terms - which is all that matters.

From your comments and a very quick look at the statements, they might be able to generate 100-125 million cash, that's a big 'might' and it would take me a week to actually decide on that number, that's around a 1.5% real return if you are lucky.

Is this not so?

And their revenue is down a lot over 5 years in real terms, so whats this massive CAPEX spend achieving?

You seem to have a decent understanding of things but I urge you to consider the points I have made.

Even at these hugely reduced share prices, these companies are NOT good businesses.

[Snoopy]

BETTING AGREEMENT


This Betting Agreement ("Agreement") is made on this [Date], by and between:




"Sailor Rob," hereafter referred to as "Party A"
"Laser Eyed Kiwi," hereafter referred to as "Party B"


Collectively referred to as the "Parties."


WHEREAS, the Parties desire to enter into a bet regarding the financial performance of Kiwi Property Group, hereinafter referred to as the "Company."


NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:




BET: Party A is betting that the Company does not and cannot pay a 9% dividend (based on market cap as of 31st July 2023) out of cash net of ALL expenses, and Party B is betting that it does.

STAKE: The stake for this bet is $500,000 NZD. The loser shall pay the winner the aforementioned stake within ten (10) business days of the determination of the bet.

DETERMINATION: The determination of the bet shall be made by reviewing the official financial statements of the Company for the relevant fiscal year, as audited and reported by a recognized accounting firm.

DISPUTE RESOLUTION: Any disputes arising out of or in connection with this Agreement shall be resolved through arbitration in accordance with NZ law.

ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written.

AMENDMENTS: This Agreement may only be amended in writing, and such amendment must be signed by both Parties.

SEVERABILITY: If any provision of this Agreement is found by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such provision shall be modified to the extent necessary to make it enforceable, and the remaining provisions shall continue in full force and effect.



IN WITNESS WHEREOF, the Parties have executed this Betting Agreement as of the date first above written.
"Sailor Rob" (Party A) "Laser Eyed Kiwi" (Party B)
Witness
Date

Interesting to see how the 'bet' has evolved both by increasing in size and for instead of the loser to giving to their 'named charity of choice', it has become a personal wager.


Or simply shut the troll down and get 100k to your favourite charity at the same time.

But you can't.

As your mouth keeps writing cheques your other end can't cash.

Maybe SailorRob needs the money to pay the IRD all the tax he will owe them on his massive offshore trade wins?

SNOOPY

[Lego_Man]

Interesting to see how the 'bet' has evolved both by increasing in size and for instead of the loser to giving to their 'named charity of choice', it has become a personal wager.



Maybe SailorRob needs the money to pay the IRD all the tax he will owe them on his massive offshore trade wins?

SNOOPY

No comment on the bet, but if you were bullish on the stock, wouldn't you be better achieving the same return profile by buying more stock on margin, rather than bilaterally betting and introducing counterparty risk?. Or where applicable, buying a call option for extra leverage.

The bragging rights part could be solved by screen-shotting your P/L statement ;-)

[SailorRob]

Interesting to see how the 'bet' has evolved both by increasing in size and for instead of the loser to giving to their 'named charity of choice', it has become a personal wager.



Maybe SailorRob needs the money to pay the IRD all the tax he will owe them on his massive offshore trade wins?

SNOOPY


Yes, should go to charity. Can change as not signed yet.

The Sailor doesn't trade and it all falls under conventional FIF.

It's been a VERY decent year to date, but the year is far from over.

[Habits]

Yeah, I stand behind that in real terms - which is all that matters.

From your comments and a very quick look at the statements, they might be able to generate 100-125 million cash, that's a big 'might' and it would take me a week to actually decide on that number, that's around a 1.5% real return if you are lucky.

Is this not so?

And their revenue is down a lot over 5 years in real terms, so whats this massive CAPEX spend achieving?

You seem to have a decent understanding of things but I urge you to consider the points I have made.

Even at these hugely reduced share prices, these companies are NOT good businesses.

Notice the quick switch. Real return. No way you can do business with that

[winner69]

Yes, should go to charity. Can change as not signed yet.

The Sailor doesn't trade and it all falls under conventional FIF.

It's been a VERY decent year to date, but the year is far from over.

Jeez Rob ……didn’t know you were into Energy Infrastructure Funds

Doesn’t seem much of a return from FIF

[ValueNZ]

Real return is everything. Nominal means nothing without being adjusted for inflation

[Habits]

Real return is everything. Nominal means nothing without being adjusted for inflation

Was the sailor man's statement "What if someone isn't happy with returns of 1.5%”

Nothing there about real return. So why the switcheroo.

Think about that for a minute

[SailorRob]

Was the sailor man's statement "What if someone isn't happy with returns of 1.5%”

Nothing there about real return. So why the switcheroo.

Think about that for a minute


I think you need to re read what VNZ wrote.

Nobody thinks in nominal returns, you'd be a moron to do so.

I'm selling a boat for more than what I paid for it 15 years ago... Do I think I made money????

Do you really think the Zimbabwe stock exchange is the best performing in the world?

Look, a lot of people have lost a lot of money in these companies and there will be a lot of explaining to do to partners etc, where people thought they were geniuses but was just one giant leveraged rates play. That money is never coming back, in real terms it's gone. Painful I get it, but learn.

[SailorRob]

Real return is everything. Nominal means nothing without being adjusted for inflation


Correct and everyone has forgotten due to the ZIRP decade we've just been through.

Anyone can make nominal returns, thousands of percent, easy...

[SailorRob]

Anyway the bet was cash return of 9% from current cap, covered by real cash earnings after all expenses - you can have it nominal or real. Either way it's not close.

[Rawz]

Sailor you have talked about nominal rates a lot and don’t forgot that chart you post of nominal rates and I had to correct you with the real rates chart.

So easy for us to assume you think in nominal returns lol

[Snoopy]

Was the sailor man's statement "What if someone isn't happy with returns of 1.5%”

Nothing there about real return. So why the switcheroo.

Think about that for a minute.


Yep, SailorRob is much cleverer than you think he is at playing the psychology of this betting game. Realising he is about to lose the bet, he subtlety changes the rules, and ups the bet amount to $500k. That would be enough dosh to make even those who believe they have a sound case against him pause for thought at taking up the bet. Of course he still faces the risk of a rich lister who can afford to stump up $500k taking up his wager. If that happened I could see Rob taking his boat to NZ's nautical 500 mile territorial boundary while playing out the game through legal representation in the NZ courts. Then he could legitimately sail off for Thailand, or some other country without an extradition treaty to NZ, when the NZ courts rule against him.

I predict this betting game has one more act to play out. That will be SailorRob increasing his bet to a cool one million, in a last gasp scare tactic. Once that happens it will be tantamount to an admission by SailorRob that he has lost the bet.

SNOOPY

[SailorRob]

Yep, SailorRob is much cleverer than you think he is at playing the psychology of this betting game. Realising he is about to lose the bet, he subtlety changes the rules, and ups the bet amount to $500k. That would be enough dosh to make even those who believe they have a sound case against him pause for thought at taking up the bet. Of course he still faces the risk of a rich lister who can afford to stump up $500k taking up his wager. If that happened I could see Rob taking his boat to NZ's nautical 500 mile territorial boundary while playing out the game through legal representation in the NZ courts. Then he could legitimately sail off for Thailand, or some other country without an extradition treaty to NZ, when the NZ courts rule against him.

I predict this betting game has one more act to play out. That will be SailorRob increasing his bet to a cool one million, in a last gasp scare tactic. Once that happens it will be tantamount to an admission by SailorRob that he has lost the bet.

SNOOPY


Snoopy, don't be the fool. You're better.

I have not changed the bet - the terms can be nominal return NO PROBLEM as I previously posted.

Also the amount can be changed to a lower figure if suits. 500k is not rich lister stuff...

The boundary is NOT 500 miles... it's 12. Come on man. Even the economic Zone is only 200.

You really think NZ can defend a limit of 500 nautical miles?

So.. all your arguments are destroyed.

Whats next?

[Snoopy]

Snoopy, don't be the fool. You're better.

I have not changed the bet - the terms can be nominal return NO PROBLEM as I previously posted.

Also the amount can be changed to a lower figure if suits. 500k is not rich lister stuff...

The boundary is NOT 500 miles... it's 12. Come on man. Even the economic Zone is only 200.

You really think NZ can defend a limit of 500 nautical miles?

So.. all your arguments are destroyed.


Looks you are right about the Exclusive Economic Zone being 200 miles not 500.
https://www.mfat.govt.nz/en/environment/oceans-and-fisheries/our-maritime-zones-and-boundaries/

Although in my defence, looking out from my Canterbury headquarters, I would have to sail about 500miles offshore to escape the Chatham rise. So I will give you that point SailorRob. You could drop anchor 200 miles offshore, before you 'make your break' for Thailand ;-P

SNOOPY

[SailorRob]

Looks you are right about the Exclusive Economic Zone being 200 miles not 500.
https://www.mfat.govt.nz/en/environment/oceans-and-fisheries/our-maritime-zones-and-boundaries/

Although in my defence, looking out from my Canterbury headquarters, I would have to sail about 500miles offshore to escape the Chatham rise. So I will give you that point SailorRob. You could drop anchor 200 miles offshore, before you 'make your break' for Thailand ;-P

SNOOPY

200 miles is irrelevant. It's 12 miles for what you're talking about.

I'd need an anchor chain over 20 kilometers long...

[winner69]

200 miles is irrelevant. It's 12 miles for what you're talking about.

I'd need an anchor chain over 20 kilometers long...

There’s a spot in the Hauraki Gulf that is in international waters

Years ago just before Sky City opened we moored the big launch up and flew out some Sky City staff and had a casino night ……..all legal as in international waters …cool eh

[RTM]

There’s a spot in the Hauraki Gulf that is in international waters

Years ago just before Sky City opened we moored the big launch up and flew out some Sky City staff and had a casino night ……..all legal as in international waters …cool eh

Was that alongside the Radio Hauraki team ?

[winner69]

Was that alongside the Radio Hauraki team ?

We did that in the 1990’s …I think Tiri had sunk by then and Hauraki broadcast from terra firma

[Snoopy]

Understood regarding majority of Capex - but does the 6.6 million pass the sniff test for maintaining the total asset value?




There will also presumably be regular non-capex maintenance in the “Direct Property Expenses”, which totaled $52.8m in 2023:

(Would be interested to hear from others what sort of items make up what portions of “direct property expenses”)


==========

However last decade KPG had large earthquake strengthening costs in its Wellington & Christchurch Assets (which have since been sold), which could fairly be said to have been a large drag on operating returns back then as that cost was often required simply to retain the ability to tenant these assets at the same rate (KPG management talked about this history at this years AGM).

They have one remaining asset with potentially some earthquake strengthening work to do (The Plaza Mall in Palmerston North) - which they are/were trying to sell. As we have seen from the Northlands mall sale, EQ strengthening work is not necessarily needed to be done before a sale and can instead be reflected in a sale price reduction and/or conditions attached to a sale.


Maintenance cost over last 5 years (2023, was 6.6m):

14695

Majority of capex is on major new assets: Sylvia Park medical park (3 te kehu way - now complete), Sylvia park BTR1 (2024 completion), Drury earthworks and creation of superlots.


Snoopy, don't be the fool. You're better.

I have not changed the bet - the terms can be nominal return NO PROBLEM as I previously posted.


O.K., let's forget this silly side track of 'the bet', and return to the core issue. I think LEK has given you some sound reasons why capex at KPG has been high for the last few years. But you still have doubts on whether that $6.6m maintenance figure and the $52.3m in 'direct property expenses' incurred over FY2023 is enough? Looks like KPG got away with just spending $3m on maintenance over FY2022. I am not really sure how to progress the argument from here.

What I can tell you is that the recently sold Northlands mall in Christchurch never looked shabby. KPG spent quite a bit of money doing up the food court area in the not too distant past. Sylvia Park looked good when I dropped in briefly in 2022. I didn't *see* any signs that corners were being cut in the maintenance department. What is it that makes you think the maintenance budget and direct property expenses were not adequate APART from the fact that if it were true it would suit your argument?

SNOOPY

[SailorRob]

O.K., let's forget this silly side track of 'the bet', and return to the core issue. I think LEK has given you some sound reasons why capex at KPG has been high for the last few years. But you still have doubts on whether that $6.6m maintenance figure and the $52.3m in 'direct property expenses' incurred over FY2023 is enough? Looks like KPG got away with just spending $3m on maintenance over FY2022. I am not really sure how to progress the argument from here.

What I can tell you is that the recently sold Northlands mall in Christchurch never looked shabby. KPG spent quite a bit of money doing up the food court area in the not too distant past. Sylvia Park looked good when I dropped in briefly in 2022. I didn't *see* any signs that corners were being cut in the maintenance department. What is it that makes you think the maintenance budget and direct property expenses were not adequate APART from the fact that if it were true it would suit your argument?

SNOOPY


Even Snoop Dog after a day at the Daktory would not ever consider the possibility that 3 million dollars could be enough to maintain three BILLION dollars worth of property.

And neither would he consider 6 million enough either.

I'm not debating that's what they spent...

But come on, it will be widely known what maintenance Capex average is for these types of assets as a % of their value.

And it's not ONE THOUSANDTH of their value per year.

Nobody on sharetrader would ever think it possible to correctly maintain these assets for a cost of one thousandth of their value!!!!!!

[Waltzing]

https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/tib/volume-05---1993-1994/tib-vol5-no09.pdf

[Snoopy]

Even Snoop Dog after a day at the Daktory would not ever consider the possibility that 3 million dollars could be enough to maintain three BILLION dollars worth of property.

And neither would he consider 6 million enough either.

I'm not debating that's what they spent...

But come on, it will be widely known what maintenance Capex average is for these types of assets as a % of their value.

And it's not ONE THOUSANDTH of their value per year.

Nobody on sharetrader would ever think it possible to correctly maintain these assets for a cost of one thousandth of their value!!!!!!


To that I make the following counterpoints:

1/ There isn't a lot of maintenance to be done on these large tilt slab concrete structures. Maybe they are washed or water blasted once or twice a year. Those coloursteel roofs are guaranteed for 27 years before they need repainting. There are a few green plants around most sites that need looking after. Maybe a bit of concrete edging needs fixing when shoppers crash their cars in the car park. Light bulbs will need changing, although with modern lighting technology, this doesn't happen as often as it used to. Toilet paper and cleaners for the shared toilet facilities. A lot of buildings like this are designed as 'really low maintenance'.

2/ Much of the $3b in value will be in the underlying value of the 'land' and added to that the alternative use 'earnings value of the site's location'. The actual construction value of the buildings are likely to be far far less than $3b.

3/ The interior wear and tear will be looked after by the tenants, at 'no cost' to the landlord.

I don't think your observation of 'one thousandth of the cost of the value is insufficient for maintenance' is enough to derail these detailed truths.

SNOOPY

[SailorRob]

To that I make the following counterpoints:

1/ There isn't a lot of maintenance to be done on these large tilt slab concrete structures. Maybe they are washed or water blasted once or twice a year. Those coloursteel roofs are guaranteed for 27 years before they need repainting. There are a few green plants around most sites that need looking after. Maybe a bit of concrete edging needs fixing when shoppers crash their cars in the car park. Light bulbs will need changing, although with modern lighting technology, this doesn't happen as often as it used to. A lot of buildings like this are designed as 'really low maintenance'.

2/ Much of the $3b in value will be in the underlying value of the 'land' and added to that the alternative use 'earnings value of the site's location'. The actual construction value of the buildings are likely to be far far less than $3b.

3/ The interior wear and tear will be looked after by the tenants, at 'no cost' to the landlord.

I don't think your observation of 'one thousandth of the cost of the value is insufficient for maintenance' is enough to derail these detailed truths.

SNOOPY


Maybe not and this is an area I know very little about, just use common sense.

Sure in some years they can spend this little, but look at all that earthquake work,

Fire systems, HVAC systems... who knows what.

But good valid points.

Lets pretend the maintenance is ZERO and always will be ZERO.

My original argument still stands. You cannot get 9% cash out of it at current cap.

[SailorRob]

As for Baa_Baa's comment about Kiwis not caring where their dividend comes from.

They sure did in the GFC finance companies (about 100 of them)

And the Maddoff fund.

It really is quite important.

[Snoopy]

Maybe not and this is an area I know very little about, just use common sense.

Sure in some years they can spend this little, but look at all that earthquake work,

Fire systems, HVAC systems... who knows what.


OK add in occasional re-gassing of the heat pumps. Also changes of filters in the ducting systems as maintenance issues I overlooked.

I wouldn't class 'earthquake' work to be part of maintenance. Any building damage would likely be covered by insurance. Any strengthening on top of that to minimise future earthquake damage would be capital expenditure.

The fire systems might need an occasional 'systems test' to ensure they are still in full working order. But I don't think that would cost much.




Lets pretend the maintenance is ZERO and always will be ZERO.

My original argument still stands. You cannot get 9% cash out of it at current cap.

Look at the 'Statement of Comprehensive Income' (KPG AR2023 p45):



Profit before other income/(expenses) and income tax:$135.268m


less Income Tax$(12.888m)


Profit before other income/(expenses)$122.380m



Dividends paid during the year $111.876m (AR2023 p46). So as you can see the underlying earnings during the year 'after tax' covers the dividend.

Now the number of shares on issue at EOFY2023 was 1,571.2m (KPG AR2023 p108).
So dividends per share over 2023 amounted to: $122.380m/1,571.2m= 7.8cps

The PIE tax regime allows that to be grossed up assuming tax was paid at 28%(*). So the gross dividend paid from CASH, which is the point you most like to emphasise was:

7.8c / (1-0.28) = 10.8cps

Your requirement is for an investor to be able to buy a KPG share for a gross yield of 9%. Let the share price to allow that to happen be 'SP'. That means the following equation must be satisfied:

10.8c / SP = 0.09 => SP= $1.20

That means as long as the KPG share price is less than $1.20, (which it has been since the beginning of CY2022), that means the gross dividend yield has been above 9%, i.e. it meets the SailorRob target.

This means for SailorRob to be correct, he must find something in the income statement that is causing KPG to overstate their income, or income in CASH terms (which is what we are measuring anyway). In my judgement SailorRob has yet to do this.

SNOOPY

{*) I don't fully understand this. Grossing up the dividend this way, when nowhere near this amount of tax was actually paid still seems like a rort to me. Nevertheless this is how 'the PIE system' works and it is all perfectly legal.

[Baa_Baa]

As for Baa_Baa's comment about Kiwis not caring where their dividend comes from.

They sure did in the GFC finance companies (about 100 of them)

And the Maddoff fund.

It really is quite important.

I think you're underestimating the 'intelligence' of the mom and pop investors who buy into these high dividend paying companies. None of them are prone to the failure of finance companies in the 1980's, were talking listed property investments with huge assets.

They look at their quarterly and six monthly dividend statements and say, 'hey yes, that's better than money in the bank'. They don't ever go back to their broker and ask, 'wtf' unless the share price guts itself and they're under water on their capital.

I'm not sure that that you're in touch with main stream investment ideology in NZ, or the desire for capital return, or even perhaps the share market here. Maybe you don't care either, if so why comment?

[ValueNZ]

I think you're underestimating the 'intelligence' of the mom and pop investors who buy into these high dividend paying companies. None of them are prone to the failure of finance companies in the 1980's, were talking listed property investments with huge assets.

They look at their quarterly and six monthly dividend statements and say, 'hey yes, that's better than money in the bank'. They don't ever go back to their broker and ask, 'wtf' unless the share price guts itself and they're under water on their capital.

I'm not sure that that you're in touch with main stream investment ideology in NZ, or the desire for capital return, or even perhaps the share market here. Maybe you don't care either, if so why comment?

The dividend yield being "better than money in the bank" simply isn't a good enough reason to purchase securities. There needs to be sustainable cash generated by the businesses operations to fund the dividend payments or else you are just drawing down on capital over time.

If it is mainstream investment ideology in NZ to prioritise dividend yield over cash generation, then that truely does say something about the intelligence of these mom and pop investors (or at least their investment ability).

[bull....]

OK add in occasional re-gassing of the heat pumps. Also changes of filters in the ducting systems as maintenance issues I overlooked.

I wouldn't class 'earthquake' work to be part of maintenance. Any building damage would likely be covered by insurance. Any strengthening on top of that to minimise future earthquake damage would be capital expenditure.

The fire systems might need an occasional 'systems test' to ensure they are still in full working order. But I don't think that would cost much.




Look at the 'Statement of Comprehensive Income' (KPG AR2023 p45):



Profit before other income/(expenses) and income tax:
$135.268m


less Income Tax
$(12.888m)


Profit before other income/(expenses)
$122.380m



Dividends paid during the year $111.876m (AR2023 p46). So as you can see the underlying earnings during the year 'after tax' covers the dividend.

Now the number of shares on issue at EOFY2023 was 1,571.2m (KPG AR2023 p108).
So dividends per share over 2023 amounted to: $122.380m/1,571.2m= 7.8cps

The PIE tax regime allows that to be grossed up assuming tax was paid at 28%(*). So the gross dividend paid from CASH, which is the point you most like to emphasise was:

7.8c / (1-0.28) = 10.8cps

Your requirement is for an investor to be able to buy a KPG share for a gross yield of 9%. Let the share price to allow that to happen be 'SP'. That means the following equation must be satisfied:

10.8c / SP = 0.09 => SP= $1.20

That means as long as the KPG share price is less than $1.20, (which it has been since the beginning of CY2022), that means the gross dividend yield has been above 9%, i.e. it meets the SailorRob target.

This means for SailorRob to be correct, he must find something in the income statement that is causing KPG to overstate their income, or income in CASH terms (which is what we are measuring anyway). In my judgement SailorRob has yet to do this.

SNOOPY

{*) I don't fully understand this. Grossing up the dividend this way, when nowhere near this amount of tax was actually paid still seems like a rort to me. Nevertheless this is how 'the PIE system' works and it is all perfectly legal.

well said snoopy , enjoy your analysis indeed.

[ithaka]

1/ There isn't a lot of maintenance to be done on these large tilt slab concrete structures. Maybe they are washed or water blasted once or twice a year. Those coloursteel roofs are guaranteed for 27 years before they need repainting. There are a few green plants around most sites that need looking after. Maybe a bit of concrete edging needs fixing when shoppers crash their cars in the car park. Light bulbs will need changing, although with modern lighting technology, this doesn't happen as often as it used to. Toilet paper and cleaners for the shared toilet facilities. A lot of buildings like this are designed as 'really low maintenance'.
SNOOPY
The tenant pays many of these costs.

[Snoopy]

1/ There isn't a lot of maintenance to be done on these large tilt slab concrete structures. Maybe they are washed or water blasted once or twice a year. Those coloursteel roofs are guaranteed for 27 years before they need repainting. There are a few green plants around most sites that need looking after. Maybe a bit of concrete edging needs fixing when shoppers crash their cars in the car park. Light bulbs will need changing, although with modern lighting technology, this doesn't happen as often as it used to. Toilet paper and cleaners for the shared toilet facilities. A lot of buildings like this are designed as 'really low maintenance'.



The tenant pays many of these costs.

I guess you can ultimately argue that the tenants pay all costs, because they are the only income source for the property owning company. But I think you are implying something a little different ithaka? Are you suggesting that for tenants there is an additional 'overall facilities charge' to pay for the 'common facilities' on top of the rent due based on the square metres that the tenant store occupies? Asking because I don't really know the details of these matters, although I was aware that tenants usually pay the in store fit out costs and upkeep as I suggest below.



3/ The interior wear and tear will be looked after by the tenants, at 'no cost' to the landlord.


SNOOPY

[JeffW]

I guess you can ultimately argue that the tenants pay all costs, because they are the only income source for the property owning company. But I think you are implying something a little different ithaka? Are you suggesting that for tenants there is an additional 'overall facilities charge' to pay for the 'common facilities' on top of the rent due based on the square metres that the tenant store occupies? Asking because I don't really know the details of these matters, although I was aware that tenants usually pay the in store fit out costs and upkeep as I suggest below.


SNOOPY

That's correct - in a commercial tenancy (as opposed to a residential tenancy) it is usual that the tenant pays the Operating Expenses (OPEX), which includes the type of things in your original post, plus more importantly the rates and insurance.

[winner69]

KPG accounts FY23

Direct Property Expenses $52.8m


Are these things like rates etc …..which when/if paid by tenants gets included in revenues?

[Snoopy]

Accounting is a story.

Cash is real.

As I said NZD.

9% cash return after ALL expenses on current market cap - I'm saying BS


SailorRob does have a point in that there is a lot of 'alternative profit' reporting about.

To illustrate this I am switching across to another of the protagonists, Investore, because that is a company that isn't in a state of transformation. In theory that means less ability to rewrite the profit story. I.e. the accounts should be harder to fudge. I am using section 3.2 from IPL AR2023 to compare the four (yes you did read that correctly) measures of profit highlighted in the annual report. Ironically the only one I would dismiss as BS out of hand is the official GAAP measure. That is because GAAP profit includes capital value changes of the owned assets. The question then becomes: "Which of the remaining three measures of profit are most real?"



Line Item


1GAAP Loss/Profit before Income tax$(150.072m)


Non-recurring non-cash Operational profit adjustments



2add back Capital Property Value loss$185.246m



3equals Operational profit before Income tax$35.174m(Or with tax taken off $30.143m)


Non-recurring non-cash Distributable Profit Adjustments


4Reversal of right of use assets movement in net change in fair value of investment properties$(0.075m)


5Gain on disposal of investment property-


6Net change in fair value of derivative financial instruments$0.033m


7Spreading of fixed rental increases$0.089m


8Capitalised lease expenses net of amortisation$0.112m


9Borrowing establishment costs amortisation$0.940m


10Swap termination income-


11equals Distributable Profit before current income tax$36.049m


12Current income tax$(4.972m)


13Tax expense on capitalised interest adjustment$(0.059m)



11 equals Distributable Profit after current income tax$31.018m



Adjustments to funds from operations



12Maintenance Capital Expenditure$(2.400m)



13 equals Adjusted Funds from Operations (AFFO)$28.618m



Notes

(3) Calculation for 'Operational Profit after Income Tax':
$35.174m - $4.972m -$0.059m = $30.143m

---------------------

I have already had a grizzle about the unsustainability of paying dividends from profits at Investore here:
https://www.sharetrader.co.nz/showthread.php?10612-IPL-Investore-Property&p=1013952&viewfull=1#post1013952

So now is the time in a more general context, to discuss the merits, or otherwise, of all four profits reported.

SNOOPY

[Snoopy]

GAAP Loss/Profit before Income tax

This one is easy to dismiss, albeit with one small caveat. An increase (or decrease for that matter) of the value of an investment property 'on the books' does nothing to increase (or decrease) cashflow. Sure you can borrow money against an increasing property value, and pay that money out as a 'dividend'. But such a dividend will carry no imputation credits which is a sure sign it is an 'asset transfer' unconnected to income from 'running a business'. So this first 'profit measure' fails the SailorRob income test.

SNOOPY

P.S. The caveat I mentioned relates to the debt to asset ratio of a property company:

Investore AGM2023 presentation: slide 8:
"During FY2023, $75m of bank facilities were refinanced.and extended for a further two years to November 2025. As part of this refinancing, Investore also renegotiated its banking covenants with its banking syndicate, removing the covenant relating to its weighted average lease term of Investores portfolio, and reducing the LVR (Loan to Value Ratio) covenant from a maximum of 65% to a maximum of 52.5%."

Changing the market value of properties held does affect the loan to value ratio of the property portfolio held. And so does borrowing against a property to pay a dividend. So you could say revaluations and devaluations of property indirectly affect the dividend paying capability of that property company.

[Snoopy]

'Operational Profit; is the base profit figure I would use. But deriving a profit in this way means that certain accounting conventions have to be followed. In particular, some of the profit may be 'non-recurring', and some of those 'non-recurring' adjustments may be unexpected. Some would say (and I am one of the some) that while reporting a profit like this is 'accurate' it is also misleading. The obvious follow up question is, what adjustments should we make to 'operational profit' to provide a sustainable view of that profit? For unless the 'Operational Profit' is sustainable, you cannot pay a reliable dividend from it.

SNOOPY

[Snoopy]

This is the post that you have been waiting for: 'Operational Profit' with the correction factors.

Look back at part 1 of this series and lines 4 to 10 provide the one off adjustments that create 'Distributable Profit'.

Starting from line 4, recording 'right of use assets' on the balance sheet is part of an accounting construct to bring rented assets onto the books of a company that needs to use those assets to produce a profit. But to balance out the fact that you have put on the balance sheet assets that a company does not own, you have to introduce onto the other side of the ledger an offsetting lease liability. The net effect of this is that over a rental contract for the asset, the 'right of use assets' and associated 'lease liabilities' gradually diminish so that both are zero by the end of the rental contract.

We are told this 'right of use asset' reversal of $0.075m is somehow connected to the revaluation of investment properties (there was a $185.246m downward valuation in Investore properties in the Investore FY2023 result). I believe this $0.075m further downward profit adjustment is connected to the investment properties that Investore owns (Investore is in the business of owning investment properties after all). However, Investore is in the business of selling the utility of 'right to use' assets, not buying such a utility. So maybe this adjustment is because 'right to use Investore assets' are no longer as valuable because an underlying connected rent contract has either:

a/ gone bad,
b/ been cut short or
c/ had rent terms renegotiated in a way that is unfavourable to Investore.

Thus Investore has suffered a double whammy here. The first hit being the write down in the value of the building itself as a 'general rentable prospect'. The second hit being the loss of a specific rental stream in line with the diminution in value of one or more specific rental contracts. I admit I am making this explanation up on the fly, starting from what I do know to come up with a plausible explanation. So I am willing to be corrected by someone who really knows this stuff.

Moving on to line 5, it is quite logical to remove profits from a property sale, if this is a one off non-repeating event (Investore are in the business of managing properties, not selling them).

Line 6 and line 10 relate to 'derivatives' and 'swap rates'. These are commonly use to stabilize borrowing interest payments into consistent amounts, when the underlying terms of the borrowings contain a variable factor that Investore wants to eliminate. But accounting rules require such contracts to be revalued annually to reflect the 'what if' effect of such contracts being broken at balance date. Over the life of these derivative contracts, the annual revaluations and devaluations will balance out. IMO it is correct to remove these 'derivative adjustments' from each annual result if you want to correctly assess the operational performance of the business.

LIne 7 talks about the spreading of fixed rental increases. Rental agreements may have a fixed component, a turnover component and an inflation adjusted component. I am guessing that 'fixed rental increases' must be referring to new rental contracts rolling over old rental contract that have expired. But that is primarily because otherwise the concept of a 'fixed rental' contract 'increasing' is a contradiction. I see from the reconciliation of profit with cashflow statement (IPL AR2023 p33) that this $0.089m is a 'non cashflow item'. If that is true, it makes even less sense to add it to this years distributable profit. Sometimes these adjustments are quite baffling to me and this is one of those times. My rule of thumb is that if I don't understand something like this, I leave it out. Explanation from someone who knows what is going on here would be welcome.

Line 9 talks about 'loan establishment costs' which are being amortised away. Any asset that is amortised away will reduce profit but not cashflow. This adjustment is telling us that the amount being amortised is actually free cashflow that could be used to boost dividends. That fits with the SailorRob paradigm of 'show me the cash'. So I think our nautical friend would be on board with adding this cash to our potential dividend pile, even though it is strictly 'not profit'.

Looking back on Line 8, the talk there is of capitalised lease expenses net of amortisation. So forget the amortisation reference. These sound like lease expenses capitalised during the year. If these lease expenses had not been capitalised, then they would have been paid out reducing profit. But since they were capitalised, the net effect of the capitalisation was to increase the profit of Investore, and a cash payout was saved. Thus that 'saved cash' is available to pay an increased dividend. Makes sense!

I have covered Lines 4 to 9 from my post 1935, and agree with most but not all of the adjustments made. Make of that what you will.

SNOOPY

[Snoopy]

'AFFO' stands for 'Adjusted Funds from Operations'. The only difference between this and 'distributable profit' is that 'Maintenance Capital Expenditure' has been removed. I did a double take when I saw that phrase. I know what 'maintenance expenditure' is, and I know what 'capital expenditure' is. But 'maintenance capital expenditure'? What is that? Fortunately the waltzing ironman provided us with an excellent reference on this topic (thanks waltzingman).


https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/tib/volume-05---1993-1994/tib-vol5-no09.pdf

Upon reading the above, my explanation for what 'maintenance capital expenditure' is, is as follows.

If Investore builds a new toilet block, that is 'capital expenditure'. If they keep stocking those new toilets with toilet paper, then that toilet paper is part of 'maintenance expenditure'. Now cue a drunk who comes in late at night and smashes a toilet seat and cracks the connected toilet bowl. Replacing those damaged components is 'maintenance capital expenditure'. Why?

It is clearly a class of 'capital expenditure', because toilet bowls in general are expected to last a long time. But it is also just 'maintenance' because all you are doing is restoring an existing asset to the condition it was in before. I.e. just fixing up a single toilet unit doesn't give your toilet block any extra earning power. All you are doing is restoring your capital equipment to the condition it was in before it was damaged. An advantage of expenses being classified as 'maintenance capital expenditure' is that it is immediately tax deductible. It doesn't have to be capitalised and subsequently depreciated over many years.

Investore takes the view that such expenditure 'doesn't count' from the point of view of having profit on hand that could be distributed as income. I don't agree with that position. Are Investore really saying that it is 'business as usual' if one of their big box stores has a partially smashed up toilet block inside of it? Interestingly, I think the Kiwi Property Group agree with me. From KPG AR2023 p75

"Dividend payments are based on a range of factors, including with particular reference to the Group’s adjusted funds from operations
(AFFO), which is the primary basis on which dividend amounts are determined. AFFO is a non-GAAP performance measure used by
the Group to determine underlying and recurring cash flows from operations."

I note that being a non-GAAP measure, there is no standard way to calculate AFFO. But both IPL and KPG include 'maintenance capital expenditure' when adjusting their income statements. So I guess there is room for professional disagreement on this matter. IMO AFFO is the figure that Investore should be using when considering the income stream needed from which dividends are paid - not the 'Distributable Profit' from post 1938.

SNOOPY

[LaserEyeKiwi]

VHP takes a -$208.6m portfolio devaluation, NTA drops to $2.96c per share. Still well above the $2.35 current share price.

[Waltzing]

new tax coming for these to fund tax free fruit and vege...

https://www.nzherald.co.nz/business/election-2023-property-owners-to-foot-the-bill-for-labours-tax-policy/4I7POZ2XTZGA7CX5SRBXREONOI/

[Habits]

new tax coming for these to fund tax free fruit and vege...

https://www.nzherald.co.nz/business/election-2023-property-owners-to-foot-the-bill-for-labours-tax-policy/4I7POZ2XTZGA7CX5SRBXREONOI/

We live beyond our means, and eat too much, get the rich commercial ppty owners to fund

[LaserEyeKiwi]

new tax coming for these to fund tax free fruit and vege...

https://www.nzherald.co.nz/business/election-2023-property-owners-to-foot-the-bill-for-labours-tax-policy/4I7POZ2XTZGA7CX5SRBXREONOI/

its merely a reversal back to pre-covid taxation rate.

removing depreciation on buildings was actually originally introduced by the National government in 2010.

[ronaldson]

Today no GST on fruit and vegetables. Tomorrow none on dentists' fees. Wednesday none on doctors' fees. Thursday none on local body rates. Friday......I could go on and I haven't even mentioned women's sanitary products! The potential to bribe votes is endless, and the causes are all ostensibly good ones, aiding the poor/deserving among us.

[winner69]

Market Close report today

Goodson (Salt Funds) said for the first time in a while, the property sector (down 0.81%) was weaker, and the increase in long-term bond yields is probably starting to exert itself. The NZ 10 Year Government Bond yield has reached 4.898% – the highest level since 2011.

[Waltzing]

"The potential to bribe votes is endless"

Classic and true ... who is even listen to them anymore .....

https://nzhistory.govt.nz/media/video/dancing-cossacks

[Habits]

Today no GST on fruit and vegetables. Tomorrow none on dentists' fees. Wednesday none on doctors' fees. Thursday none on local body rates. Friday......I could go on and I haven't even mentioned women's sanitary products! The potential to bribe votes is endless, and the causes are all ostensibly good ones, aiding the poor/deserving among us.

GREED
haha I meant to write "agreed" and yet I think the first attempt is better

[Sideshow Bob]

PFI Result - https://www.nzx.com/announcements/416740

Highlights
- Interim result: Fair value losses on properties of $55.0 million or 5.3% contributing to a loss after tax of $30.5 million. Funds From Operations (FFO)[1] down 4.0% from the prior interim period to 4.92 cents per share (cps), Adjusted Funds From Operations (AFFO) in line with the prior interim period at 4.62 cps, interim cash dividends of 3.90 cps.
- Constrained supply driving rental growth: Auckland industrial vacancy remains at all-time lows, driving rental growth. $32.8 million of contract rent reviewed during H1 2023 delivering an average annualised uplift of 4.2%, 2.3% of contract rent leased during H1 2023 at an average of 14.7% above previous contract rents. $2.1 billion industrial property portfolio ~16% under-rented.
- Green Star development pipeline progressed: Demolition complete across both active sites, $140 million of committed spend, all buildings targeting Five Green Star ratings.
- Sustainability initiatives advanced: Refreshed sustainability strategy rolled out, in house facilities management services now live, first solar installation complete, power metering installed at seven properties.
- Balance sheet optimisation: BNZ facility upsized and extended, $199 million of available bank liquidity and gearing comfortable at 29.2% at the end of the interim period. Green Finance Framework launched, inaugural Green loan tranches established post interim balance-date.

[Aaron]

Investors must not like depreciation on commercial buildings being stopped again if National win. Some small losses in property stocks today.

Bonds with these companies are yielding around 7% on the secondary market. How does that compare to their dividend yields and the additional equity risk from holding shares.

That said I see the S&P 500 was up presumably on some negative employment data, indicating the fed is closer to dropping rates and wiping out bondholders. What to do?

[bull....]

national was the party that got rid of depreciation in the first place so no surprise they are doing it again

[ronaldson]

national was the party that got rid of depreciation in the first place so no surprise they are doing it again

I note it is described as "removing a tax break" as if a depreciation charge is some sort of gift rather than an appropriate accounting methodology.

But at least they are intent on ultimately restoring full interest deductibility to residential landlords.

I hold quite a few ARG so I will take another peek at their last set of Financial Statements to see what is at risk here.

[LaserEyeKiwi]

national was the party that got rid of depreciation in the first place so no surprise they are doing it again

A reminder to everyone that Labour has also proposed doing the exact same to fund part of their campaign promises.

Politically speaking, beating up on large corporates is an easy sell to voters.

I was surprised just how targeted Nationals tax policy is on middle income NZ (the tax cuts by way of raising the thresholds only impacts income up to $78k). Even the already long standing policy of re-introducing the residential property interest tax deduction doesn’t kick in fully until 2026!

of course under MMP, after election night - assuming they have the numbers - “negotiations” with ACT might bring some substantial changes to the tax plan (i.e. more generous tax breaks for higher incomes), that would provide cover post election night for National to make changes. *nod nod wink wink*

[Rawz]

A reminder to everyone that Labour has also proposed doing the exact same to fund part of their campaign promises.

Politically speaking, beating up on large corporates is an easy sell to voters.

I was surprised just how targeted Nationals tax policy is on middle income NZ (the tax cuts by way of raising the thresholds only impacts income up to $78k). Even the already long standing policy of re-introducing the residential property interest tax deduction doesn’t kick in fully until 2026!

of course under MMP, after election night - assuming they have the numbers - “negotiations” with ACT might bring some substantial changes to the tax plan (i.e. more generous tax breaks for higher incomes), that would provide cover post election night for National to make changes. *nod nod wink wink*

Thats a good point LEK. I'm 100% voting ACT now lol

[winner69]

Property Council advocate a bit oissed off with this depreciation thing …….. “The proposed policies to remove depreciation are a raid on long-term maintenance funds for New Zealand’s buildings, running the risk of rundown or even derelict buildings across the country,”

Sounds like we are heading to seeing a few ghettos around the place


https://www.nzherald.co.nz/business/election-2023-property-council-hits-out-at-policy-proposals-to-remove-depreciation/TZOG4LGOONFJVDCBJN4R4ZG2MI/

[LaserEyeKiwi]

Property Council advocate a bit oissed off with this depreciation thing …….. “The proposed policies to remove depreciation are a raid on long-term maintenance funds for New Zealand’s buildings, running the risk of rundown or even derelict buildings across the country,”

Sounds like we are heading to seeing a few ghettos around the place


https://www.nzherald.co.nz/business/election-2023-property-council-hits-out-at-policy-proposals-to-remove-depreciation/TZOG4LGOONFJVDCBJN4R4ZG2MI/

Can you get commercial building ghettos? Feel like there might be another term for under maintained commercial buildings.

Although was this an issue for the 2010s when there was also no commercial building depreciation deduction?

Reminded in that article that National proposes introducing depreciation to Build to rent developments, so at least that might be a good outcome still, particularly for any listed property entity charging headlong into BTR developments ;)

[bull....]

Can you get commercial building ghettos? Feel like there might be another term for under maintained commercial buildings.

Although was this an issue for the 2010s when there was also no commercial building depreciation deduction?

Reminded in that article that National proposes introducing depreciation to Build to rent developments, so at least that might be a good outcome still, particularly for any listed property entity charging headlong into BTR developments ;)

so kpg be the only listed stock still to get some depreciation allowance

[Snoopy]

Occasionally I venture to that 'other discussion place' for NZ shares, even though I seem to be blocked from posting there. Some ridiculous baron has even boasted about blocking me. Not sure how this happened. I think it has something to do with him discovering my IP address then logging on using a VPN mimicking my IP number. In spite of his technical prowess, I had regarded the baron as a fool up to now - until I read something of his posted on the KPG thread 'over there' the other day. It seems he actually said something sensible on the effect of the looming removal of 'depreciation deduction' on the after tax earnings on NZ's property sector. I never expected that from a fossilized fighter pilot!

Anyway it got me thinking, and I decided to tabulate this effect across the 'property sector top eight'. Here are my results, as pulled from the most recent annual reports.

The table below represents what would have happened if the abolition of commercial building depreciation adjustment (cancellation) announced as National Party finance policy on 30th August 2023 had been in place over the last calendar year.





Depreciation Adjustment (A)Units on Issue (last balance date) (B)Projected eps reduction (A)/(B) or (C)
dps (D)Potential Dividend Reduction (C)/(D)
Unit Price 28-08-2023 (E)
Unit Price 01-09-2023 (F)
Share Price Drop ((F)-(E))/(E)


Goodman Property Trust (GMT)
$10.4m1,403.3m0.719cps
5.9cps-12.2%
$2.20
[$2.16
-1.82%



Vital Healthcare (VHP)
$?m (2)661.01m?cps
9.752cpsNot Available
$2.225
$2.24
+0.68%


Property for Industry (PFI)
$5.834m502.05m1.16cps
8.4cps-13.8%
$2.32
$2.29-$0.0195(1)
-2.13%


Precinct Properties (PCT)
$14.0m1,585.9m0.883c
6.7cps-13.2%
$1.26
$1.21
-3.97%


Argosy Properties (ARG)
$9.597m846.72m1.13cps
6.657cps-17.0%
$1.20
$1.17
-2.50%


Investore (IPL)
$4.264m367.50m1.16cps
7.9cps-14.7%
$1.34
$1.26
-5.97%


Stride (SPG)
$6.872m661.01m1.04cps
8cps-13.0%
$1.46
$1.39-$0.02(1)
-6.16%


Kiwi Property Group (KPG)
$13.539m1,571.2m0.862cps
5.7cps-15.1%
$0.91
$0.88
-3.30%



Notes

1/ Adjustments to the 1st September 2023 share prices for PFI and SPG reflect these shares going ex-dividend over the comparative period between 28/08/2023 and 01/09/2023. PFI went ex a 1.95c dividend at the end of trading on 28th August, payable on 7th September. SPG went ex a 2.00c dividend at the end of trading on 30th August, payable on 18th September. This means that both of these shares lost the accessibility of the underlying shares' 'dividend rights' for their respective shareholders. This loss is reflected in the respective 1st September share price valuation(s) by subtracting the 'dividend(s) lost' from the share price(s) on that date.

2/ Depreciation issues with 'Vital Healthcare Properties' I have expanded upon here:
https://www.sharetrader.co.nz/showthread.php?8787-VHP-Vital-Healthcare&p=1020495&viewfull=1#post1020495

SNOOPY

[Bob50]

Occasionally I venture to that 'other discussion place' for NZ shares, even though I seem to be blocked from posting there. Some ridiculous baron has even boasted about blocking me. Not sure how this happened. I think it has something to do with him discovering my IP address then logging on using a VPN mimicking my IP number. In spite of his technical prowess, I had regarded the baron as a fool up to now - until I read something of his posted on the KPG thread 'over there' the other day. It seems he actually said something sensible on the effect of the looming removal of 'depreciation deduction' on the after tax earnings on NZ's property sector. I never expected that from a fossilized fighter pilot!

Anyway it got me thinking, and I decided to tabulate this effect across the 'property sector top eight'. Here are my results, as pulled from the most recent annual reports.

The table below represents what would have happened if the abolition of commercial building depreciation adjustment (cancellation) announced as National Party finance policy on 30th August 2023 had been in place over the last calendar year.





Depreciation Adjustment (A)
Units on Issue (last balance date) (B)
Projected eps reduction (A)/(B) or (C)
dps (D)
Potential Dividend Reduction (C)/(D)
Unit Price 28-08-2023 (E)
Unit Price 01-09-2023 (F)
Share Price Drop ((F)-(E))/(E)


Goodman
$10.4m
1,403.3m
0.719cps
5.9cps
-12.2%
$2.20
$2.16
-1.82%


Vital Healthcare
$?m
661.01m
?cps
9.752cps
Not Available
$2.225
$2.24
+0.68%


Property for Industry
$5.834m
502.05m
1.16cps
8.4cps
-13.8%
$2.32
$2.29-$0.0195
-2.13%


Precinct Properties
$14.0m
1,585.9m
0.883c
6.7cps
-13.2%
$1.26
$1.21
-3.97%


Argosy Properties
$9.597m
846.72m
1.13cps
6.657cps
-17.0%
$1.20
$1.17
-2.50%


Investore
$4.264m
367.50m
1.16cps
7.9cps
-14.7%
$1.34
$1.26
-5.97%


Stride (SPL only)
$6.872m
661.01m
1.04cps
8cps
-13.0%
$1.46
$1.39-$0.02
-6.16%


Kiwi Property Group
$13.539m
1,571.2m
0.862cps
5.7cps
-15.1%
$0.91
$0.88
-3.30%





That’s interesting- thanks Snoopy.
Would the potential share price drop be even more?
Take ARG if their EPS dropped 1.13cps causing it to reduce its dividend by 1 cent = new dividend of 5.657 cps.
Assuming investors continue to price this company on its current 5.69% yield.
New value 5.657/.0569=99.5 cents.

[Snoopy]

That’s interesting- thanks Snoopy.
Would the potential share price drop be even more?
Take ARG if their EPS dropped 1.13cps causing it to reduce its dividend by 1 cent = new dividend of 5.657 cps.
Assuming investors continue to price this company on its current 5.69% yield.
New value 5.657/.0569=99.5 cents.


You raise an important point Bob50. IMV the answer to your question is 'yes'. If all else remains equal' then 'yes', the ARG share price is destined to fall to under a buck and all of those other commercial property companies will likely suffer similarly constructed falls. However all else is not likely to remain equal. I think anyone who follows the property business cycle is expecting interest rates to fall at some point. And lower interest bills will provide an impetus for higher profits. There is still a question of when interest rates will fall though. The consensus on what that date will be, whenever it arrives, looks to have been pushed out.

The cherry of interest rates falling comes with an associated concomitant effect of property values rising. And rising property values give these property syndicate managers the ability to pay out part of these property revaluation profits as dividends. When increased dividends are paid from sources that are not from operational cashflow, this is when the chorus of the critical chant 'paying your dividends out of borrowings , not earnings', starts to grow. But property companies have done this for eons. And this is no different to the domestic home owners 'wealth effect' of going on a spending spree as the underlying value of your security- your house- goes up in value. I guess what I am saying is that there are powerful factors on the horizon that may allow future dividends to rise as well. This means the coming 'depreciation tax grab' is simply one element of a bigger picture.

What changed on 30th August 2023 is that both of the largest political parties in the NZ parliament are now committed to removing deductibility of depreciation from commercial buildings. So what was 'a possibility' on the future political landscape became more or less a certainty. It will still take time to implement of course. So whether such a law changed is 'rushed through' to apply to 'tax year 2024' or whether it doesn't come in until 'tax year 2025' must still be an open question. Future events are always discounted to an extent into present day share prices.

SNOOPY

[xp04]

Anyway it got me thinking, and I decided to tabulate this effect across the 'property sector top eight'. Here are my results, as pulled from the most recent annual reports.

The table below represents what would have happened if the abolition of commercial building depreciation adjustment (cancellation) announced as National Party finance policy on 30th August 2023 had been in place over the last calendar year.





Depreciation Adjustment (A)
Units on Issue (last balance date) (B)
Projected eps reduction (A)/(B) or (C)
dps (D)
Potential Dividend Reduction (C)/(D)
Unit Price 28-08-2023 (E)
Unit Price 01-09-2023 (F)
Share Price Drop ((F)-(E))/(E)


Goodman Property Trust (GMT)
$10.4m
1,403.3m
0.719cps
5.9cps
-12.2%
$2.20
$2.16
-1.82%


Vital Healthcare (VHP)
$?m
661.01m
?cps
9.752cps
Not Available
$2.225
$2.24
+0.68%


Property for Industry (PFI)
$5.834m
502.05m
1.16cps
8.4cps
-13.8%
$2.32
$2.29-$0.0195(1)
-2.13%


Precinct Properties (PCT)
$14.0m
1,585.9m
0.883c
6.7cps
-13.2%
$1.26
$1.21
-3.97%


Argosy Properties (ARG)
$9.597m
846.72m
1.13cps
6.657cps
-17.0%
$1.20
$1.17
-2.50%


Investore (IPL)
$4.264m
367.50m
1.16cps
7.9cps
-14.7%
$1.34
$1.26
-5.97%


Stride (SPG)
$6.872m
661.01m
1.04cps
8cps
-13.0%
$1.46
$1.39-$0.02(1)
-6.16%


Kiwi Property Group (KPG)
$13.539m
1,571.2m
0.862cps
5.7cps
-15.1%
$0.91
$0.88
-3.30%



Notes

1/ Adjustments to the 1st September 2023 share prices for PFI and SPG reflect these shares going ex-dividend over the comparative period between 28/08/2023 and 01/09/2023. PFI went ex a 1.95c dividend at the end of trading on 28th August, payable on 7th September. SPG went ex a 2.00c dividend at the end of trading on 30th August, payable on 18th September. This means that both of these shares lost the accessibility of the underlying shares' 'dividend rights' for their respective shareholders. This loss is reflected in the respective 1st September share price valuation(s) by subtracting the 'dividend(s) lost' from the share price(s) on that date.

SNOOPY

Looks like your calculations are based on an assumption that reported depreciation adjustment is purely for non-residential buildings. Which is far from reality. If we compare depreciation adjustments for KPG between FY20 ($8.046mil) and FY21 ($14.232mil) when it was reintroduced then we can estimate that non-residential buildings depreciation is only about 45% of all depreciation. So, even if depreciation for non-residential buildings will be removed total depreciation still going to be around $7.5mil.

[Snoopy]

Looks like your calculations are based on an assumption that reported depreciation adjustment is purely for non-residential buildings.


Yes that is what I have assumed



Which is far from reality. If we compare depreciation adjustments for KPG between FY20 ($8.046mil) and FY21 ($14.232mil) when it was reintroduced then we can estimate that non-residential buildings depreciation is only about 45% of all depreciation. So, even if depreciation for non-residential buildings will be removed total depreciation still going to be around $7.5mil.


Interesting observation xp04. I am not intimately familiar with KPG, other than to know it has undergone a lot of property portfolio reorganization, prior to emerging as a property developer with a goal of owning property where people can live, work and shop within the same greater complex. Some of that 'bumped up depreciation effect' in FY2021 may have been brought about by accelerating depreciation on assets that were about to be sold. TBH I find the accounting for depreciation in these property entities incredibly opaque. And because of the KPG portfolio restructuring, understanding depreciation at KPG is at the top end of the opacity scale.

I actually thought depreciation on all residential buildings was done away with as a tax deduction some years ago. I also thought that KPG's first foray into 'build to rent' was to be at Sylvia park, that has yet top be tenanted. IOW they didn't have any residential tenanted buildings in FY2020 and FY2021. If that is true, it would mean the 'depreciation tax effect' of $8.046m over FY2020 was for something other than buildings. I am happy to be re-educated by someone who follows KPG more closely than I do if I am wrong about this.

SNOOPY

[LaserEyeKiwi]

Yes that is what I have assumed



Interesting observation xp04. I am not intimately familiar with KPG, other than to know it has undergone a lot of property portfolio reorganization, prior to emerging as a property developer with a goal of owning property where people can live, work and shop within the same greater complex. Some of that 'bumped up depreciation effect' in FY2021 may have been brought about by accelerating depreciation on assets that were about to be sold. TBH I find the accounting for depreciation in these property entities incredibly opaque. And because of the KPG portfolio restructuring, understanding depreciation at KPG is at the top end of the opacity scale.

I actually thought depreciation on all residential buildings was done away with as a tax deduction some years ago. I also thought that KPG's first foray into 'build to rent' was to be at Sylvia park, that has yet top be tenanted. IOW they didn't have any residential tenanted buildings in FY2020 and FY2021. If that is true, it would mean the 'depreciation tax effect' of $8.046m over FY2020 was for something other than buildings. I am happy to be re-educated by someone who follows KPG more closely than I do if I am wrong about this.

SNOOPY

If I recall correctly commercial building depreciation was only re-introduced in 2020 as a covid recovery mechanism, prior to that it was eliminated by National a decade earlier (so all through the 2010s the commercial property did not have this deduction available).

[LaserEyeKiwi]

Occasionally I venture to that 'other discussion place' for NZ shares, even though I seem to be blocked from posting there. Some ridiculous baron has even boasted about blocking me. Not sure how this happened. I think it has something to do with him discovering my IP address then logging on using a VPN mimicking my IP number. In spite of his technical prowess, I had regarded the baron as a fool up to now - until I read something of his posted on the KPG thread 'over there' the other day. It seems he actually said something sensible on the effect of the looming removal of 'depreciation deduction' on the after tax earnings on NZ's property sector. I never expected that from a fossilized fighter pilot!

Anyway it got me thinking, and I decided to tabulate this effect across the 'property sector top eight'. Here are my results, as pulled from the most recent annual reports.

The table below represents what would have happened if the abolition of commercial building depreciation adjustment (cancellation) announced as National Party finance policy on 30th August 2023 had been in place over the last calendar year.





Depreciation Adjustment (A)
Units on Issue (last balance date) (B)
Projected eps reduction (A)/(B) or (C)
dps (D)
Potential Dividend Reduction (C)/(D)
Unit Price 28-08-2023 (E)
Unit Price 01-09-2023 (F)
Share Price Drop ((F)-(E))/(E)


Goodman Property Trust (GMT)
$10.4m
1,403.3m
0.719cps
5.9cps
-12.2%
$2.20
$2.16
-1.82%


Vital Healthcare (VHP)
$?m (2)
661.01m
?cps
9.752cps
Not Available
$2.225
$2.24
+0.68%


Property for Industry (PFI)
$5.834m
502.05m
1.16cps
8.4cps
-13.8%
$2.32
$2.29-$0.0195(1)
-2.13%


Precinct Properties (PCT)
$14.0m
1,585.9m
0.883c
6.7cps
-13.2%
$1.26
$1.21
-3.97%


Argosy Properties (ARG)
$9.597m
846.72m
1.13cps
6.657cps
-17.0%
$1.20
$1.17
-2.50%


Investore (IPL)
$4.264m
367.50m
1.16cps
7.9cps
-14.7%
$1.34
$1.26
-5.97%


Stride (SPG)
$6.872m
661.01m
1.04cps
8cps
-13.0%
$1.46
$1.39-$0.02(1)
-6.16%


Kiwi Property Group (KPG)
$13.539m
1,571.2m
0.862cps
5.7cps
-15.1%
$0.91
$0.88
-3.30%



Notes

1/ Adjustments to the 1st September 2023 share prices for PFI and SPG reflect these shares going ex-dividend over the comparative period between 28/08/2023 and 01/09/2023. PFI went ex a 1.95c dividend at the end of trading on 28th August, payable on 7th September. SPG went ex a 2.00c dividend at the end of trading on 30th August, payable on 18th September. This means that both of these shares lost the accessibility of the underlying shares' 'dividend rights' for their respective shareholders. This loss is reflected in the respective 1st September share price valuation(s) by subtracting the 'dividend(s) lost' from the share price(s) on that date.

2/ Depreciation issues with 'Vital Healthcare Properties' I have expanded upon here:
https://www.sharetrader.co.nz/showthread.php?8787-VHP-Vital-Healthcare&p=1020495&viewfull=1#post1020495

SNOOPY

Thanks for this. Did you account for the fact that these companies pay out dividends at different ratios of net cashflow? Eg, some of these companies will likely be able to maintain dividends, or falls may be smaller than indicated, even with the net income falling due to the depreciation being removed.

Eg some companies pay out less than 90% as dividends, and could boost that to 95-100% of underlying cashflow.

[Baa_Baa]

It's a bit confounding that there is so much discussion about something that appears to be so simple, from an investment point of view. There are no REIT's that are suitable for a portfolio allocation based on capital gains (SP gains). They are all money making machines that pay out attractive dividends, cash returns or reinvested, and all of them have sustained performance in that regard.

A long term income oriented investor would only be concerned about the SP when it is low enough to get some, or get some more, to bolster their income (gross dividend). If they're smart it will be a company that bolsters their net dividend as well, by careful tax management.

These are not, none of them, capital value investment plays. They are pure income investment plays and nothing more or less. Imo.

[Snoopy]

Thanks for this. Did you account for the fact that these companies pay out dividends at different ratios of net cashflow? Eg, some of these companies will likely be able to maintain dividends, or falls may be smaller than indicated, even with the net income falling due to the depreciation being removed.

Eg some companies pay out less than 90% as dividends, and could boost that to 95-100% of underlying cashflow.


Good point. No I did not allow for that. You will notice that I labelled the changed depreciation effect as a 'potential dividend reduction'. This was on the assumption that most of these property trusts pay out as much as they reasonably can as dividends. So any reduction in earnings would likely be reflected as a reduction in dividend payments. But you are quite correct to point out that if there was a buffer between earnings and dividend payments, a property company might elect to keep the dividend payments constant and reduce retained earnings.

SNOOPY

[LaserEyeKiwi]

It's a bit confounding that there is so much discussion about something that appears to be so simple, from an investment point of view. There are no REIT's that are suitable for a portfolio allocation based on capital gains (SP gains). They are all money making machines that pay out attractive dividends, cash returns or reinvested, and all of them have sustained performance in that regard.

A long term income oriented investor would only be concerned about the SP when it is low enough to get some, or get some more, to bolster their income (gross dividend). If they're smart it will be a company that bolsters their net dividend as well, by careful tax management.

These are not, none of them, capital value investment plays. They are pure income investment plays and nothing more or less. Imo.

NZ listed property stocks rise and fall roughly in concert with the interest rate cycle. If one has patience it is fair chance to get in at a probable low point and sell at the opposite peak of the cycle when valuations are significantly higher. There is your capital value investment play, and you get good divi yields in the interim.

[winner69]

BaaBaa me ‘ol mate …love your ATM description of how REITs work …..spitting out cash on a regular basis

However it seems that the amount being spat out regularly hasn’t changed much in recent years although the insides of the ATM seems to getting full to overloading (significantly larger asset base to generate cash for dividends )

That doesn’t seem right

[BlackPeter]

BaaBaa me ‘ol mate …love your ATM description of how REITs work …..spitting out cash on a regular basis

However it seems that the amount being spat out regularly hasn’t changed much in recent years although the insides of the ATM seems to getting full to overloading (significantly larger asset base to generate cash for dividends )

That doesn’t seem right

I guess there is a reason they call them pseudo bonds. If you buy a bond and cash in the interest rate every year, you don't expect the principal to grow either, don't you?

Either you take less dividends and higher risks and hope for capital gains (or fear the losses) - or you don't.

Can't eat your cake and have it, too.

[LaserEyeKiwi]

Good point. No I did not allow for that. You will notice that I labelled the changed depreciation effect as a 'potential dividend reduction'. This was on the assumption that most of these property trusts pay out as much as they reasonably can as dividends. So any reduction in earnings would likely be reflected as a reduction in dividend payments. But you are quite correct to point out that if there was a buffer between earnings and dividend payments, a property company might elect to keep the dividend payments constant and reduce retained earnings.

SNOOPY

Also when considering those companies that have Dividend Reinvestment Plans with high shareholder uptake, they likely have ample scope to maintain dividend (if they choose). Technically projecting 100% payout ratios of FFO, but of course paying out much less in reality as people accept shares instead of cash.

Those DRPs of course lead to some dilution, capital raises by stealth, but fairly common.

[Snoopy]

Also when considering those companies that have Dividend Reinvestment Plans with high shareholder uptake, they likely have ample scope to maintain dividend (if they choose). Technically projecting 100% payout ratios of FFO, but of course paying out much less in reality as people accept shares instead of cash.

Those DRPs of course lead to some dilution, capital raises by stealth, but fairly common.


Yes another good point. The problem with DRPs is that by issuing more shares, and saving some immediate cashflow out, the company is reducing the earnings per share for future tax periods 'ad infinitum'. IOW they are kicking the 'cashflow balance can' 'down the road'.

This kind of behaviour is particularly egregious in the case of Investore that on 11/07/2022 commenced a share buyback that was paused om 08-09-2022 after shares had been bought back within the $1.65 to $1.75 price band. Yet on 28th June 2023, Investore announced a 'dividend reinvestment plan' for a share that went ex-dividend on 6th September 2023, with shares issued based on a 5 day weighted average share price of all trades after going ex-dividend. That DRP share price looks to be $1.26, and maybe lower if a discount applies. This is a terrible result for shareholders not in the DRP as the board has 'bought existing shares high' and is 'selling new shares low', destroying shareholder capital at a time the company needs it and diluting the value of the existing shareholder base forever going forwards.

For a 'no to low growth company', as most of these collective property ownership PIEs are, I would say DRPs are bad news for unit holders over the long term.

SNOOPY

[LaserEyeKiwi]

Yes another good point. The problem with DRPs is that by issuing more shares, and saving some immediate cashflow out, the company is reducing the earnings per share for future tax periods 'ad infinitum'. IOW they are kicking the 'cashflow balance can' 'down the road'.

This kind of behaviour is particularly egregious in the case of Investore that on 11/07/2022 commencing a share buyback that was paused om 08-09-2022 after shares had been bought back within the $1.65 to $1.75 price band. Yet on 28th June 2023, Investore announced a 'dividend reinvestment plan' for a share that went ex-dividend on 6th September 2023, with shares issued based on a 5 day weighted average share price of all trades after going ex-dividend. That DRP share price looks to be $1.26, and maybe lower if a discount applies. This is a terrible result for shareholders not in the DRP as the board has 'bought existing shares high' and is 'selling new shares low', destroying shareholder capital at a time the company needs it and diluting the value of the existing shareholder base forever going forwards.

For a 'no to low growth company', as most of these collective property ownership PIEs are, I would say DRPs are bad news for unit holders over the long term.

SNOOPY

Agree 100%

[ronaldson]

Yes, ARG have currently discontinued offering the DRIP, although it remains as an option to revert. Would be interesting to know exactly what considerations a Board take into account when turning it on and off. As you say, saving cashflow out is definitely not all there is to it, but a broader range of factors need to be in the mix.

[Sideshow Bob]

Yes, ARG have currently discontinued offering the DRIP, although it remains as an option to revert. Would be interesting to know exactly what considerations a Board take into account when turning it on and off. As you say, saving cashflow out is definitely not all there is to it, but a broader range of factors need to be in the mix.

Is it a better option to do a buyback? Especially at the current times when most LPT's are trading well under NTA.

[Snoopy]

Is it a better option to do a buyback? Especially at the current times when most LPT's are trading well under NTA.


I would say 'yes', can the dividend(s) and, it is a great time to do a buyback for most of these LPTs. But those unit holders who are relying on their LPT portfolio for income might grizzle, and rightly so. Probably the best solution in the modern world would be can the dividends and put all of these income investors onto Sharesies. That way they could sell five or ten shares in lieu of getting a cash divie and be better off. It is probably too much of a step psychologically for most LPT investors to do that though!

The truth is management of these LPTs has been caught out by a once in a generation sudden and severe rise in interest rates. I suspect the funding banks have a bigger say than what directors disclose as to what is going on. I mean, Investore putting on the market a couple of their non-core (sic) Countdown supermarkets up for grabs? Does anyone really believe that is in the long term interests of unit holders?

SNOOPY

[winner69]

Take ARG as an example

Since 2014 assets have increased at 7%pa and NTA/share at 6%pa

But dividend this year only 10% higher than 2014 ……say growth at 1% pa

Or about $1 billion more assets and not much of that has come back to shareholders

I still don’t get it …never mind that’s my problem

But ARG a good buy next month I reckon.

[LaserEyeKiwi]

I would say 'yes', can the dividend(s) and, it is a great time to do a buyback for most of these LPTs. But those unit holders who are relying on their LPT portfolio for income might grizzle, and rightly so. Probably the best solution in the modern world would be can the dividends and put all of these income investors onto Sharesies. That way they could sell five or ten shares in lieu of getting a cash divie and be better off. It is probably too much of a step psychologically for most LPT investors to do that though!

The truth is management of these LPTs has been caught out by a once in a generation sudden and severe rise in interest rates. I suspect the funding banks have a bigger say than what directors disclose as to what is going on. I mean, Investore putting on the market a couple of their non-core (sic) Countdown supermarkets up for grabs? Does anyone really believe that is in the long term interests of unit holders?

SNOOPY

Assuming a hypothetical situation where there are adequate buyers, they could also sell assets at market rate (the rate supposedly the units are trading at a big discount to), and put only the proceeds from those asset sales towards a share buyback (presuming they maintain gearing covenants). Thereby not touching the funds from operations used to pay dividends.

[LaserEyeKiwi]

GMT interim portfolio valuation

11/9/2023, 3:02 pmGENERAL

Goodman (NZ) Limited advises that GMT’s FY24 interim result is expected to include a $230 million or 4.7% reduction in the fair value of its property assets. Draft valuation reports from independent valuers indicate that the portfolio will be valued around $4.7 billion on 30 September 2023.

The softening in real estate investment yields over the last six months is reflected in the weighted average capitalisation rate of GMT’s investment portfolio, which has increased from 5.2% at 31 March 2023, to a forecast 5.6% at 30 September 2023.

James Spence, Chief Executive Officer said, “While current investor sentiment is being impacted by higher interest rates and macro-economic conditions, industrial property market fundamentals remain strong. GMT’s portfolio is 99% leased, with low vacancy and limited new supply across the sector contributing to very strong rental growth.”

Valuer assessed market rents for GMT have increased by a further 3.3% from 31 March 2023 (19% for FY23), partly mitigating the impact of higher capitalisation rates on valuations.

Subject to finalisation of GMT’s interim financial statements, the forecast valuation movement is expected to reduce net tangible assets by around 16 cents per unit (245.2 cents per unit at 31 March 2023).

Further details will be provided with the FY24 interim result on 9 November 2023.

[Sideshow Bob]

GMT already down about 4c when this announcement came through.

[Lego_Man]

Precinct appearing to be particularly hard hit as insto sells out of the head shares to buy the newly issued convertible notes.

[Snoopy]

As the OCR creep up, LPTs will be less and less attractive. All LPTs are leveraged and I assume their interest costs will only rise and thus reducing profits(and dividends). Recent tax changes will only add to the misery. I will be a cautious buyer and will add only if the price drops significantly from the current levels. I am surprised that the share prices are still holding up!!


Believe it or not, the above post is from August 2010! Who says history doesn't repeat.

Meanwhile here is an article about what high interest rates mean today for property investors:
https://www.newsroom.co.nz/corporate-newsroom/interest-rates-biting-commercial-landlords

"Generally, banks will require a revaluation every one to three years depending on the property and its ownership (for example listed funds versus small off-market investors) to ensure that banks’ 65 percent prudential ratios are maintained. Many properties in the BNZ and other banks’ portfolios are about to be revalued at current market rates."

"As a rule of thumb, a building’s yield should be 2 percent above the risk-free interest rate (a bank 12-month deposit or 10-year-bond). So if the rate today is 5.7 percent, the yield or rental returns should be 7.7 percent. That’s fine in a low interest rate, strong market environment, but what if new revaluations come in low? That pushes the 65 percent loan to value ratio (LVR) out of whack and may mean owners need to present to their banks a case that demonstrates how they can improve revenues or reduce their exposure. There could be conversations about the need for rent reviews and other options. There’s a real likelihood that as valuations come in, they will come in lower than two years ago."

SNOOPY

[ronaldson]

The coming problem for LPT's is the loss of deductibility for depreciation. When deductibility was originally lost about 2010 it took some time to restore AFFO to allow fully funded dividends. Then when it was restored in 2020 as a covid support measure it did do that job. Now it is signaled to be withdrawn again beginning on 1 April 2024.

Obviously that is not limiting dividends being/to be declared in the present financial year, but I suggest that intention is already influencing valuations/transactions in the marketplace which feed into valuations and will put pressure on dividends for FY25. Snoopy has previously posted with respect to the sums at issue he has extracted from the various FY23 accounts, and they are quite a significant proportion of AFFO for most. Some impact has already been factored into share prices and there may be more to come because I can't see this circumstance being reversed again given the manifest shortfalls in revenue verses desired Government expenditure regardless of which coalition assumes office.

[Snoopy]

6 month update:

14613



It has been a while since LEK's last sector update. But I thought it would be interesting to go one step further and look at the kind of yield on a 'real estate index weighted property portfolio', made up of the 'big eight', might provide.




Share Price (30/06/2023)
Declared/Gross Dividends from previous Twelve Months (30/06/2023)
Historical Gross Dividend Yield (30/06/2023)
Weighted Portfolio Dividend Yield Contribution (30/06/2023)
Weighted Portfolio Percentage Income Contribution (30/06/2023)
NZX50 capitalisation (30-06-2023) (key stakeholders removed) (1)
NZX50 Top Eight relative percentage (30-06-2023) (key stakeholders removed)
NZX50 capitalisation (30-06-2023)
NZX50 Top Eight relative percentage (30-06-2023)


Precinct Properties
$1.29
6.7c/9.3c
7.21%
1.44pp
22.7%
$2,046m
20.0%
$2,046m
17.7%


Stride Stapled Group
$1.40
8.0c/12.0c
8.57%
0.64pp
10.1%
$765m
7.47%
$765m
6.62%

]
Property for Industry
$2.315
8.25c/11,5c
4.97%
0.58pp
9.2%
$1,188m
11.6%
$1,188m
10.3%




Kiwi Property Group
$0.91
5.7c/7.92c
8.70%
1.22pp
19.3%
$1,439m
14.1%
$1,439m
12.4%


Goodman Property Trust
$2.22
5.9c/8.19c
3.69%
0.84pp
13.3%
$2,330m
22.8%
$3,115m
26.9%




Vital Healthcare Property Trust
$2.34
9.752c/11.47c
4.90%
0.52pp
8.2%
$1,101m
10.7%
$1,544m
13.4%



Investore Property
$1.42
7.9c/11.0c
7.75%
0.32pp
5.1%
$424m
4.14%
$522m
4.51%



Argosy Property
$1.115
6.652c/9.24c
8.29%
0.77pp
12.2%
$945m
9.23%
$945m
8.17%


Total



6.33%
100%
$10,238m
100%
$11,564m
100%

[/TR]


Notes

1/ Key stakeholder shareholdings are:
1a/ Goodman Property Trust: Goodman Investment Holdings 19.82%, Goodman Funds Management 5.37% (Total 25.19%)
1b/ Investore: Stride Property Group 18.83%
1c/ Vital Healthcare Properties: Northwest Healthcare Properties 28.72%

------------------------

The above table is showing us that as at 30th June 2023, the weighted average gross return of the NZ property index is 6.33%. This is the kind of yield that investors might expect from a fee less and pure listed NZ property index fund. This is rather less than the 6.76% figure you get by just taking the yield of each one our eight index participants , and just averaging those figures.

SNOOPY

[winner69]

All looking look in office space …historic low vacancy rates in places

There remains a largely positive sentiment in the CBD office markets across Auckland, Wellington, and Christchurch.


https://www.jll.nz/en/trends-and-insights/research/office-vertical-vacancy-review?utm_campaign=VVR%20Sep%202023-AP-NZ-Auckland-RESEARCH-09222023-RES-67940&utm_medium=email&utm_source=Eloqua&utm_term=3204359&hash=5ca1d0797864442e7510339c73951bd20003c696ea744 dad963a705c537aedb6

[Habits]

It has been a while since LEK's last sector update. But I thought it would be interesting to go one step further and look at the kind of yield on a 'real estate index weighted property portfolio', made up of the 'big eight', might provide.




Share Price (30/06/2023)
Declared/Gross Dividends from previous Twelve Months (30/06/2023)
Historical Gross Dividend Yield (30/06/2023)
Weighted Portfolio Dividend Yield Contribution (30/06/2023)
Weighted Portfolio Percentage Income Contribution (30/06/2023)
NZX50 capitalisation (30-06-2023) (key stakeholders removed) (1)
NZX50 Top Eight relative percentage (30-06-2023) (key stakeholders removed)
NZX50 capitalisation (30-06-2023)
NZX50 Top Eight relative percentage (30-06-2023)


Precinct Properties
$1.29
6.7c/9.3c
7.21%
1.44pp
22.7%
$2,046m
20.0%
$2,046m
17.7%


Stride Stapled Group
$1.40
8.0c/12.0c
8.57%
0.64pp
10.1%
$765m
7.47%
$765m
6.62%

]
Property for Industry
$2.315
8.25c/11,5c
4.97%
0.58pp
9.2%
$1,188m
11.6%
$1,188m
10.3%




Kiwi Property Group
$0.91
5.7c/7.92c
8.70%
1.22pp
19.3%
$1,439m
14.1%
$1,439m
12.4%


Goodman Property Trust
$2.22
5.9c/8.19c
3.69%
0.84pp
13.3%
$2,330m
22.8%
$3,115m
26.9%




Vital Healthcare Property Trust
$2.34
9.752c/11.47c
4.90%
0.52pp
8.2%
$1,101m
10.7%
$1,544m
13.4%



Investore Property
$1.42
7.9c/11.0c
7.75%
0.32pp
5.1%
$424m
4.14%
$522m
4.51%



Argosy Property
$1.115
6.652c/9.24c
8.29%
0.77pp
12.2%
$945m
9.23%
$945m
8.17%


Total



6.33%
100%
$10,238m
100%
$11,564m
100%

[/TR]


Notes

1/ Key stakeholder shareholdings are:
1a/ Goodman Property Trust: Goodman Investment Holdings 19.82%, Goodman Funds Management 5.37% (Total 25.19%)
1b/ Investore: Stride Property Group 18.83%
1c/ Vital Healthcare Properties: Northwest Healthcare Properties 28.72%

------------------------

The above table is showing us that as at 30th June 2023, the weighted average gross return of the NZ property index is 6.33%. This is the kind of yield that investors might expect from a fee less and pure listed NZ property index fund. This is rather less than the 6.76% figure you get by just taking the yield of each one our eight index participants , and just averaging those figures.

SNOOPY

What tax rate have you used for grossing the dividend

[Snoopy]

What tax rate have you used for grossing the dividend

You can work it out because in that second column I have given you both the 'declared' and the 'gross' dividend. As an example take Precinct Properties.
Declared dividend = 6.7c, Gross dividend = 9.3c.

Declared dividend / Gross dividend = 6.7c /9.3c = 0.72. So to get from 9.3c to 6.7c 28% of the dividend is lost to tax. 28%, the maximum PIE tax rate, is the tax rate I have used.

I have used the 28% tax rate for all except Vital Healthcare and Stride that are not pure PIEs. To see how I did the gross dividend calculation for those two, go to the respective Stride and Vital Healthcare threads.

SNOOPY

[Habits]

I only ask because in the KPG thread others consider 33 percent, the appropriate rate. Neither a high nor low, individual marginal tax rate

[Snoopy]

I only ask because in the KPG thread others consider 33 percent, the appropriate rate. Neither a high nor low, individual marginal tax rate.


A PIE entity pays tax, from an individual unitholder perspective, at a maximum rate of 28%. This is regardless of how high a tax bracket a unit holder is in. So I would argue that a PIE payment is grossed up up 28% is the correct figure to use when assessing 'Gross Income'.

I think for most people the effect of the 'marginal tax rate' is often taken out of context. As an example, let's consider how much tax an individual on $200k a year, an amount I think that would cover the earnings of most contributors, even on what is no doubt a higher than average earning demographic than most forums, actually pays per year.



Tax RateTax paid by $200k earner


$14,000 or less10.5%$1,470


$14,001 to $48,00017.5%$5,950


$48,000 to $70,00030%$6,600


$70,000 to $180,00033%$36,300


$180,000 plus39%$7,800


Total tax paid$58,120



Thus the total; tax paid by our $200k earner is at a rate of: $58,120/$200,000 = 29.06%. That doesn't sound so bad for what is quite a high income even in today's inflation adjusted times, does it? The whingers will still go on about the 39% 'marginal tax rate' that applies to the last tranche of their earnings. But that is really a psychological taxpayer construct. The IRD cares not one iota about where your income comes from. They only care about the total. And if your first dollar is taxed at your day job, while your last dollar is earned from a sharemarket portfolio you have built up, it makes no difference to the IRD. A 'dollar of earnings' is a 'dollar of earnings' and no earnings are more or less 'worthy', or subject to tax, than any other earnings from an IRD perspective.

And when you see that a $200k earner only pays tax at a 1% higher rate than the maximum PIE rate, it puts the 'tax dodging' behaviour of those PIE unit holders into perspective.

SNOOPY

[fungus pudding]

I think for most people the effect of the 'marginal tax rate' is often taken out of context. As an example, let's consider how much tax an individual on $200k a year, an amount I think that would cover the earnings of most contributors, even on what is no doubt a higher than average earning demographic., actually pays per year.



Tax RateTax paid by $200k earner


$14,000 or less10.5%$1,470


$14,001 to $48,00017.5%$5,950


$48,000 to $70,00030%$6,600


$70,000 to $180,00033%$36,300


$180,000 plus39%$7,800


Total tax paid$58,120



Thus the total; tax paid by our $200k earner is at a rate of: $58,120/$200,000 = 29.06%. That doesn't sound so bad for what is quite a high income even in today's inflation adjusted times, does it?

39% rate - Certainly sounds bad to me.

[Snoopy]

39% rate - Certainly sounds bad to me.

Yes but unless you are earning millions and millions of dollars, most of what are seen as 'high earners' out there are not paying 39% on their total income are they? A $200k earner is overall paying 29%, as per my example.

SNOOPY

[fungus pudding]

Yes but unless you are earning millions and millions of dollars, most of what are seen as 'high earners' out there are not paying 39% on their total income are they?

SNOOPY
Of course they are not. Nobody pays it on the total income. The downside is - funny things happen once people hit the point where it applies - the most tragic being the ones who stop performing at that point, and the ones who get a bigger mattress to hide it under.

[enzed staffy]

when youve paid tax on the money you invested in the sharemarket and you're in the 39% tax bracket because of the massive hours and short staffing pushes you there - where all the "overtime' is taxed at 39%, it begins to grate on you.
Personally Id rather have the time (not overtime) for my own interests and family but my job doesn't allow it - and we wonder why noone wants to work here.....particularly when overseas, not so far away the pay is double and the time commitment is less, and they have enough staff for safer operating.
The oft quoted low tax (9.6%) paid from the shonky ird study on those with assets on average >56million was a joke, but now its quoted as fact - these are not the folk who are going to suffer wealth tax or higher income tax - its the single income, unmarried, no family benefit Jo who is trying to save for their retirement but going backwards at a rate of knots.
https://www.nzherald.co.nz/nz/politics/wealthy-pay-half-tax-rate-of-average-kiwis-ird-report/4LECQAM6XJAZNKEPWEWZSMIEN4/

This country takes the attitude that to work harder, strive to look after yourself (financially)already contributing significant PAYE is somehow bad and wont be satisfied until we are all dependent on minimum wage or handouts because we will have finally achieved "Equity" of existence
Using PIE tax is the only relief they get.

Perhaps the govt need to look at the mess they've made of things and start SUPPORTING local business and industry not killing it

https://www.localfutures.org/programs/the-economics-of-happiness/

End of rant - and probably on the wrong thread -sorry

[Snoopy]

Of course they are not. Nobody pays it on the total income. The downside is - funny things happen once people hit the point where it applies - the most tragic being the ones who stop performing at that point, and the ones who get a bigger mattress to hide it under.


Yes I understand what you are saying. But you are blaming the tiered IRD tax rate system for demotivating that high performer. Let's look at the example of our high earner on $180k who suddenly gets the opportunity to be in on a deal where he would earning an extra $100k per year. What you are saying is that our high earner would say:

"Nah, I don't want a bar of that deal. Of that $100k I would only get $61,000k of extra cash in my hand at the end of the year, verses $67,000 if I was only being taxed at 33% on that extra. I don't really want that $61,000 of extra income thanks - no deal for me."

Is our high earner really being bullied by the tax system? Or has he just psyched himself out of $61,000?

SNOOPY

[ValueNZ]

Yes I understand what you are saying. But you are blaming the tiered IRD tax rate system for demotivating that high performer. Let's look at the example of our high earner on $180k who suddenly gets the opportunity to be in on a deal where he would earning an extra $100k per year. What you are saying is that our high earner would say:

"Nah, I don't want a bar of that deal. Of that $100k I would only get $61,000k of extra cash in my hand at the end of the year, verses $67,000 if I was only being taxed at 33% on that extra. I don't really want that $61,000 of extra income thanks - no deal for me."

Is our high earner really being bullied by the tax system? Or has he just psyched himself out of $61,000?

SNOOPY
That extra 100k comes with extra responsibilities and work, it's not a free lunch. Each individual faces less of an incentive to work harder to earn more, meaning on average some of those people won't feel motivated enough to take on those extra responsibilities and work.

[JeffW]

Yes I understand what you are saying. But you are blaming the tiered IRD tax rate system for demotivating that high performer. Let's look at the example of our high earner on $180k who suddenly gets the opportunity to be in on a deal where he would earning an extra $100k per year. What you are saying is that our high earner would say:

"Nah, I don't want a bar of that deal. Of that $100k I would only get $61,000k of extra cash in my hand at the end of the year, verses $67,000 if I was only being taxed at 33% on that extra. I don't really want that $61,000 of extra income thanks - no deal for me."

Is our high earner really being bullied by the tax system? Or has he just psyched himself out of $61,000?

SNOOPY

I take your point, but a fair proportion of the $180k + earners are self-employed. There becomes a point, and I'm not necessarily saying it's at 39%, where the prospect of earning an extra $100,000 gross is less attractive because of the inherent risk involved on top of the marginal tax rate

[LaserEyeKiwi]

Oof: https://www.nzx.com/announcements/419312

Portfolio Valuation Update

3/10/2023, 9:41 am GENERAL

Investore Property Limited (Investore) advises that it expects a gross reduction in fair value of its portfolio for the six months ended 30 September 2023 of $(70) million, being a (6.6)% decrease. This would result in an expected total portfolio value of $1.0 billion based on the draft independent valuations.

Investore Fund Manager, Adam Lilley said: “The impacts of elevated inflation levels and higher interest rates continue to impact investment conditions and investor activity levels, leading to higher property capitalisation rates and lower valuations. Despite the softening in the capitalisation rates impacting Investore’s portfolio valuation, the underlying portfolio metrics remain resilient, with a defensive rental income stream from non-discretionary, everyday needs retail tenants underpinning a portfolio with 99% occupancy and a Weighted Average Lease Term of 8 years.” (Note 1)

Investore’s average portfolio market capitalisation rate is expected to be 6.3% as at 30 September 2023, which represents an increase of 55 basis points from 31 March 2023 (Note 1). On an initial yield basis, the average portfolio market capitalisation rate is expected to increase 59 basis points from 31 March 2023 to 6.4%. (Note 1)

The gross devaluation movement is expected to reduce net tangible assets by around 19 cents per share (from 184 cents per share at 31 March 2023).

Investore’s expected loan to value ratio as at 30 September 2023 is 40% following the portfolio valuation movement. As part of its capital management strategy, Investore continues to explore the disposal of non-core investment properties.

The independent valuations, forecast valuation movement and expected loan to value ratio remain subject to finalisation and external audit review and will be confirmed in Investore’s interim HY24 consolidated financial statements, which are expected to be released on 16 November 2023.

Notes:
1. Metrics refer to stabilised investment portfolio, which excludes properties categorised as “Development and Other”.
Ends

[LaserEyeKiwi]

IPL update above sounds bad, but as noted the underlying fundamentals are great. It isn’t like supermarkets are going to move out of their properties because cap rates have changed.

[kiwikeith]

IPL update above sounds bad, but as noted the underlying fundamentals are great. It isn’t like supermarkets are going to move out of their properties because cap rates have changed.

The key question is whether the dividend will be affected. The tenants continue to pay the rent but the loan to value ratio has hit 40% so they may reduce dividends for a while to bring that ratio down.

[fungus pudding]

I take your point, but a fair proportion of the $180k + earners are self-employed. There becomes a point, and I'm not necessarily saying it's at 39%, where the prospect of earning an extra $100,000 gross is less attractive because of the inherent risk involved on top of the marginal tax rate

Sticking it under the mattress becomes a little more tempting also.

[LaserEyeKiwi]

Breaking news:

14890

Time to start your engines folks

[bull....]

Breaking news:

14890

Time to start your engines folks

and nz bonds having a massive fall today.