CDC Depreciation Allowing for Land and Datacentres under Construction
Quote:
Originally Posted by
Snoopy
It has been pointed out to me that I have made an error in my depreciation estimate calculation. The error being that I have ignored the owned land on which the datacentres are built and onto which any expansions are going to be built. We do have a bit of an obsession in NZ with 'land'. But the vast majority of the CDC land is of course in Australia where most of their business is located.
The interesting thing about datacentres is that when signals are being fired back and forth to them along optical fibres at up to 70% of the speed of light the distance from the point of data use to the point of data storage becomes less relevant. IOW whether the datacentre structure is 5km away or 50km away, the operator on the end is not going to to be able to tell much difference. This means datacentre builders can be a bit less choosy about where they build their structures. They do not have to compete with logistics distribution houses for prime space.
Looking at Googlemaps, it appears the Canberra CDC datacentre there is about 20km out of the city 'in the middle of nowhere'. So I suspect the land bank value of CDC is actually not that high - probably no more than 10% of the value of all CDC long term assets. This means my correction to overall depreciation to take account of land (which does not depreciate) is likely relatively small. Maybe applying to only 10% of the value of the long term assets?
Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. 90% of that value (being the non-land assets) amounts to $A5,186m. So 1/40th of that value is $129.7m
The difference in value of non-current assets, on the books, over the FY2024 year, was: $6,666.0m-$5,762.3m= $903.7m. But some of those assets have been built during the year as a result of capital expenditure of $560.8m (AR2024 p26). So this implies that the 'revaluation component' of the increase in long term assets was: $903.7m-$560.8m=$342.9m. However, there will have been a depreciation cost for the year that will have been 'netted off' against any revaluation. So it is more correct to call the $342.9m 'R-D'.
The reduction in D from $144.1m to $129.7m, equating to $14.4m, means that the Revaluation part of the 'R-D' equation 'R' can be smaller by that same amount to make the $342.9m 'R-D' = $342.9m equation balance. But at $342.9m + $129.7m = $472.6m, it still a large revaluation amount.
I have had another prod off line about getting my estimate of a depreciation deduction wrong. The issue, this time, is that long term assets under construction are not depreciated until construction is finished. A fair cop. So what proportion of long term assets 'on the books' are under construction? Some good background information on this is in the Infratil Capital raising presentation:
https://infratil.com/news/infratil-a...-equity-raise/
From slide 7:
"388MW under construction across current footprint"
From slide 13:
"Operating capacity 302MW" "388MW expected to be completed by the end of FY2026."
So we can think of the 'under construction' section of future data centre roll outs as being completed over 3 years. That averages out at 388MW/3= 129MW to be completed over each of FY2024, FY2025 and FY2026. So we could say the paid for work under construction represents ( 129MW/(129MW+302MW) =) 30% of 'long term datacentre assets'.
Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. 90% of that value (being the non-land assets) amounts to $A5,186m. 70% of that value (being the depreciable assets that have finished construction) is $3,630m. Assuming these assets depreciate on average over 40 years, this gives an annual depreciation charge of ($3,630m/40=)$90.8m.
This insight further reduces the FY2024 datacentre revaluation 'R' required to match known declared CDC profits over FY2024
'R-D' = $342.9m => R = $342.9m + $90.8m = $433.7m 'which is still a large amount'.
SNOOPY