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14-01-2011, 12:21 AM
This is a great business.
If they and their funds never bought anything else for the rest of their existence, we have a 2.6% dividend yield + annual growth in rent of about 3-5% or inflation. Over a long enough period, assuming Singapore & HK are ok property markets, growth in rent should at least equal inflation, so this is definitely better than bonds - esp the recent ones out at retail investors.
They generally grow by adding new assets. So either their funds by more buildings e.g. Suntec Reit buys a chunk of MBFC, or they start a new fund like Cache. So since most property in Sg, HK, Msia, China isn't already in a REIT, they're quite far from their growth limits. ROE is high because ARA is not spending very much capex to add a new building - the funds spend the capex, and then ARA even charges fees for doing the work to add new buildings.
So returns = inflation + 2.6% (current dividend yield) + (assets they keep adding - as 2010 has been a year when they grew very nicely).
There are 2 issues: 1. when property prices fall, but then they're not on the hook for rights issues refinancings the REIT holders are - since fees are based on assets not net-assets. 2. when they have to invest some of their own money into their funds, so it's very unlikely that their funds can give them 35% returns.
PB is not really relevant for valuing such a company.
http://pages.stern.nyu.edu/~adamodar/New...inants.htm has a mathematical derivation, but the point is that when ROE is much higher than the cost of equity, the expected book value is much higher than 1. You can examine Buffet's largest positions e.g. Coke, P&G etc - the book value is far above 1.
Unfortunately, the great business is not as cheap as it used to be anymore, so I'm slowly and sadly exiting, and quite likely to miss out on some more up-side.
If they and their funds never bought anything else for the rest of their existence, we have a 2.6% dividend yield + annual growth in rent of about 3-5% or inflation. Over a long enough period, assuming Singapore & HK are ok property markets, growth in rent should at least equal inflation, so this is definitely better than bonds - esp the recent ones out at retail investors.
They generally grow by adding new assets. So either their funds by more buildings e.g. Suntec Reit buys a chunk of MBFC, or they start a new fund like Cache. So since most property in Sg, HK, Msia, China isn't already in a REIT, they're quite far from their growth limits. ROE is high because ARA is not spending very much capex to add a new building - the funds spend the capex, and then ARA even charges fees for doing the work to add new buildings.
So returns = inflation + 2.6% (current dividend yield) + (assets they keep adding - as 2010 has been a year when they grew very nicely).
There are 2 issues: 1. when property prices fall, but then they're not on the hook for rights issues refinancings the REIT holders are - since fees are based on assets not net-assets. 2. when they have to invest some of their own money into their funds, so it's very unlikely that their funds can give them 35% returns.
PB is not really relevant for valuing such a company.
http://pages.stern.nyu.edu/~adamodar/New...inants.htm has a mathematical derivation, but the point is that when ROE is much higher than the cost of equity, the expected book value is much higher than 1. You can examine Buffet's largest positions e.g. Coke, P&G etc - the book value is far above 1.
Unfortunately, the great business is not as cheap as it used to be anymore, so I'm slowly and sadly exiting, and quite likely to miss out on some more up-side.