Listed Property Trusts

[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 Now it is signaled to be withdrawn again beginning on 1 April 2024.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:

Attachment 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%

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-ins...3a705c537aedb6

[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%

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 Rate	Tax paid by $200k earner
$14,000 or less	10.5%	$1,470
$14,001 to $48,000	17.5%	$5,950
$48,000 to $70,000	30%	$6,600
$70,000 to $180,000	33%	$36,300
$180,000 plus	39%	$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 Rate	Tax paid by $200k earner
$14,000 or less	10.5%	$1,470
$14,001 to $48,000	17.5%	$5,950
$48,000 to $70,000	30%	$6,600
$70,000 to $180,000	33%	$36,300
$180,000 plus	39%	$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.