AMP NZ Office's Stobo says proposed tax changes would erode earnings

Reforms proposed by the Tax Working Group, including removal of building depreciation and the introduction of a land tax, could slash earnings at AMP NZ Office Trust as much as 10% next year, said chairman Craig Stobo.

Earnings in 2011 “would be reduced by approximately 8-10% in a worst-case scenario,” where the depreciation allowance was fully abolished, he said. Older investors, who favour the steady returns from listed property trusts, would be particularly hard hit and the moves will dent New Zealand’s ability to attract capital from overseas investors, he said.

Distributable profit, the preferred measure of earnings among property trusts, rose 18.5% to $32.1 million in the six months ended Dec. 31. The net loss widened to $27.8 million from $4.97 million as the trust recognized a $63 million decline in the value of its property portfolio, partly offset by a gain in the value of interest rate swaps.

Shares of APT were unchanged at 73 cents on the NZX today and have slipped 5% since the Tax Working Group report was released on Jan. 20. In the past month, the NZSE Property Group Index has fallen 3.5%, making it the third-worst sector on the exchange, ahead of telecommunications and mining.

The property investor said its gearing ratio stood at 21.7% at Dec. 31, compared with a loan covenant ratio of 40%. Its interest cover ration for the 12 months through Dec. 31 was 3.13 times, versus a covenant requirement of 2 times. Portfolio occupancy was little changed at 89.9% in the first quarter.

Businesswire.co.nz

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