One question for the accountants under us.

[forest]

I don't understand that CDI get away with stating their NTA and profit without adding in property revaluations, while retirement companies always include the fair value changes of property.

In the 2015 financial year CDI development property increased in value by $59mil (note 8) however this increase in value is not included in the profit or NTA of CDI.

[smtrader]

I don't understand that CDI get away with stating their NTA and profit without adding in property revaluations, while retirement companies always include the fair value changes of property.

In the 2015 financial year CDI development property increased in value by $59mil (note 8) however this increase in value is not included in the profit or NTA of CDI.

I can be mistaken, not 100% sure but it might be due to the nature of activity. Under IAS 40 investment property, it allows for revaluations, but could only be because its their nature of activity. Someone might want to correct me. Im sure if you read through IAS 40 you'l find out why.

[Snoopy]

I don't understand that CDI get away with stating their NTA and profit without adding in property revaluations, while retirement companies always include the fair value changes of property.


I make a similar observation regarding MRP and CEN.

1/ MRP revalue their hydro generation assets periodically and book those revaluations as profits and pay tax on those revaluation amounts.
2/ CEN has a policy of not revaluaing their hydro assets, and consequently do not pay tax on the increase in value of their dams.

Yet both are in the same business and I imagine subject to the same income tax laws. Go figure!

SNOOPY

[forest]

I can be mistaken, not 100% sure but it might be due to the nature of activity. Under IAS 40 investment property, it allows for revaluations, but could only be because its their nature of activity. Someone might want to correct me. Im sure if you read through IAS 40 you'l find out why.

Thanks smtrader, I read through some of the IAS 40 document and it made things clearer.
In certain types of business models, companies can choose if they use cost base or fair value accounting.

Snoopy this choice no doubt is open to power generation companies which you picked up on.

In the case of CDI which keeps all development land on its books at cost this gives an unrealistic low, cost price $88mil.
Well the same land is valued as at the 31 Dec 2015 at $265mil.

Or $265mil minus $88mil is $177mil in hidden value, which is 64c of NTA per share for CDI.

If one was not aware of the way CDI account for development land one could quite easily under value this company.

[Snow Leopard]

Thanks smtrader, I read through some of the IAS 40 document and it made things clearer.
In certain types of business models, companies can choose if they use cost base or fair value accounting.

Snoopy this choice no doubt is open to power generation companies which you picked up on.

In the case of CDI which keeps all development land on its books at cost this gives an unrealistic low, cost price $88mil.
Well the same land is valued as at the 31 Dec 2015 at $265mil.

Or $265mil minus $88mil is $177mil in hidden value, which is 64c of NTA per share for CDI.

If one was not aware of the way CDI account for development land one could quite easily under value this company.

Do not follow CDI - it never comes up on my filters - probably because it has the liquidity of treacle in Antarctica.

But as a little light Sunday afternoon entertainment I have pulled down the FY2015 accounts.

The FY book value of Development Properties (Land + Improvements) is:
$126,551,000 [consisting of $38,247,000 current + $88,304,000 non-current].

The FY estimated sale value of same is:
$265,000,000

The difference, or estimated [future] gross profit, is:
$138,449,000

on which [future] tax payable at 28% is:
$38,765,720

giving a estimated [future] net profit of:
$99,683,280.

You can do the NTA calculation yourself.

Given that CDI is in the business of buying land, improving it and then selling it on. The Development Property is it's stock, when it actually sells said stock profit may be/will be higher or lower than the figure above.

Best Wishes
Paper Tiger

[Snow Leopard]

I make a similar observation regarding MRP and CEN.

1/ MRP revalue their hydro generation assets periodically and book those revaluations as profits and pay tax on those revaluation amounts.
2/ CEN has a policy of not revaluaing their hydro assets, and consequently do not pay tax on the increase in value of their dams.

Yet both are in the same business and I imagine subject to the same income tax laws. Go figure!

SNOOPY

MRP revalue their hydro generation assets periodically, they DO NOT book these [gains in] revaluations to profits, but to Other Comprehensive Income. They DO NOT pay tax on those [gains in] revaluation amounts...
..but the new value of those assets and the deferred tax liability [on the unrealised gains in the value of those assets] is recorded on the balance sheet.

Best Wishes
Paper Tiger

[forest]

The FY estimated sale value of same is:
$265,000,000

The difference, or estimated [future] gross profit, is:
$138,449,000

Paper Tiger the way I read the valuation of the development property at Dec 2016 is that the above $138,449,000 profit is likely if CDI would sell the development land without developing the land any further. The note says
"The value of development property held at 31 Dec 15 was determined, on an open market existing use basis.

I understand that a lot of their development land is not zoned residential at present and therefor the existing land use zoning could be lifestyle rural etc.
The real value increase happens when sections are developed, and my understanding is this value increase (which is CDI business) is not (and should not be) included in the 2015 valuation.

If CDI would be liquidated as of the Independent registered valuer expectation, would you not expect the NTA a lot higher than CDI announced $140mil?

[Snow Leopard]

The FY estimated sale value of same is:
$265,000,000

The difference, or estimated [future] gross profit, is:
$138,449,000

Paper Tiger the way I read the valuation of the development property at Dec 2016 is that the above $138,449,000 profit is likely if CDI would sell the development land without developing the land any further. The note says
"The value of development property held at 31 Dec 15 was determined, on an open market existing use basis.

I understand that a lot of their development land is not zoned residential at present and therefor the existing land use zoning could be lifestyle rural etc.
The real value increase happens when sections are developed, and my understanding is this value increase (which is CDI business) is not (and should not be) included in the 2015 valuation.

If CDI would be liquidated as of the Independent registered valuer expectation, would you not expect the NTA a lot higher than CDI announced $140mil?

If on 31-Dec-2015 CDI had sold all of it's development properties for the $265M valuation, received it receivables and paid it debts then they would have been:
$140,289,000 (book value) + $99,683,280 (realised gains on development properties after tax paid) giving a grand total of:

$239,972,280 to split between all those shares or:

$0.866/share.

Best Wishes
Paper Tiger

[forest]

If on 31-Dec-2015 CDI had sold all of it's development properties for the $265M valuation, received it receivables and paid it debts then they would have been:
$140,289,000 (book value) + $99,683,280 (realised gains on development properties after tax paid) giving a grand total of:

$239,972,280 to split between all those shares or:

$0.866/share.

Best Wishes
Paper Tiger


Thanks Paper Tiger, I agree with your numbers?

I still like to make the point that CDI has a hidden NTA of nearly $100mil according to the valuer as at 31 Dec 15. This is 70% more than one would realise if not reading the notes to the accounts.
Also the share price trade to a discount of NTA if taken this hidden NTA into account.