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S-REITs
• History & Evolution
• Performance
Current Local Practice for Valuation of
REIT’s Properties
• Standards & Guidelines
• What are We Valuing?
• Factors Affecting Value
• Basis & Assumptions
• Valuation Approaches
• Yields & Discount Rate
• Reconciliation of Valuation
• Valuation Report
Challenges Faced
• Technical Issue
• Economical Issue
• Human Issue
“ Thoughts For The Day”
• Current Practice Sustainable?
• Is Valuation Just “DCF”?
• Role of Valuer
S-REIT
Definition of REIT
• Closed-end funds that pool capital from
retail and institutional investors to invest
collectively in income-producing
properties
• Alternative channel to unlock book values
of the low-yield properties in the portfolios
• Hybrid instrument that combines the
features of RE, stock & bond
Benefits
• Convert relatively illiquid RE into liquid
REIT securities
• Can be traded on SGX – Enjoy tax
transparency status
• Distributions – Tax exemption
• Mandatory & high distribution of income
• Multi-property portfolio
• Regulated by MAS
SREIT
Risks
• Property & Management
• Valuation
• RE Economic
• Stock Market
• Regulatory Planning & Capital Raising Environment
Latest Changes to S-REITs
Megers & Acquisitions
• F&N group acquired Allco Commercial REIT in 2008
• YTL Corporate Berhad took over Macquarie Prime REIT in Oct 2008 & renamed to Starhill Global REIT
• AMP Capital took over Macarthurcook Industrial REIT in 2009. Now known as AIMS-AMP Capital Industrial REIT
2015 Budget
Extended income tax exemption to local & foreign sources of S-REIT income received by individual investors for another 5 yrs from 1 March 2015
Stamp duty remission for REITs on purchase of local properties was not extended
MAS Revised Guidelines Jul 2015
Leverage limit increased to 45% of total assets
Asset managers are required to provide justification & disclosure on structure & type of fees charged
MAS Guidelines for
Valuation of REITs’ Properties
Interested Party Transaction
REIT to obtain 2 independent valuations of the property, with one to be commission by
the Trustee
In case of purchase, the transacted price can’t be above the higher of the 2 independent
valuations
In case of sale, the transacted price can’t be below the lower of the 2 independent
valuations
Valuation of Assets
To provide full valuation of all properties own by the REIT at lease once a year. However, if
REIT proposed to issue new units for subscription, & the last valuation is more than 6
months, DT valuation would suffice.
Current Local Practice For
Valuation of REIT’s Property
Standards & Guidelines
What Are We Valuing?
Factors Affecting Value
Basis and Assumptions
Valuation Approaches
Yields & Discount Rate
Valuation Reconciliation
Current Local Practice For
Valuation of REIT’s Property
Qualifications
• Degree of B.Sc. (Est Mgt/ Real Estate) or equivalent
• SISV / RICS Member
• Appraisal License with minimum 5 years of relevant experience
Standard & Guidelines
Professional Bodies
• SISV
• RICS
• IVS
What Are We Valuing?
Market Value Fair Value (IFRS 13) Investment Value
Estimated Amount Exit Price of an asset or liability Value of an asset
Exchange on Valuation Date Measurement Date
Willing Buyer – Willing Seller Willing Parties Particular investor or prospective
owner
Arm’s length Transaction Hypothetical & Orderly Transaction
Proper marketing
Acted Knowledgeably, prudently &
without compulsion
Usually Highest & Best Use Concept of Highest & Best Use For individual/ operational/ particular
objective
Conventional Valuation Techniques
& DCF Analysis
Market Approach/ Income
Approach/ Cost Approach
Valuation of REIT’s Property
Location / Neighborhood
Subject Development/ Property
Financial Performance
Potential
Micro
Economical/ Political/ Environmental/
Social Factors
Indicators (Country Risk, Market Risk,
Currency Risk, Inflation)
Macro
Factors Affecting Value
Valuation of REIT’s Property
Location/ Neighborhood
Accessibility
Linkages
Commercial/ Retail
• CBD - Raffles Place/Marina Bay/Shenton/Robinson/Cecil Street
• Orchard vicinity
• Regional Centre
• MRT Station
Medical Centre
• Near or connected to Hospital
Micro
Valuation of REIT’s Property
Location/ Neighborhood
Industrial
• Industrial Parks
• Link to airport/ port/labour supply
Hotel/Service Apartment
• Mainland vs Sentosa
• Orchard vicinity vs Outlying area
Micro
Valuation of REIT’s Property
Subject Development
Type
Supports/ Facilities Provided
Commercial
• Premium Grade/ Grade A/B
• Green Mark Platinum/ Gold, etc.
Retail
• Shopping Mall vs Shop Unit vs Shophouse
• Tenant mixed/ Anchor tenants
Medical Centre
• Connect to hospital/ health care facility
Micro
Valuation of REIT’s Property
Subject Development
Type
Supports/ Facilities Provided
Hotel
• Class, Band & Management
Service Apartment
• Long-term stay vs Hotel style
Micro
Valuation of REIT’s Property
Subject Development
Industrial
• Use – SR/ Biz Space/ Flatted Factory/ Warehouse/ Data Centre
• Facility/ Specification provided
Micro
Valuation of REIT’s Property
Subject Property
Tenure
Approved Use
Size
Age/ Condition
Land / Gross Floor/ Strata/ Lettable Floor Area
Design/ Layout
Building specification
View
Micro
Valuation of REIT’s Property
Financial Performance
Gross / Net Revenue
Occupancy
Other Incomes/ Expenses
Special Lease Arrangement
Capex
Micro
Potential
Top Up Tenure
Unused Plot Ratio
Additions & Alterations
Major Upgrading Works
Re-development potential
Valuation of REIT’s Property
Economical
• Demand & Supply
• GDP/ Interest Rate/ Government Bond Rate, Inflation, Consumer Price
Index, Employment Rate, etc.
Political
• Government’s Stability
• Policies/ Measures
Environmental
Social
Macro
Valuation of REIT’s Property
• As Is – VP/ Subject to Tenancies/ Leaseback
• As Is Where Is
• As Is with Potential
• Upon Completion Basis
• Highest & Best Use
Basis of Valuation
• Physical
• Legal
• Planning
• Financial
Assumptions
Valuation of REIT’s Property
Direct Comparison Method
• Compare like with like
• Apply for standard property
• No fixed formula
• Applicable in active market
• Result influenced by market trend
Conventional
Valuation Approaches
What happen if no direct sales
comparable?
Look out for secondary sales
comparable
References/ Benchmarking
Valuation of REIT’s Property
Income Capitalization/Investment
Method
Apply to Income Generating Property
Variable factors – Yield & Net Income
CV = Net Income x Yield
Conventional
Valuation Approaches
Points to take note:-
Actual & Market Rents
Average Expiry Lease
Justification of Cap Rate
Valuation of REIT’s Property
Replacement Cost Method
► Assume Cost = Value
► CV = Land Value + Bldg Cost -
Depreciation
► Estimate of Depreciation –
economical/ functional/ obsolesce
► Apply to Monopoly Property
Conventional
Valuation Approaches
Points to take note:-
Act as a base value of the
property in normal market
Give higher result than DCM
in down market
Current Local Practice For
Valuation of REIT’s Property
Residual Value Method
► RLV = GDV - Development Costs
► Too many assumptions
► Applicable for Property with
Potential / Land / AS IS BASIS for
DEVELOPMENT SITE
Conventional
Valuation Approaches
Points to take note:-
Developer / Investors use
this method to determine
land price
Sensitive Factors –
Efficiency/ Profit/ Expected
Sales Price/ Construction &
Related Costs
Current Local Practice For
Valuation of REIT’s Property
Profit Method
► Applicable to Profitable/ Trading
Potential Property
► Estimate Tenant’s Share can be a
challenge
Conventional
Valuation Approaches
Points to take note:-
Unpopular in local practice
Valuation of REIT’s Property
DCF Analysis
Detailed Investment Method
Off the shelve vs In-House Excel
Required financial background &
knowledge of the relevant trade
Variables that affect the result of
Net Present Value
Discount Rate
Terminal Cap Rate
Growth Rate
IRR
NOI
Valuation Approaches
Points to take note:-
Involved more assumptions,
hence experience is a must
Analysis or Method of
Valuation?
Current Local Practice For
Valuation of REIT’s Property
Yields
Property Yield vs Dividend Yield
Property Yield ≤ Dividend Yield
Initial Yield < Reversion Cap Rate < Terminal Cap Rate
Industrial Yield > Hotel Yield > Retail Yield > Office Yield >
Residential Yield
Discount Rate
Comparable Discount Rate
Weighted Average Cost of Capital (WACC)
Capital Asset Pricing Model (CAPM)
Yields & Discount Rate
Dividend Yield Vs Property Yield
Dividend Yield = Annualised DPU/ Share Price
E.g. S$0.094/ S$1.68 = 5.595%
Dividend Yield
Property Yield = Annualised Rental Income/ Capital Value
Property Yield
???
Correlation
S-REITs (Commercial)
REIT Name Dividend Gross Yield
(1 Mar 16)
Property Yield
CapitaCommercial Trust 6.21%
?
Fraser Commercial Trust 7.62%
K-REIT 6.56%
Mapletree Commercial Trust 7.86%
OUE Commercial REIT 7.44%
S-REITs (Retail)
REIT Name Dividend Gross Yield
(1 Mar 16)
Property Yield
CapitalMall Trust 5.51%
?
Frasers Centrepoint Trust 5.96%
SPH REIT 5.79%
Starhill Global REIT 6.77%
Suntec REIT 6.18%
S-REITs (Industrial)
REIT Name Dividend Gross Yield
(1 Mar 16)
Property Yield
AIMsAmp Cap REIT 8.31%
?
Ascendas 6.10%
Cache Log Trust 9.54%
Cambridge Ind Trust 8.39%
Keppel DC REIT 6.156%
Mapletree Ind Trust 7.09%
Mapletree Log Trust 7.24%
Sabana REIT 8.63%
SoilbuildBiz REIT 8.83%
Viva Ind Trust 9.35%
S-REITs (Hotel & Service Apt)
REIT Name Dividend Gross Yield
(1 Mar 16)
Property Yield
Ascendas H-Trust 8.47%
?
Ascott REIT 7.23%
CDL Hospitality Trust 7.10%
Far East Hospitality Trust 7.43%
OUE HTrust 7.24%
S-REITs (Hospital)
REIT Name Dividend Gross Yield
(1 Mar 16)
Property Yield
First REIT 6.90%
? Parkwaylife REIT 4.92%
Why Dividend Yield is higher than Property Yield ?
Yield Accretive
Low Interest Environment
Investor Hungry of Deals
Valuation of REIT’s Property
Valuation Reconciliation
Average or Weighted Average
Depends on :-
Type of Property
Availability
of Sales
Comparable
Reasonableness
Valuation Report
1. Introduction
2. Property Particulars
3. Title Particulars
4. Town Planning
5. Location
6. Subject Property
7. Occupancy/ Tenancy Details
8. Operating Expenses
9. Property Market Commentary
10. SWOT Analysis
11. Valuation Methodology
12. Reconciliation of Value
13. Valuation
14. Appendix
Challenges Faced
Technical Issue Economical Issue Human Issue
How to handle
deviations between
findings from
different methods
Balance between
actual performance
& assumptions
adopted
Totally NIL
transaction market
Transformation/
Globalisation
Unpredictable
changes in
economy
Pricing war
Different
expectation from
different level/class
of clients
Rotation of valuer
Thoughts For The Day
Current Practice Sustainable?
• International standard
• Will X-Valuation take over convention valuation?
Is Valuation Just DCF??
• Skill ability
Valuer’s Role
• Continual professional development
• Ready for change
Recommended