Analysing REITS

(13-02-2015, 05:06 PM)zerobeta Wrote: Thanks a lot for the info ! I am trying to value the property not the business entity...
also do trustee fees or management fees part of operating expenses? (because we won't need to pay these if we are the holder of the property instead of the REIT)... and once you have valued it, do you still need to apply some discount?

Property management fees/expenses is part of operating expenses but trustee fees and management fees (base fees and performance fees) are not.

Can one apply “discount” to the value one has arrived at?

I guess there is no absolute right or wrong answer to it – depending on one’s rational……………….and what one intends to do with the discounted or undiscounted value……...

Value is a concept as opposed to price and cost.

In real estate appraisal, there are principles of value – a series of rules that describe how value is created in the real estate market…………………….

http://en.wikipedia.org/wiki/Real_estate_appraisal

Could not find news relating to REITs from Budget15 ???

extended 5 more years

(23-02-2015, 07:27 PM)Drizzt Wrote: extended 5 more years

Thanks Drizzt .

"The stamp duty concessions were intended to enable the industry to acquire a critical mass of local assets, as a base from which the REITS can expand abroad. As this has been achieved, the concessions will be allowed to lapse after 31 March 2015."

How much impact will it be ?

(23-02-2015, 09:14 PM)corydorus Wrote: "The stamp duty concessions were intended to enable the industry to acquire a critical mass of local assets, as a base from which the REITS can expand abroad. As this has been achieved, the concessions will be allowed to lapse after 31 March 2015."

How much impact will it be ?

Not much.

Example:
- Industrial REITs can choose to tear down their old properties and build new ones to maximise plot ratio.
- Or they can choose to acquire overseas properties.
- First REIT usually acquire Indonesian hospitals.
- PLife is focusing more on Japanese nursing homes.

However, if the sponsor has a lot of local properties in the pipeline for future injection, they might have to consider carefully. E.g. CMT still have Bedok Mall to consider.

Luckily, FCT already acquired Changi City Point.

(23-02-2015, 10:42 PM)Dividend Warrior Wrote: Not much.

Example:
- Industrial REITs can choose to tear down their old properties and build new ones to maximise plot ratio.
- Or they can choose to acquire overseas properties.
- First REIT usually acquire Indonesian hospitals.
- PLife is focusing more on Japanese nursing homes.

However, if the sponsor has a lot of local properties in the pipeline for future injection, they might have to consider carefully. E.g. CMT still have Bedok Mall to consider.

Luckily, FCT already acquired Changi City Point.

Disagree, it means that local acquisitions will be ~3% higher for REITs now. Looking at how a few % increase in stamp duties have on retail buyers, I'd think that the market for acquisitions by REITs will be a lot cooler now.

Not a good time to be a 100% local REIT with no overseas support. Other than venturing overseas, maybe a better way to grow now is to acquire other REITs?

This is just an increase in transaction costs for REIT managers by bringing them back on even playing field with everyone else. REIT managers will still be looking out for opportunities to increase AUM.

1 question:

when valuing a business trust using DCF, do we need to subtract the present value with net debt? for REIT usually I won't do it because at least 90% of their cash flow will be distributed to unitholders... is my approach correct here?

(25-02-2015, 10:17 AM)zerobeta Wrote: 1 question:

when valuing a business trust using DCF, do we need to subtract the present value with net debt? for REIT usually I won't do it because at least 90% of their cash flow will be distributed to unitholders... is my approach correct here?

By discounting unlevered FCF with WACC, one gets the enterprise value (EV). To get the equity value, subtract from EV, any other claims (net debt, preferred, non-controlling).

By discounting the after debt cash flow (FCFE = FCF to Equity) with cost of equity, one gets the equity value.

These apply to valuing companies, business trusts or Reits………………

Knowing the mechanics of valuation method is important, but understanding the principles, logics, rationales and underlying assumptions behind each valuation method is even more critical.