Monday 30 May 2016 04:21 PM
UPDATE: Stride says 'stapled structure' protects PIE status while funds management grows
(Recasts to add comment from CEO, details of stapled structure)
By Paul McBeth
May 30 (BusinessDesk) - Stride Property has proposed splitting its property-owning unit from its real estate investment management in a 'stapled structure' that would allow it to expand the management arm while preserving its favourable tax status.
The Auckland-based company made the announcement while posting a 16 percent gain in full-year earnings driven by its expanding property portfolio, which has portfolio investment entity (PIE) tax status.
It will call a special meeting to ask shareholders to approve a new structure, splitting property ownership and property investment management into separate legal entities, but effectively operating in lock-step, in what's called a stapled structure. The transaction would see shares in the investment manager distributed to Stride investors on a one-for-one basis.
"Every listed property company at the moment is a PIE, so if we don't maintain that PIE status, our investors will be disadvantaged to investors in other property companies," chief executive Peter Alexander told BusinessDesk. "This is all about improving returns to our shareholders."
A PIE is a special tax investment entity which allows tax payments to be passed on to shareholders at the company's corporate tax rate if there are insufficient imputations credits available. Companies only qualify for PIE status if they come within a cap on non-qualifying income. In March, listed property investor and fund manager Augusta Capital said it would lose its PIE status from July because its increased focus on funds management meant the value of that unit grew beyond the threshold of 10 percent of total assets, another restriction on the PIE status.
Stride's Alexander today said the company wants to expand its investment management business to continue growing dividends, but because that income doesn't qualify for PIE status it's in shareholders' interest to change to a stapled structure.
"It will be a material part of the overall return shareholders get - there is a lot of capital looking for investment in real estate at the moment," he said. "We think there's going to be a lot of demand for experienced investment managers in this sector with a track record, and we've got that and the set up to do it."
When announcing its annual result today, the company's board declared a fourth-quarter dividend of 2.75 cents per share taking the annual payout to 10.75 cents and affirmed guidance that it plans to pay at least 11.25 cents in the 2017 financial year.
The shares rose 0.9 percent to $2.23, and have gained 1.6 percent so far this year. The company sold shares at 97 cents in a $45 million capital raising when it listed in 2010, using the funds to internalise its management contract and corporatise its structure.