Listed Property Trusts

[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/...DCBJN4R4ZG2MI/

[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/...DCBJN4R4ZG2MI/

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)	$10.4m	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/showth...=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.