UPDATE: Stride plans to demerge and list property subsidiary in strategy to keep tax status

Friday 10th June 2016

Stride Property will list its wholly-owned subsidiary Investore Property after an initial public offering as part of its strategy to retain its portfolio investment entity (PIE) tax status.

Stride will distribute Investore shares to its own shareholders at a one-for-four ratio as part of the subsidiary demerging from Stride, at the same time as Investore lists on the NZX main board, it said in a statement. Stride will retain a 19.9 percent stake in Investore, while Stride shareholders will collectively hold 33.4 percent to 38.2 percent.

In May, Stride proposed splitting its property-owning unit from its real estate investment management in a stapled structure, with each as a separate legal entity but effectively operating in lock-step, which would allow it to expand the management arm while preserving its favourable tax status. That transaction would see shares in the investment manager distributed to Stride investors on a one-for-one basis.

Chief executive Peter Alexander told BusinessDesk the proposed stapled structure would still go ahead, and the Investore demerger and listing is a step in Stride keeping its PIE tax status, 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.

Stride had 59 properties worth $1.27 billion as of March 31, and Investore's portfolio is a specialised percentage of that, Alexander said.

"We are still left with a substantial property portfolio," Alexander said. "The increase we have had in investment management income would mean we would have too much non-qualifying income. Instead of owning this property through a fully-owned subsidiary we will have a cornerstone stake in Investore."

Investore will have a portfolio of 39 large-format retail properties, including 14 Countdown stores it intends to acquire from Shopping Centres Australasia Property Group (SCA) for $267 million. That acquisition is subject to a successful capital raising and demerging of Investore from Stride, and the company expects it to become unconditional on June 30.

The remaining 25 properties are standalone large format retail shops such as supermarkets and hardware stores, located around New Zealand, and they share characteristics like long-weighted average lease terms, Alexander said.

Stride shares last traded at $2.225, and have gained 2.3 percent 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.

BusinessDesk.co.nz

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