Capitaland Investment

[weijian]

In recent times, Singapore's office space has seen no interested buyers willing to match office space valuation

https://www.businesstimes.com.sg/propert...01oU9mGnKx

There are floor spaces being vacated in the CBD but unsurprisingly many valuers have painted office spaces as good with CAP rates abscribed being even lower than SORA rate.

No doubt Capland says its aiming for 200B FUM with current progress at 100B FUM. However, if most of its assets are in Singapore (which it is), I do feel it is unrealistic. Singapore property market has been using close to fraudlent valuation inputs and ground reality is that funds are not willing to match to the prices unless special circumstance are made. For example, in the failed Far East Shopping Centre (part retail/part office), the buyer wanted URA to grant 20% more floor area beyond the GPR which is unrealistic and definitely beyond what the master plan had provisioned. If it had been granted, many would question whats the use of URA 5 yearly master plan

I am not a capland investor, however, it would have been nice if someone had asked the soundness of the local Capland REIT valuers who had used Cap rates which at times are lower than SORA.

Hi CY09,

Based on my observation and also understanding from listening to the operators of companies, below are my thoughts on cap rates:

- Valuation is actually more Art than Science. There are estimates (meaning range of values) and assumptions and more importantly, how one makes/defend those assumptions.

- Companies can get a valuation based on "X assumptions". No surprise what is the company's preference. Crunch time comes when they defend/justify those numbers when they present it to their statutory auditor. There is "leeway" in the discussion and really, a lot of times, it may depend on those talking to the auditors.

- But one thing that will get the auditors alarmed, will be the company using "X assumptions" in previous years and then suddenly want to use "Y assumptions" this year, ie. changing their valuation methodology.

- So we know everyone wants high valuations - so it will be as high as it can be, ie. fair valuations are probably most overvalued - But mostly, doesn't mean all the time. There are a couple of observations that may reflect the amount of aggressiveness/conservativeness:
(1) One can look at how many times a REIT can sell something "above NAV". Similarly, when a REIT is most selling "below NAV", then good chance many other assets on the balance sheet are probably overvalued.
(2) The amount of revaluation losses probably correlate to the amount of revaluation gains. If a REIT had been using aggressive assumptions to revalue itself upwards, there is a good chance the same assumptions will hurt it on the way down, especially when the statutory auditor does not agree with changing the assumptions as previously mentioned.