Pfi

[Snoopy]

The gains in net asset backing over the years at PFI, most likely are real. So that means we should take these gains into account when determining our investor returns at PFI. Post 20 in this thread puts those gains at: $314.916m + $607.285m = $922.201m to date.

Over 30 years, that works out at at 30 year compounding rate 'r' of:

($1,500.328m - $922.201m)(1+r)^30 = $1,500.338m
=> $578.127m (1+r)^30 = $1,500,338m
=> (1+r)^30 = 2.595
=> r=1.03, or 3% per annum.

What happens if we decide to add that into our valuation model?

There is a real question as whether I should include compounding property valuations in my assessment of PFI going forwards. I sum up both sides of the argument as follows:

FOR: PFI has an unenviable record of 30 years of property investment growth. Throughout the company's time as a listed entity, the name 'Property for Industry' has not changed. Neither has the mission. The company is very focussed on being a specialist property owner 'for industry'. With the sale of their last investment property with non-industrial connections, Carlaw Park, in FY2021, the company's laser like focus on their core business mission now has no distractions. Property investors can make one or two strategic decisions and 'get lucky'. You could argue that PFI has had thirty years of 'good luck'. Or maybe there is an alternative explanation: Like good management actually knowing what they are doing! Thirty years of 'doing what they say they would do' and 'doing it well' is a record that can't be ignored. You would have to bet on this continued industrial property growth model, continuing to grow and succeed.

AGAINST: Buffett is in the business of identifying long term growth opportunities. A key pillar in all of this is extracting maximum value out of shareholder equity. A high return on shareholder equity means you can explore different growth paths, have not all of them succeed, and yet still come out ahead. An ROE in the mid 6 percent range is simply not high enough to guarantee compounding returns for the long term. If you think that sounds hypothetical, consider this. PFI have admitted that finding new investment properties at the right price that meet their investment criteria has become very difficult. So much so that PFI are now pivoting towards 'brownfield developments', or redeveloping and repurposing existing sites. This is a major shift, from 'property investor' to 'property developer'. This is not necessarily a bad thing if PFI know their tenants and know those tenant's requirements (which for most sites they do). But because property development requires construction risk, this introduces a whole new risk profile into PFI that was not there before. Plus, of course, we are just coming out of a period of massive stimulus for the property market in general. It might be unwise to consider even five year historical property growth trends as a mark of what to expect into the future. So by all means enjoy your property capital growth returns into the future PFI unit holders. But consider any such returns to be 'a bonus'. Not a substitute for what would otherwise be a very modest market yield return on what have become 'overhyped assets.'

Does FOR or AGAINST make the better case?

SNOOPY

[Snoopy]

Total modelled average net dividends over five years: 36.75c / 5 = 7.35c

As I write this the PFI010 and PFI020 bonds are trading around on the secondary market at the 6.5% level. For equity risk I require a gross level of return greater than that : 7.5%. This means my FY2022 capitalised valuation for PFI to get my required rate of return works out as:

(7.35c/0.72)/0.075 = $1.36

I could 'look through' current high interest rates, in anticipation of interest rates being a percentage lower in a year's time. That would change my capitalised valuation to:

(7.35c/0.72)/0.065 = $1.57

We can add a multiplicative PIE fudge factor' onto shareholder returns from the point of view of a marginal 33% income tax rate payer. This is: (1-0.28)/(1-0.33) = 1.075. This increases 'fair value; to $1.57 x 1.075 = $1.69

An alternative multiplicative PIE fudge factor' on shareholder returns from the point of view of a marginal 39% income tax rate payer can be calculated. This is: (1-0.28)/(1-0.39) = 1.18 This increases 'fair value' of PFI shares to $1.57 x 1.18 = $1.85

Over 30 years, that works out at at 30 year compounding rate 'r' of:

($1,500.328m - $922.201m)(1+r)^30 = $1,500.338m
=> $578.127m (1+r)^30 = $1,500,338m
=> (1+r)^30 = 2.595
=> r=1.03, or 3% per annum.

What happens if we decide to add that into our valuation model?

There is a real question as whether I should include compounding property valuations in my assessment of PFI going forwards. I sum up both sides of the argument as follows:

Does FOR or AGAINST make the better case?

I can't make up my mind whether FOR or AGAINST makes the better case. I have decided that the best thing to do is 'split the risk down the middle'. In this case, that means assuming there will be some continual capital growth going forwards. But it will at be:

(3%+0%)/2 = 1.5% per annum.

Note that this 1.5% is a 'tax paid' return. The incremental equivalent gross return is 1.5%/0.72 = 2.08%. Because we are modelling this 2.08% return as 'baked in', it means we can reduce our acceptable gross target dividend income by this amount. This means my 7.5% targeted total gross return becomes equivalent to an 'income return' of: 7.5% - 2.08% = 5.42%

Thus my 'fair value' for the PFI share price, using the 'dividend fair value earnings' of 7.35c as derived in post 38, becomes: (7.35c/0.72)/0.0542 = $1.88.

The 33% marginal taxpayer adjustment increases the fair value to: [(1-0.28)/(1-0.33)] x $1.88 = $2.02
The 39% marginal taxpayer adjustment increases the fair value to: [(1-0.28)/(1-0.39)] x $1.88 = $2.22

PFI is trading at $2.245 as I write this.

SNOOPY

[Snoopy]

Let's line up the 'what actually happened table' against the 'what would have happened table' and see what the differences might have been.

The 'what actually happened table' includes FY2018 and FY2019, two years where the depreciation allowance on buildings was not allowed to be claimed. I expect from July 2024 that the depreciation allowed will return to the FY2018 and FY2019 regime. Yet there was still some depreciation allowed for in the accounts of FY2018 and FY2019. It appears from this quote from AR2022 p73 that this 'residual depreciation' may be from the building fit out.
"The calculation of deferred tax on depreciation recovered places reliance on the land and building split in the valuation provided by the valuers. The building value is then split between fit-out and structure based on the proportion of the tax book values of each."

So under a new 'building depreciation is no longer tax deductible' regime, 'building fit out' items, like movable interior divisions and air conditioning systems, would still be tax deductible, even if the structural elements of the building were not. To reflect this element, I am going to assume that even with building depreciation disallowed in our hypothetical FY2020-FY2023 alternative 'what would have happened' scenario (i.e. where there is no 'building depreciation' in any year), there would be a residual annual depreciation charge of $9.300m (my estimate, as used in the first table below in calculations, see note 3) that would remain.

What actually happened

i/ Building Depreciation Allowed FY2020 - FY2023	FY2018	FY2019	FY2020	FY2021	FY2022	FY2023	Total
Profit before other expense/income and income tax (as declared)	$89.816m	$96.109m	$97.395m	$108.655m	$110.921m	$114.787m
less Depreciation Allowance (1)	$9.357m	$9.279m	$15.854m	$17.561m	$20.836m	$19.857m
less Property Costs	$12.507m	$14.850m	$16.262m	$16.753m	$17.598m	$22.695m
less Interest Expenses & Bank Fees	$18.766m	$19.008m	$18.233m	$20.106m	$24.638m	$29.160m
less Administrative Expenses	$4.679m	$5.072m	$5.851m	$7.465m	$8.508m	$10.336m
equals IRD Profit before other expense/income and income tax {A}	$44.507m	$47.900m	$41.195m	$46.770m	$39.341m	$32.739m
less Income Tax expense @ 28% (this calculated scenario) (2)	$12.462m	$13.412m	$11.535m	$13.096m	$11.015m	$9.167m	$70.687m
equals IRD Operational Net Profit After Tax	$32.045m	$34.488m	$29.660m	$33.674m	$28.326m	$23.572m
add Cashflow from 'Structural Depreciation' not reinvested (3)	$0m	$0m	$6.554m	$8.261m	$11.536m	$10.557m
equals 'Cash Earnings' available for distribution	$32.045m	$34.488m	$36.514m	$41.935m	$39.962m	$34.129m
(Reference Only) Current tax expense (AR Note 5.2 'Tax')	$8.886m	$13.106m	$10.066m	$10.605m	$10.525m	$5.601m	$58.789m

Notes

1/ The annual depreciation charge is not even stated in the respective annual report(s). But we can work out what it is by looking at the notes from the AR section 5.2 on tax. There is a note there that discloses various factors in the prima-facie reduction to income tax, of which one ingredient is 'depreciation'. To get the actual depreciation charge for any year from this 'adjustment' figure, you have to divide this 'depreciation ingredient' figure by the company tax rate of 0.28. As an example, the depreciation charge for FY2022 was: $5.834m/0.28 = $20.836m. If we include these depreciation charges in the profit results, a very different - but more believable - picture of profitability to that reported in the annual result(s) emerges.

2/ For the purpose of this exercise I have used the legislated company tax rate of 28%, when I calculate 'income tax expense'. I have done this because I believe it is the best way to look at the 'change in profitability' between the two scenarios that I am outlining in detail. I don't fully understand how the exact dollars of tax are calculated in the published accounts. So it makes no sense to try and replicate a calculation process that I do not fully understand. Better to take a calculation method I do understand, and record the tax differences from two alternative sets of input assumptions.

3/ The figure I have used of $9.300m for the depreciation of 'building fittings' is an eyeball average of the actual figures used in FY2018 ($9.357m) and FY2019 ($9.279m), two reporting periods where this figure was known definitively. I use this figure to calculate the structural depreciation that does not have to be, which therefore becomes cashflow that can go towards adding to the declared dividend.
3a/ Calculation for FY2020: ($15.854 - $9.300)m = $6.554m
3b/ Calculation for FY2021: ($17.561 - $9.300)m = $8.261m
3c/ Calculation for FY2022: ($20.836 - $9.300)m = $11.536m
3d/ Calculation for FY2023: ($19.857 - $9.300)m = $10.557m



What would have happened

In the alternative legislative scenario below, where depreciation from buildings is no longer allowed to be offset against profits, the subset of 'structural depreciation' switches from being 'a tax deductible expense' to a disallowed charge. This will increase the declared profit of the business, and consequently increase the government's income tax take (+$7.379m over three years, a $7.379m/$35.646m= a 20.7% rise).

ii/ If Building Depreciation DisAllowed	FY2018	FY2019	FY2020	FY2021	FY2022	FY2023	Total
Profit before other expense/income and income tax (as declared)	$89.816m	$96.109m	$97.395m	$108.655m	$110.921m	$114.787m
less Depreciation Allowance (scenario for FY2020-FY2022)	$9.357m	$9.279m	$9.300m	$9.300m	$9.300m	$9.300m
less summed Property, Administration and Interest Costs	$35.952m	$38.930m	$40.346m	$44.324m	$50.744m	$62.191m
equals IRD Profit before other expense/income and income tax {A}	$44.507m	$47.900m	$47.749m	$55.031m	$50.877m	$43.296m
less Income Tax expense @ 28% (this calculated scenario)	$12.462m	$13.412m	$13.370m	$15.409m	$14.246m	$12.123m	$81.022m
equals IRD Operational Net Profit After Tax	$32.045m	$34.488m	$34.379m	$39.622m	$36.631m	$31.173m

The key figures in the above two tables are the last row in each respective table that I have highlighted in bold. Compare those two and you will see the difference in 'cashflow available' to 'service the dividend' under each alternative taxation scenario. Thus if the mooted removal of structural depreciation as a tax deductible expense had occurred over the FY2020 to FY2023 years, then the 'dividend pool' would have been reduced as follows:

FY2020: $34.379m - $36.514m = ($2.135m) or -$2.135m/501.303m = -0.4cps
FY2021: $39.622m - $41.935m = ($2.313m) or -$2.313m/505.494m = -0.5cps
FY2022: $36.631m - $39.962m = ($3.331m) or -$3.331m/503.275m = -0.7cps
FY2023: $31.173m - $34.129m = ($2.956m) or -$2.956m/502.129m = -0.6cps

[Snoopy]

The following table has been compiled under the assumption that 'structural depreciation for buildings' was not allowed. While this was the case in FY2018 and FY2019, I have had to make adjustments to the free cashflow of the company, and hence money available for dividends in FY2020, FY2021 and FY2022. Post 13 provides detail on what these assumptions are. Dividends are considered in the financial year they are paid.

Per Share Dividends	Div Q1	Div Q2	Div Q3	Div Q4	Depn. Tax Adjustment (1)	Annual Total
FY2018	2.15c	1.80c	1.80c	1.85c	N/A	7.6c
FY2019	2.10c	1.80c	1.80c	1.85c	N/A	7.55c
FY2020	2.15c	1.80c	1.80c	1.85c	(0.4c)	7.2c
FY2021	2.25c	1.80c	1.80c	1.85c	(0.5c)	7.2c
FY2022	2.45c	1.80c	1.80c	1.85c	(0.7c)	7.2c
Five Year Total						36.75c

Notes

1/ 'Depreciation Adjustment' adds the incremental taxation element of 'structural building depreciation'. This 'structural building depreciation' is extra money over and above earnings as measured by NPAT that would previously have been part of what is sometimes described as 'cash earnings'.

If structural building depreciation is no longer allowed, this increases profits and hence the tax take, in comparison with the real situation of tax deductability over FY2020, FY2021 and FY2022 being allowed over those years. The tax paid under each scenario (tax deductability 'allowed' or 'not allowed') may be found in post 13. And the incremental tax paid under the alternative 'no building structure depreciation allowed' scenario, may be calculated as follows.

FY2020: $13.370m - $11.535m = $1.835m. $1.835m/501.303m = 0.4cps
FY2021: $15.409m - $13.096m = $2.313m. $2.313m/505.494m = 0.5cps
FY2022: $14.426m - $11.015m = $3.411m. $3.411m/503.275m = 0.7cps

I am a newbie looking at these property PIEs. I think this is the right way to adjust the 'cash earnings' as they apply to dividends calculations, but I am prepared to be corrected. My Take: The 'helicopter view' of the cashflow, is that the only extra cash taken out of this money system by changing the depreciation rules goes to the government. So this means there is still some 'depreciation money' in the system that can be added to cashflow and be paid out in addition to net profit after tax earnings, even with the depreciation tax law changes. This means that dividends can still perpetually continue to be higher than NPAT. Just less so than before.

------------------------




Total modelled average net dividends over five years: 36.75c / 5 = 7.35c

As I write this the PFI010 and PFI020 bonds are trading around on the secondary market at the 6.5% level. For equity risk I require a gross level of return greater than that : 7.5%. This means my FY2022 capitalised valuation for PFI to get my required rate of return works out as:

(7.35c/0.72)/0.075 = $1.36

I could 'look through' current high interest rates, in anticipation of interest rates being a percentage lower in a year's time. That would change my capitalised valuation to:

(7.35c/0.72)/0.065 = $1.57

We can add a multiplicative PIE fudge factor' onto shareholder returns from the point of view of a marginal 33% income tax rate payer. This is: (1-0.28)/(1-0.33) = 1.075. This increases 'fair value; to $1.57 x 1.075 = $1.69

An alternative multiplicative PIE fudge factor' on shareholder returns from the point of view of a marginal 39% income tax rate payer can be calculated. This is: (1-0.28)/(1-0.39) = 1.18 This increases 'fair value' of PFI shares to $1.57 x 1.18 = $1.85

Even this is still well below current market prices of $2.24 though. My conclusion is that PFI as a head share on the market today, with soaring construction costs in brownfield development project risk, is looking too expensive. With interest rates as they are, and PFI in my judgement most unlikely to default on bond interest payments, it is looking to me like the PFI010 and PFI020 bonds might be a better investment bet than the shares on today's market.

The following table has been compiled under the assumption that 'structural depreciation for buildings' was not allowed. While this was the case in FY2019, I have had to make adjustments to the free cashflow of the company, and hence money available for dividends in FY2020, FY2021, FY2022 and FY2023. Note 3 in Post 43 provides detail on what these assumptions are. Dividends are considered in the financial year they are paid.

Per Share Dividends	Div Q1	Div Q2	Div Q3	Div Q4	Depn. Tax Adjustment (1)	Annual Total
FY2019	2.10c	1.80c	1.80c	1.85c	N/A	7.55c
FY2020	2.15c	1.80c	1.80c	1.85c	(0.4c)	7.2c
FY2021	2.25c	1.80c	1.80c	1.85c	(0.5c)	7.2c
FY2022	2.45c	1.80c	1.80c	1.85c	(0.7c)	7.2c
FY2023	2.65c	1.95c	1.95c	1.95c	(0.6c)	7.9c
Five Year Total						37.05c

Notes

1/ 'Depreciation Tax Adjustment' adjusts for the incremental taxation element of 'structural building depreciation' being removed as a tax deduction. This 'structural building depreciation' is extra money over and above earnings as measured by NPAT that would previously have been part of what is sometimes described as 'cash earnings'.

If structural building depreciation is no longer allowed, this increases profits and hence the tax take, in comparison with the real situation of tax deductability over FY2020, FY2021, FY2022 and FY2023 being allowed over those years. The difference in tax paid under each tax scenario (tax deductability 'allowed' or 'not allowed') may be found in post 43. The per share distributable earnings adjustment figures are calculated in that post.

------------------------


Total modelled average net dividends over five years: 37.05c / 5 = 7.41c

As I write this the PFI010 and PFI020 bonds are trading around on the secondary market at the 6.9% and 6.6% levels respectively. For equity risk, I require a gross level of return greater than that : 7.5%. This means my FY2023 capitalised valuation for PFI to get my required rate of return works out as:

(7.35c/0.72)/0.075 = $1.36

I could 'look through' current high interest rates, in anticipation of interest rates being a percentage lower in a year's time. That would change my capitalised valuation to:

(7.41c/0.72)/0.065 = $1.58

We can add a multiplicative PIE fudge factor' onto shareholder returns from the point of view of a marginal 33% income tax rate payer. This is: (1-0.28)/(1-0.33) = 1.075. This increases 'fair value; to $1.58 x 1.075 = $1.70

An alternative multiplicative PIE fudge factor' on shareholder returns from the point of view of a marginal 39% income tax rate payer can be calculated. This is: (1-0.28)/(1-0.39) = 1.18 This increases 'fair value' of PFI shares to $1.58 x 1.18 = $1.86

Even this is still well below current market prices of $2.225 though. My conclusion is that PFI as a head share on the market today, with soaring construction costs in brownfield development project risk, is still looking too expensive. With interest rates as they are, and PFI in my judgement most unlikely to default on bond interest payments, it is looking to me like the PFI010 and PFI020 bonds might be a better investment bet than the shares on today's market.

SNOOPY

[Snoopy]

Historical Cumulative property re(de)valuations are listed below from the respective annual reports:

FY2023	($140.830m)
FY2022	($56.160m)
FY2021	+$395.155m
FY2020	+$72.546m
FY2019	+$129.321m
FY2018	+$66.423m
FY2017	+$43.595m
FY2016	+$88.214m
FY2015	+$46.471m
FY2014	+$36.286m
FY2013	+$12.326m
FY2012	+$12.302m
FY2011	+$3.653m
FY2010	+$2.590m
FY2009	($28.371m)
FY2008	($43,128m)
FY2007	+$26.463m
FY2006	+$33.493m
FY2005	+$33.933m
FY2004	+$29.972m
FY2003	+$7.128m
FY2002	+$7.408m
FY2001	+$0.790m
FY2000	($5.353m)
FY1999	($0.443m)
FY1998	($0.479m)
FY1997	+$6.275m
FY1996	$0
FY1995	+$1.539m
FY1994	+$0.252m
Total =	+$781.371m

One advantage of PFI being around in its current form for 30 years this year is that interest rate investment cycle variables do tend to average out. And that means that the gains in net asset backing over the years at PFI, most likely are fundamental and real. So that means we should take these gains into account when determining our investor returns at PFI. I have calculated these gains to sum to $781.371m to the end of FY2023.

Over 30 years, that works out at a 30 year annual compounding rate 'r' of:

($1,360.269m - $781.371m)(1+r)^30 = $1,360.269m
=> $578.898m (1+r)^30 = $1,360.269m
=> (1+r)^30 = 2.350
=> r=1.02888, or 2.88% per annum.

What happens if we decide to add that information into our valuation model?


SNOOPY

[troyvdh]

Snoopy.
Great work and I for one really appreciate your efforts.
Im sorry but could you determine the return on say 10k invested since inception.

Im an old nurse (psych).Retired.
Im guessing the return is probably greater than a succession of bank deposit returns.
Cheers troy.

Needless to say Im a great believer in KISS.

[Snoopy]

Snoopy.

Great work and I for one really appreciate your efforts.
I'm sorry but could you determine the return on say 10k invested since inception.

I'm guessing the return is probably greater than a succession of bank deposit returns.
Cheers troy.

Needless to say I'm a great believer in KISS.

Yes it is interesting to see a company celebrating 30 years as a listed entity in 2024, concentrating on doing exactly what the company name says: Managing properties for various industrial and logistical firms in largely big box entities. No drama. No sidetracking into 'hot opportunities' along the way. Just boringly carrying out their stated mission, and I use that adjective as an expression of high praise. Boring is good for investors, if the company management are tightly focussed on their underlying purpose and execute well. PFI tick these boxes. Given there is little drama to discuss, this is probably why the PFI thread is one of the shortest on sharetrader. And given these background circumstances, this is no bad thing.

And yet, I feel for the first time in PFI history, we are at a crossroads. PFI have admitted that their supply of readily attainable industrial land in their key Auckland market - at the right price- has dried up. So PFI are transitioning from 'greenfield development' to 'brownfield development': the redevelopment of existing properties into adaptable expansion projects to better fulfill the developing needs of existing customers. This is a change in strategy, albeit along a complimentary path, rather than a wholesale change to a new direction. But a change in risk profile nevertheless. If anyone can execute such a change well, I suspect it will be PFI. But I think for PFI investors, some vigilance will be required 'just in case' the changing path forwards does not execute exactly to plan.

I am afraid I cannot give you the return from $10k invested in PFI from inception to date, troyvd, because I do not have all the historical dividend information needed to calculate that. And of course there is that old adage, past returns do not necessarily reflect future returns. I would have no doubt that PFI returns have beaten bank term deposit returns over the 30 year period, because I don't think there is a single comparative period where the PFI dividend yield has dipped below the alternative time equivalent term deposit rates on offer, as measured on a gross basis. History is good to look back on. But I am much more focussed on future returns which -while I expect to be good-, I do not expect will rise to 10% gross per year averaged over the long term going forwards. In compensation for not so heady numbers going forwards, I do expect PFI future returns to be predictable. So I see PFI as a good ingredient for that 'retirement portfolio', as part of a diversified share ownership package.

SNOOPY

discl: Not yet invested in PFI myself, but doing my homework and thinking about it (just trying to get those numbers to add up, by picking the right entry price)

[Snoopy]

Over 30 years, that works out at a 30 year annual compounding rate 'r' of:

($1,360.269m - $781.371m)(1+r)^30 = $1,360.269m
=> $578.898m (1+r)^30 = $1,360.269m
=> (1+r)^30 = 2.350
=> r=1.02888, or 2.88% per annum.

What happens if we decide to add that into our valuation model?

To account for 'brownfield execution risk', I am going to assume that the capital growth in property values in the future is only half the growth rate of property under management over the first 30 years.

(2.88%+0%)/2 = 1.44% per annum.

Note that this 1.44% is a 'tax paid' return. The incremental equivalent gross return is 1.44%/0.72 = 2.00%. Because we are modelling this 2.00% return as 'baked in', it means we can reduce our acceptable gross target dividend income by this amount. This means my 7.5% targeted total gross return becomes equivalent to an 'income return' of: 7.50% - 2.00% = 5.50%

Thus my 'fair value' for the PFI share price, using the 'dividend fair value earnings' of 7.41c as derived in post 44, becomes: (7.41c/0.72)/0.055 = $1.87.

The 33% marginal taxpayer adjustment increases the fair value to: [(1-0.28)/(1-0.33)] x $1.87 = 1.075 x $1.87 = $2.01
The 39% marginal taxpayer adjustment increases the fair value to: [(1-0.28)/(1-0.39)] x $1.87 = 1.18 x $1.87 = $2.21

PFI is trading at $2.245 as I write this. Just above 'fair value' for those 39% marginal taxpayers.

SNOOPY

[Snoopy]

If the mooted removal of structural depreciation as a tax deductible expense had occurred over the FY2020 to FY2023 years, then the 'dividend pool' would have been reduced as follows:

FY2020: $34.379m - $36.514m = ($2.135m) or -$2.135m/501.303m = -0.4cps
FY2021: $39.622m - $41.935m = ($2.313m) or -$2.313m/505.494m = -0.5cps
FY2022: $36.631m - $39.962m = ($3.331m) or -$3.331m/503.275m = -0.7cps
FY2023: $31.173m - $34.129m = ($2.956m) or -$2.956m/502.129m = -0.6cps

I always like to double check my workings when 'official information' becomes available. This from the just released AR2023 on page 9:
"However, changes to depreciation rules, which are likely to impact PFI from 1 July 2024, will see the company’s tax bill rise by about $2 million a year."

This is a little less than the $2.135m to $2.956m I was estimating, should such a new depreciation rules have been applied to the FY2020 to FY2023 financial years, - albeit still "within the ball park". The actual figure depends on the split in the size of the 'overall building depreciation charge' and the split between the 'structural building depreciation' (no longer tax deductible) and the 'building ancillaries depreciation' (still tax deductible).

I don't know how the 'overall building depreciation charge' is expected to change between FY2023 and FY2025 and beyond (FY2024 will be for a transitory six month period). But if buildings are being sold to finance the purchase of land for future development, then the overall building depreciation charge could easily go down in FY2025. It could also be that the proportion of structural building depreciation goes down because of the new 'brownfields development approach'. By this, I mean that while the structural shell of an investment property remains, the internal re-organisation of that space with temporary divisions and new building ventilation equipment (as examples) is where a greater proportion of capital spend is being made. Thus a greater proportion of the overall 'building depreciation bill' remains tax deductible. In turn the structural depreciation adjustment (a tax deduction that is lost) becomes smaller than expected, which means the incremental tax bill payable to the IRD as a result of 'removing depreciation as a tax deduction' is less than expected. This is a possible explanation for why PFI's estimate of the incremental extra tax they will be paying in FY2025 is less than my estimates of the same thing over FY2020 to FY2023, should the change in 'building tax deductability' have occurred over those years.

SNOOPY

[Alekhine]

Hi Snoopy


Could you please tell me where you get the 0.72 from in your dividend model?


Thanks