Pfi

[Snoopy]

I am inclined to think 'forget about the property valuations'. Focus on the cashflows only.

One more comment on property revaluations. I found this little gem nestled inside note 2.1 in AR2021, on the subject of the capitalised valuation approach to property valuation. 'Capitalised valuation' is an approach that takes a predicted future 'rent yield' and derives a capital value based on that rent income value'

"When calculating the direct capitalisation approach, the market rental has a strong interrelationship with the adopted market capitalisation rate given the methodology involves assessing the total market rental income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the market rent and an increase in the adopted market capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease in the market rent and a decrease in the adopted market capitalisation rate. A directionally opposite change in the market rent and the adopted market capitalisation rate could potentially magnify the impact to the fair value."

Translation (well, my take on what this means)

PFI has a 100% tenanted property portfolio. The weighted average lease term is 6.7 years.

From AR2021 p4
"Despite lockdown pressures, the strength of our tenant base meant that there was a low level of deferrals and abatement through the year."

Furthermore, I had a look in the annual report 2021 for the term 'default' and 'bad' (as in loan or debt) and found nothing. Dig into the AR financial reporting notes under section 2.3, and we find the 'rent deferred and abated' over the year was $0.366m. Compared to the $92.271m of rent received this represents a default rate of:

$0.366m / $92.271m = 0.4%

With rents locked in, and probably ratcheted to inflation, a strong tenant base and minimal rent defaults, I think there is an argument to be made that the property valuations of recent times will stick, and not drop.

SNOOPY