Analysing REITS

[Temperament]

No need analyse so much, just wait for whichever property segment the REIT is in to have downturn, the REIT to drop in price, yield to be high, discount to NAV increase and gearing to be low.

When things are going well the REIT will gear up, increase DPS and catch up or exceed the NAV. Then just sell off and rinse and repeat.

Yes agree. When a milk cow is going to stop producing milk, sell it and look for another one. The problem is how to judge the milk cow is going to stop producing milk soon.
Which farm the milk cow belongs is important. What about the climate of the country affecting the farm?
For this current milk cow it seems even new technology of computer structure (data center) in future going to kill this milk cow soon. Have to monitor very closely.
(Only newly vested in this milk cow now.)

[Boon]

Budget 2015: Boost seen for S-Reits but not property developers

Lee MeixianThe Business TimesWednesday, Feb 04, 2015 -

FOR Singapore's property sector, Budget 2015 is expected to bring mixed news. Real estate investment trusts (Reits) are more likely than property developers to see their wishlists come true. Reits are hoping for extensions on the tax incentives they currently enjoy, but which expire on March 31, 2015. And analysts believe that some, if not all, of the expiring incentives would probably be renewed, in line with the government's moves to keep Singapore's Reit market competitive alongside regional counterparts........................

http://business.asiaone.com/news/budget-...developers

[Boon]

Reits: Time to end tax breaks?

A slew of tax incentives 10 years ago fuelled the growth of Real Estate Investment Trusts or Reits in Singapore. It's time to retire some of them.

Published on Feb 5, 2015

http://www.straitstimes.com/news/opinion...s-20150205

[swakoo]

A slew of tax incentives 10 years ago fuelled the growth of Real Estate Investment Trusts or Reits in Singapore. It's time to retire some of them.

With S-Reits probably one of the only few growing sectors on the SGX, if the Finance Minister wants to receive another letter from 1000 remisiers like the one below, following the advice above should probably do it...

Remisiers write to Tharman to resolve issues plaguing market

[zerobeta]

Hi when we value a property using cap rate method, do we need to deduct the property income with tax rate? if yes what kind of tax rate? individual tax income? corporate tax income? rental income for individual/ corporation? (this is on top of the property tax that is already deducted to arrive at the property income)

Also if we want to value a property held by a REIT, shall we deduct their property income with the trustee fees or management fees? because these fees are only payable by a REIT but not other holders?

thanks a lot!

[zerobeta]

One question I have is, once we have calculated the value using cap rate, do you think we still need to apply discount (like liquidity discount) to arrive at the target price?

[soros]

For gaining better reply on "cap rate", post your question at www.propertymetrics.com

[Boon]

Hi when we value a property using cap rate method, do we need to deduct the property income with tax rate? if yes what kind of tax rate? individual tax income? corporate tax income? rental income for individual/ corporation? (this is on top of the property tax that is already deducted to arrive at the property income)

Also if we want to value a property held by a REIT, shall we deduct their property income with the trustee fees or management fees? because these fees are only payable by a REIT but not other holders?

thanks a lot!

Strictly speaking, Cap Rates are derived or extracted from real property sales – from transactions of buyers and sellers competing in a market place.

A property is an asset which could be owned by an individual or an entity/business structure ( a company, business trust, reits etc)

In property valuation, the objective is to appraise the value of a property based on its ability in producing income.

Hence only deduct operating expenses that are essential or necessary to insure its ability to continue to produce income.

Utilities and property management fees are operating expenses.

Repair and maintenance are operating expenses - but not improvement/additions which are capital expenditures.

Property tax is an operating expense but the Owner’s income tax liability generated by the property is not.

Mortgage interest / borrowing expenses may be a deductible expense, but it is not an operating expense – one may need a mortgage/borrowing to afford the property, but not to operate it.

Are you trying to value the asset (property) or the business entity (a company, business trust, reit etc) that owns the asset ? There are two different things !

[tanjm]

The purpose of a cap rate is similar to that of a Bond yield to maturity. Its just another way of stating the price of a property.

If you were to google, you can see numerous definitions. Here's one : http://en.wikipedia.org/wiki/Capitalization_rate

How is it used?

As a valuer, I may be asked to put a value on a 5 story building. Looking at the transacted database, I might see that a nearby 10 story building, with similar facilities, sold for a certain amount 4 mths ago, from which I can derive the implied cap rate for that transaction. I then take the cap rate and calculate what would be the sale price of my 5 story building if I use the same cap rate and the same equation. Anyway, its a bit of an ambiguity/art anyway - do I use the current net property income (perhaps locked in years ago) or do I use the net property income if I were to hypothetically re-lease out my property now (and re-lease for how long, with what conditions)?

As investors, we might want to look at industry average trends in cap rates, since cap rates would normalize for different buildings etc. A single number which is like an index of property prices. We are not likely to care about individual property valuations - that is the province of the property valuer (who is going to fudge anyway). i.e. more useful as a statistic.

[zerobeta]

Hi when we value a property using cap rate method, do we need to deduct the property income with tax rate? if yes what kind of tax rate? individual tax income? corporate tax income? rental income for individual/ corporation? (this is on top of the property tax that is already deducted to arrive at the property income)

Also if we want to value a property held by a REIT, shall we deduct their property income with the trustee fees or management fees? because these fees are only payable by a REIT but not other holders?

thanks a lot!

Strictly speaking, Cap Rates are derived or extracted from real property sales – from transactions of buyers and sellers competing in a market place.

A property is an asset which could be owned by an individual or an entity/business structure ( a company, business trust, reits etc)

In property valuation, the objective is to appraise the value of a property based on its ability in producing income.

Hence only deduct operating expenses that are essential or necessary to insure its ability to continue to produce income.

Utilities and property management fees are operating expenses.

Repair and maintenance are operating expenses - but not improvement/additions which are capital expenditures.

Property tax is an operating expense but the Owner’s income tax liability generated by the property is not.

Mortgage interest / borrowing expenses may be a deductible expense, but it is not an operating expense – one may need a mortgage/borrowing to afford the property, but not to operate it.

Are you trying to value the asset (property) or the business entity (a company, business trust, reit etc) that owns the asset ? There are two different things !

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?