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by petitioner from 1957 through 1995. The parties disagree,
however, about the anticipated growth rate of the annual rent
payments over the remaining life of the lease.
Under the lease, rents are adjusted to reflect changes
relative to the average 1955 Wholesale Price Index but only after
there has been a cumulative adjustment of at least 5 percent from
the last change. In projecting future rents, Maloy, Lipscomb,
and Dilmore each rely on historical changes in the PPI. Maloy
and Lipscomb agree that historical changes in the PPI averaged
1.87 percent for the 10 years before 1991.14 Maloy ends his
analysis there, projecting rental increases of 5.6 percent (1.87
times 3) every 3 years for the duration of the lease.
Lipscomb and Dilmore also take into account historical data
showing that the rate of actual rent increases has lagged behind
the rate of changes in the PPI, ostensibly as a result of
inconstant annual rates of increase in the PPI in combination
with the requirement that rents adjust only after there has been
a 5-percent cumulative change in the average price index. On the
basis of this analysis, Lipscomb projects lease rent increases
of 5.2 percent every 3 years, and Dilmore estimates an average
long-term growth rate of approximately 1.5 percent per year.
14 Mr. Gene Dilmore (Dilmore) determined that increases in
the Producer Price Index (PPI) averaged 1.41 percent over the 10
years prior to petitioner’s gifts.
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