Property Under Management FY2021
Quote:
Originally Posted by
BlackPeter
REITS have currently a bit of a headwind - interest rates going up, property prices might be close to peak.
Just doing a little valuation exercise on 'property under management'.
Over FY2021 |
Industrial |
Office |
Large Format Retail |
Total |
Argosy @ EOFY2021 |
$985m |
$812.7m |
$213.2m |
$2,010.9m |
Argosy @ EOFY2020 |
$842.8m |
$752.2m |
$270.0m |
$1,865m |
Argosy average over FY2021 |
$913.9m |
$782.5m |
$241.6m |
$1,938m |
Portfolio distribution |
47.1% |
40.4% |
12.5% |
100% |
Annual Rent Review Change |
+3.1% |
+4.3% |
+2.2% |
+3.3% (overall) |
From AR2021 p13
ACQUISITIONS AND VALUE ADD DEVELOPMENTS
"A highlight during the year was the strategic acquisition of two contiguous industrial properties in Mt Richmond, Auckland, in October 2020 for $76 million."
Does this indicate that industrial property is going to be the 'sweet spot' going forwards?
"Securing these strategic sites within a prime industrial precinct with historically very low supply levels makes sense. It allows us to be ready and responsive to changing demand patterns, not just now, but in the years ahead."
SNOOPY
The Argosy Dividend Imputation Mystery (FY2021 as an example)
I have been puzzled by the dividend documentation in the Argosy market news releases. For the purpose of this example I will use the FY2021 year. Argosy is a PIE. This means that as an Argosy shareholder, if your marginal tax rate is over 28%, then you should probably not declare dividends from Argosy in your tax return. That way you will be saving tax by just accepting that tax is deducted at the PIE rate. For most investors that is the end of the matter. But looking into the dividend documentation, something strange is going on. The dividends paid over the FY2021 year (April 1st 2020 to 31st March 2021) were as follows
|
Cash Dividend (cps) |
Imputation Credit (cps) |
Imputation Percentage Amount (*) |
3Q 2021 |
1.6125c |
0.140594c |
8.0% |
2Q 2021 |
1.6375c |
0.070891c |
4,1% |
1Q 2021 |
1.5875c |
0.151267c |
8.7% |
4Q 2020 |
1.5875c |
0.0c |
0.0% |
Total |
6.425c |
0.362752c |
(*) For a 'fully imputed dividend' the 'imputation percentage amount' is 28%
On first glance, the 4Q 2020 dividend is nice and clean. The PIE tax has been paid and there are 'no imputation credits to worry about'. But this is a wrong interpretation of what has happened. The PIE credits come from the imputation credits (Later Edit: this statement is wrong, as PIE taxation credits for income not subject to tax are a theoretical construct: Phantom income tax that no-one pays) , and the dividend information is actually telling us no tax has been paid at all (For reference, the fully imputed tax rate is actually 28%!). This is because the income generated over the period must have been 'tax exempt income'. Sure enough the annual report lists $157.658m of 'revaluation gains on property'. That is substantially more than the declared operating profit for the year: $95.625m - $32.691m = $62.934m.
The imputation credits associated with that operating profit look like they are claimed through the three subsequent dividends. So Argosy are now paying tax at a rate at well below the maximum 28% PIE rate. This is all a consequence of the high property revaluation gains in relation to underlying rental earnings. But from a shareholder/unitholder perspective it doesn't matter because we aren't taxed on capital gains on commercial property either.
From the 10th March market release on the Q3 dividend for FY2021
"As Argosy is a PIE the dividend can be treated as excluded income for New Zealand income tax purposes. Imputation credits of 0.140594 cents per share will be attached to the dividend representing income tax paid by the Company."
Does this mean that Argosy shareholders who take the Argosy dividend as 'PIE tax paid', and don't declare it for personal income tax purposes, lose the attached imputation credits? No, because the PIE tax paid is from the imputation credit (Later Edit: This statement is wrong. Imputation credits can be thought of as a partial credit towards PIE tax paid. But in fact PIE tax is a theoretical concept based on tax that would have been paid if the PIE entity had been paying tax at 28%.)
Do I recommend that shareholders in PIEs that have dividends with attached imputation credits declare them in their tax returns? In most cases, is no. The problem being that if you declare your PIE income in your personal tax return (something you are legally entitled to do as an option), then that income will become subject to tax at your marginal tax rate. So what you 'gain' by declaring the imputation credit you are likely to lose by paying marginal tax at a higher rate. (Later edit: Even worse than that, you also lose the phantom tax allowance that allowed you to assume your PIE entity was paying tax at 28%)
Company income that is not subject to tax can be thought of as income with tax already taken off it, if you want to combine taxable and non-taxable income to generate a 'before tax' (Gross) income figure. (Later edit: But remember the 'company gross income' (from a company perspective) and the 'gross PIE equivalent income' (from a shareholder perspective) are only the same thing when the PIE really does pay its fair share of tax at the 28% rate).
SNOOPY
The Argosy Dividend Imputation Mystery (FY2021 as an example) Part 2
Quote:
Originally Posted by
Snoopy
The PIE tax has been paid and there are no imputation credits to worry about. But what is the story behind these other imputation credits appearing in subsequent dividends? Does this mean that Argosy are now paying tax at a rate above the maximum 28% PIE rate? I think it does mean that (Edit: Actually it doesn't, see other Edit comment below). But what could have caused this? The Argosy explanation is glib:
From the 10th March market release on the Q3 dividend for FY2021
"As Argosy is a PIE the dividend can be treated as excluded income for New Zealand income tax purposes. Imputation credits of 0.140594 cents per share will be attached to the dividend representing income tax paid by the Company."
How are Argosy generating these imputation credits, and why are they generating them? Can any of the accounting pros out there answer that one?
Putting on my forensic hat, there is only one possible avenue to answer to this mystery. If a company is paying tax at a rate greater than 28%, it must have incurred some expenses that are not tax deductible. So I turn to Note 19 in AR2021 on 'Taxation', notice that tax at 28% is declared, and note that various adjustments are made after that to arrive at the actual tax figure paid. So logically, one or more of those 'adjustments' must be the answer I am seeking.
If the total dividends paid over the calendar year add to 6.425c, and tax was paid at 28c in the dollar, then that means the gross dividend amount must have been 6.425c /(1-0.28) = 8.924c. However, we know that the company paid tax at a higher rate than 28c in the dollar.
There were 839.528m shares on issue at the end of the financial year compared to 827.187m shares at the beginning. An arithmetic average of the number of shares on issue over the year is:
(839.528m+827.182m)/2 = 833.355m
The extra 0.362752cps of imputation credits declared represents approximately: 0.00362752 x 833.355m = $3.023m of extra tax paid over the year. And that amount of extra tax paid represents an undetectable expense over the year of $3.023m/0.72= $4.2m.
I see, under AR2021 Note 19, there is an entry that says overall tax for the year has increased by $3.432m due to "Movements in deferred tax assets and liabilities attributable to Investment properties." Could that be it?
SNOOPY
Edit: I have subsequently deduced that Argosy is not paying tax at a rate greater than 28%. If it was, some of the insights in this post may have been useful. But since they aren't please ignore this post. I leave it here for future reference on what to do if we do find a company paying tax at more than the legislated rate.