Hongkong Land Holdings

[beefjerky]

Most properties are valued at about 5% yield, or cap rate. Or to put it in another way, a p/e ratio of 20.

In such a simplified equation, the value of a property = income of property x 20

So if income of property goes down, so does its valuation. And vice versa.

Hence, the 'intrinsic value' of HKL depends on your assumptions about HKL's future. Will it earn higher rents from its offices, and higher profit from its development properties?

HKL's present valuation (p/underlying earning of about 10, excluding revaluations) suggests that its future income is going to come down by half. It is up to an investor to decide if that is true.

I think I am clearer now. So what you are saying is, HKland uses a low cap rate of 5% > resulting in an assumed P/E ratio of 20. However, because of the instability, we should use a higher cap rate, maybe 10% > resulting in a P/E ratio of 10 which is more reasonable seeing that the growth may not be that great? Is this correct?