REIT VALUATIONUSB247 – MONEY AND PROPERTYDR. ISIL EROLIntroduction• How can we evaluate the shares in Australian property funds orREIT units?• Net Tangible Asset (NTA)-based REIT valuation• Dividend discount model for REIT valuationüInitial distributionsüHolding-period total returns• Institutional investors which hold property securities are mainlysuperannuation funds and diversified managed funds.Institutional Investors & REITsUniSuper in Australia• What is UniSuper?üUniSuper is the superannuation fund dedicated to people working inAustralia’s higher education and research sector.üWith over 400,000 members and $70+ billion in net funds under management.üAustralia’s largest super fund.UniSuper – Pension Performance & Investment Options31/03/2019https://www.unisuper.com.au/investments/investment-options-and-performance/pension-performance-and-option-holdingsUniSuper – Pension Performance & Investment Options31/03/2020Investment options, performanceListed Propertyhttps://www.unisuper.com.au/investments/investment-options-and-performanceEnd of FebruaryAustralian BondAustralian sharesInvestment options, performanceGlobal Env. OpportunitiesInternational SharesAustralian SharesListed PropertyLast 5 years – Listed property returnsReturns are after fund taxes and investment expenses but before account-based fees.Listed PropertyWhat to look for?REIT SectorperformanceUnderlying assetperformanceOther incomesourcesGearingNet tangibleassetsManagementFeesLiquidityInitial dividendTotal returnsDiscount ratesUnderlying Asset Performance• Location• Ideally, well established areas, unthreatened by new space, and with no signs ofoversupply.• Buildings• age and quality, the latter indicated by:• for offices: Grade and Green star rating• for retail: shopping centre hierarchy• Tenants• stability of main tenants; lease expiries• Is the mix of properties sound?Other income sources• Developments: either building commercial properties or developing residential lots orstrata units for sale;• the present value of such activities is highly variable, depending on economicconditions and competition.• Project and fund management services:• to associates and other groups;• the sustained profits and goodwill are also highly variable.• Units in Property Security Fund (PSFs) – convenient diversification of A-REITs• But how will the sector perform and what mix of units?Gearing• Financial gearing or D/E ratio shows thepercentage of company financing that comesfrom:ücreditors (bank loans) andüinvestors (shareholder financing).• When creditors own the majority of the assets,the company is considered highly leveraged.Debt-to-equity ratio for listed A-REITs1.150.92 0.83GFC 2009 Q2-2014 Q4 2015 Q2-2018 Q2
1.460.750.96 0.850.780.83 0.8800.20.40.60.8220.127.116.11 0 0 8Q 22 0 0 8Q 42 0 0 9Q 22 0 0 9Q 42 0 1 0Q 22 0 1 0Q 42 0 1 1Q 22 0 1 1Q 42 0 1 2Q 22 0 1 2Q 42 0 1 3Q 22 0 1 3Q 42 0 1 4Q 22 0 1 4Q 42 0 1 5Q 22 0 1 5Q 42 0 1 6Q 22 0 1 6Q 42 0 1 7Q 22 0 1 7Q 42 0 1 8Q 2Net Tangible Assets (NTAs)• NTA = Total Assets – Intangible assets – Liabilities• NTA = Tangible Assets – Liabilities• The NTA is the book value of the equity, excluding anyintangible assets.• It is similar to the Net Asset Value (NAV), which does notnecessarily exclude intangible assets of the fund.What are intangible assets?• Intangible assets include any goodwill paid for acquired businesses.üGoodwill results from taking over another business or acquiring their assets.üDifference between the tangible value of assets you buy and the price you pay.üGenerally not a significant item in the balance sheets of property trusts.• Investment properties are reported in balance sheets at their latest marketvaluation except for recently acquired properties – which are reported at theirpurchase price plus the acquisition cost.NTA-based REIT Valuation:How to calculate Premium or Discount to NTA?• Premium (or Discount) to NTA:ü
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