Dod101 wrote:I have just checked with two REITs, Primary Health Properties which I hold and British Land which I do not. Both value their investment properties on the basis of 'fair vale' by getting an independent valuer to assess the value. I do not think there is a 'fudge factor' involved. In neither case is there a discounted cash flow calculation. In other words the assets are I think much more grounded than the DCF calculation used by TRIG. I have answered my own question with TRIG. They use an average life span of 29 years for windfarms and I think 37 years for solar and build that into their DCF calculations, together with assumptions on prices for electricity and so on. AS Simoan syas, the DCF calculations are carried out by their own managers.
Dod
I think you need to check again by reading the PHP Annual Report. They use the same fair value method as Urban Logistics (they call it the Investment method) which is in effect discounting future net rental income based on a fudge factor called the "capitalisation rate". I assumed this was based on valuations of of similar properties in the same area on a comparable basis, but there's a bit more to it than that which means assumptions about the future are included i.e. rent increases, void periods, future capex etc. I bought Urban Logistics without being aware it was valued on this basis as DCF is not mentioned anywhere in the Annual Report and you really need to dig into the detail of the valuation method to see it is very similar to DCF. In fact, DCF is only mentioned in the RICS Red Book used by all property valuers.
Anyway, we've strayed far enough off-topic for now. I've decided to hold onto Urban Logistics for now based on the fact I like the area of business they are in - last mile distribution warehouses - the management seem astute at both buying and selling properties, and that every time they have sold properties it has been well above book value.
All the best, Si