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  1. #111
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    Quote Originally Posted by Snoopy View Post

    Dividend and Capital Movements FY2021 Investore As Presented Investore with In House Staff Argosy As Presented Property For Industry As Presented Goodman Property Trust As Presented
    Total Operating Expense to Operating Asset Ratio (OEOAR) 1.85% 1.85% 1.95% 1.28% 1.70%
    Return on Equity (ROE) {A}/{B} 3.18% 3.18% 3.77% 3.05% 2.46%
    Gross Dividend Yield (Based on SP @ EOCY2021) 4.71% 4.71% 5.00% 4.34% 2.82%

    Notes

    1/ Earnings related calculations are based on Operating Earnings.
    If a lot of your company analysis is based on 'data mining', it is useful to know what data is best to mine. Looking for 'bloated management' is a soft but measurable target.

    It is tempting to dismiss out of hand, a company with a high 'Operating Expense to Operating Asset Ratio' (OEOAR). But OEOAR is only one element of the cost structure. Perhaps a better indicator of the cost structure is to look at 'Return on Shareholder Equity' (ROE). All else being equal, a higher OEOAR should be indicative of a lower ROE. So what do we see in the four actual examples (PFI, GMT, IPL, and AGR) that I have been looking at?

    OEOAR lowest to highest PFI GMT IPL ARG
    ROE highest to lowest ARG IPL PFI GMT

    What I expected to see was the lowest costs (indicated by OEOAR) lining up with the highest returns (indicated by ROE). However the table above does not show that.

    One explanation might be that I calculate the ROE figure using the equity on the books at the end of financial year, while any income/expense comparison is earned/spent, not on a snapshot day, but over the whole year. If there are large property revaluations over the year, then the average equity over the year can be very different to the equity denominator that I use.

    For this comparative purpose only, I will recalculate the equity as the average between the end of the two most recent years. Calculations follow, using some data from post 101:

    ARG: ($1,075.804m + $1,280.635m)/2= $1,178.220m => ROE= 4.09%
    IPL: ($526.601m +$765.674m)/2 = $646.138m => ROE= 3.76%
    PFI: ($1,136.613m + $1,562.662m)/2 = $1,349.638m => ROE= 3.53%
    GMT: ($2,402.1m + $2969.2m)/2 = $2,685.7m => ROE= 2.71%

    If you go through those numbers you will find that changing my analysis to this makes absolutely no difference to the ordered tabulated result. So my more sophisticated analysis did not end up adding to the pot of knowledge. So let's change tack and look at the IntOAR or 'net interest cost to asset ratio' (Note: Building Property Valuations from post 99 on this thread):

    ARG: $28.508m/$1,938m = 1.47%
    IPL: $13.087m/$966.5m = 1.35%
    PFI: $20.104m//$1,841.9m = 1.09%
    GMT: $22.3m/$3,431.7m = 0.65%

    and we get

    IntOAR lowest to highest GMT PFI IPL ARG
    ROE highest to lowest ARG IPL PFI GMT
    IntOAR highest to lowest ARG IPL PFI GMT

    It is clear which way the correlation works and I can explain why. The higher the relative interest charge, the more the company is funded by borrowing. The more borrowing is used to fund the company, the less equity is required. So therefore the equity that is within the company is working more efficiently, producing a higher ROE figure. The moral is, if you want to run a successful property company, just borrow as much as you can :-P.

    SNOOPY
    Last edited by Snoopy; 28-07-2023 at 08:28 AM.
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  2. #112
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    Default Sustainable Dividend Policy (FY2021 figures)

    Quote Originally Posted by Snoopy View Post
    Notes

    1/ Earnings related calculations are based on Operating Earnings.
    2/ Normalised NPAT Calculations:
    2a/ Investore: 0.72($29.679m+$3.553m+$0.294m-$0.024m) = $24.121m
    I have some concern about most of our property companies having a policy of paying out 'more than they earn' to shareholders, in dividend payments. This has been justified by using AFFO (Adjusted Funds from Operations), a non GAAP measure, as a replacement for 'Net Profit after Tax'. So how do the two measures differ? As an example of what is happening, I am taking a closer look at 'Investore' over FY2021.

    Snoopy Profit Normalisation Adjusted Funds From Operations
    Profit Before Tax $29.949m $29.949m
    add Finance Swap Termination Expense $3.553m $3.553m
    add Loss on Rental Guarantee $0.294m $0.294m
    less Net Change in fair value of financial instruments $(0.024m) $(0.024m)
    less Capitalised lease incentives - Covid-19 abatements (1) $0m $(0.857m)
    add Borrowing establishment costs amortisation (2) $0m $0.683m
    less Spreading of fixed rental increases $0m $(0.179m)
    add Lease incentives amortisation - Covid-19 abatements $0m $0.126m
    less Reversal of Lease Liabilities movement in Investment Properties $0m $(0.065m)
    less Capitalised lease incentives, rent free $0m $(0.054m)
    less Capitalised lease incentives, cash incentives $0m $(0.032m)
    less Lease incentives amortisation, cash incentives $0m $0.011m
    add Lease incentives amortisation, rent free $0m $0.009m
    equals Normalised Profit before tax $33.772m
    equals AFFOBT $33.413m
    less Tax ($9.456m) $(4.044m)
    equals Total Distributional Profit after tax $24.316m $29.369m
    less Maintenance Capital Expenditure (3) $(1,299m)
    equals AFFO $28.070m

    Notes (AFFO adjustments from AR2021 p47)

    Those AFFO adjustments look to be largely identifiable through the cashflow statement (AR2021 p33). That is no surprise in that what we have here is really a 'cashflow issue'. By that I mean that if the cash is flowing in, then it is available to pay as a dividend. I don't mind adjusting 'normalised income' for cashflow, as long as the extra cash coming in is truly 'long term', i.e. is not a delay to a bill that needs to repaid in adjacent subsequent years.

    (1) Capitalised incentives to lessees = 'Cash Out'. I understand that. But I like to envision these incentives and their subsequent amortisation as ripples around the normalised operating environment. That is why I don't adjust for those.

    (2) 'Borrowing establishment costs', I see as part of the normal process of getting a loan. I don't see the point in adjusting for the cash timing on what are 'ordinary business expenses'.

    (3) Why the 'Maintenance Capital Expenditure', which is money that:
    (i) has been spent AND
    (ii) was needed to have been be spent
    has not been deducted before the 'maximum distributable profit' was calculated under AFFO, I do not understand.


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

    I agree with some of the AFFO adjustments but not others, as the table above demonstrates. Despite this, the overall effect of adjusting under each approach on NPBT is not dissimilar (a 1% difference).

    This means that effectively, the entire difference between the two disparate comparative expense steams comes down to the 'current tax expense': $9.456m (Snoopy, based on the 28% NZ corporate tax rate) vs $4.044m (AFFO).

    The actual income tax for the year in the income statement is listed $7.706m. FY2021 (ending 31-03-2021) was the first year that depreciation for commercial buildings was reinstated. On p60 of AR2021 there was a note that said:

    "As part of its COVID-19 support package the New Zealand Government has reintroduced a 2% diminishing value depreciation deduction for commercial properties, starting in April 2020 for Investore. This provided a financial benefit to Investore of approximately $2.2 million for the year ended 31 March 2021."

    If you go to section 7.3 in AR2021, it is apparent that from the underlying tax liability for FY2021 of: ($47.310m) + $39.000m = ($8.310m), depreciation does provide the largest part of the offset that brings the tax bill for the year back to just ($3.652m) [with the current tax addition of ($0.392m) income tax movement in cashflow hedges still to be added.] However if my reading of that tax note is correct, it is saying that $4.054m of this years tax is deferred, not forgiven. Consequently it doesn't seem right that 'tax deferred' should be thrown into the current account, declared cash surplus, and paid out as a dividend. I am not a tax accountant, so my interpretation of what has happened here could be wrong. But until someone comes along with a more learned explanation of what has gone on regarding 'cash available to pay the dividend' (aka AFFO), I will stick to my explanation.

    Actual dividend paid over FY2021: 4x $6.995m = $27.980m
    AFFO for FY2021 = $27.801m
    Normalised profit for the year FY2021: $24.316m

    I will leave readers to decide if they think that the current dividend payout policy is sustainable.

    SNOOP
    Last edited by Snoopy; 28-07-2023 at 02:39 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  3. #113

  4. #114
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    Have written an analysis of this company going back five years.

    The link if interested is:

    https://recastinvestor.substack.com/...roperty-iplnzx

  5. #115
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    Thanks for that Recaster.

  6. #116
    Speedy Az winner69's Avatar
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    Guidance full year cash dividend 7.9 cents

    NO pay rise this year for shareholders


    Don't they know there's a cost of living crisis
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  7. #117
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    Quote Originally Posted by winner69 View Post
    Guidance full year cash dividend 7.9 cents

    NO pay rise this year for shareholders

    Don't they know there's a cost of living crisis
    No problem Winner. Just wait for the share price to go down. That means the yield will go up. There is your 'pay rise' ;-P

    SNOOPY
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  8. #118
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    Quote Originally Posted by Snoopy View Post
    No problem Winner. Just wait for the share price to go down. That means the yield will go up. There is your 'pay rise' ;-P

    SNOOPY
    So it's true - “If you don’t understand where the yield is coming from, you are the yield.”
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  9. #119
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    With a 6% Yield - better than a bank account, but not good enough to pop the share price at all considering the seismic risk for this property portfolio.

    They are actually adding assets in Wellington & Canterbury, while more prudent portfolio managers are trying to leave those areas.

  10. #120
    Speedy Az winner69's Avatar
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    Valuations taking a $143m hit or 12% as portfolio revalued

    I’m no expert in such matters but an average cap rate of 5.6% still seems a little low.

    http://nzx-prod-s7fsd7f98s.s3-websit...855/391288.pdf
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

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