PFI: effects of tax changes

News release to New Zealand Stock Exchange

July 7, 2010

The New Zealand Government’s budget announcements on 20 May 2010 will result in a reduction in the corporate and PIE tax rates from 30 percent to 28 percent and the removal of the ability to depreciate buildings for tax purposes, with effect from 1 January 2011.

One-off, non-cash adjustment to deferred tax liability
PFI’s financial statements for the six months to 30 June 2010 are expected to show an increase of approximately $36 million in deferred tax liability relating to depreciation of building structure, with a corresponding increase in deferred income tax expense. The increase in the deferred tax liability is subject to completion of the half-year financial statements to 30 June 2010 and a review by the company’s professional advisers.

This is a one-off, non-cash adjustment required under International Financial Reporting Standards and results from the fact that PFI will no longer be entitled to claim tax depreciation on its building structures. This adjustment is not a liability payable to Inland Revenue.

The deferred tax adjustment will not affect PFI’s distributable profit (the profit available for distribution to shareholders) for the six–month period to 30 June 2010 but will result in the company’s interim financial statements showing a significant unrealised after-tax net loss. In addition, the company’s net tangible assets per share (NTA) is expected to reduce from $1.10 per share as at 31 December 2009 to $0.93 as at 30 June 2010.

Distributable earnings impact – financial year beginning 1 January 2011
The effect of the tax changes will also increase PFI’s effective tax rate. This is not expected to impact the current financial year as the company is still entitled to a further six months of tax depreciation to 31 December 2010. Based on available information to date, PFI’s distributable profit is expected to be reduced by approximately four to five percent in the following financial year to 31 December 2011.

The Government has also announced that it will undertake a review of the definition of “building structure” for tax purposes. The outcome of this review may increase the tax paid in future periods as well as resulting in a further adjustment to the company’s deferred tax liability.

PFI is New Zealand’s only listed company specialising in industrial property investment, and is managed by AMP Capital Investors.

For further information:
Jeff Moore, Chief Financial Officer, Property For Industry
Ph 09-969 4791 or 029-969 4791
Email jeff.moore@ampcapital.co.nz