Snoopy - your interpretation for completed investment property is 100% incorrect. What does the heading say on page 52? And what is the heading for page 55? I recommend you read all of the relevant pages again. Had you read the notes in detail you would not have come to your erroneous conclusion. You are referring to the subset of care suites and have omitted the investment properties subject to ORAs and DMFs. And the full quote for which you only provided the first half confirms the high capitalisation rates. The full quote (for care suites freehold land & buildings) is:
Why would you purposely omit the part in bold and then question the discount rates that had similar values? Perplexing.Quote:
"The valuation approach for the freehold land and buildings as at 31 March 2023 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (“EBITDAR”) under the assumption a positive cash flow will be generated into perpetuity. Capitalisation rates used for the 31 March 2023 valuation range from 11.25% to 16.25 % with a median value of 12.50%
{and}
The significant unobservable input used in the fair value measurement of the Group’s portfolio of completed land and buildings is the capitalisation rate applied to earnings. A significant decrease/ (increase) in the capitalisation rate would result in significantly higher / (lower) fair value measurement.
I can help you:
It is there in black and white. Property under development is at directors valuation and completed investment properties are valued using discounted cash flows. Your interpretation of completed investment properties is incorrect.Quote:
pages 51/52: "3.1 Village Assets: Investment Property (continued)"
Investment Property under Development
CBRE Limited and Colliers Limited (together the ‘external valuers’) provided valuations of development land in respect of investment property under development as at 31 March 2023.
The fair value of investment property is determined by the Directors having taken into consideration the valuation conducted by the external valuers as independent registered valuers and the cost of work undertaken in relation to investment property under development.
Completed Investment Property
As required by NZ IAS 40 Investment Property, the valuation of investment property is adjusted for cash flows relating to refundable occupation licence payments, residents’ share of resale gains and management fees receivable recognised separately on the Consolidated Balance Sheet and also reflected in the valuation model. The Group’s interest in all completed investment property was valued on 31 March 2023 by CBRE Limited and Colliers Limited, at a total of $744.7m (March 2022: $592.9m)."
The following assumptions have been used to determine fair value:
Significant Input : Description : 2023
Discount rate : The pre-tax discount rate : 14.0% - 20.0 % (median: 15.0 %)
Unobservable Inputs
The significant unobservable inputs used in the fair value measurement of the Group’s portfolio of completed investment property are the discount rate and property price growth rate.
What you have referred to is an entirely different section under the heading "Care Assets: Property, Plant and Equipment (continued)".
You say:
Please understand what you are looking at before posting. It doesn't matter what you believe or accept given the rates I quoted are the rates that were used.Quote:
Again I don't accept an average discount rate of 15% as a basis for property valuation for completed OCA property.
Full quote:
Quote:
From AR2023 p55
------------------------
Valuation of Freehold Land and Buildings
The valuation approach for the freehold land and buildings as at 31 March 2023 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (“EBITDAR”) under the assumption a positive cash flow will be generated into perpetuity.
------------------------
My interpretation of this is that OCA properties are valued on an income capitalisation approach. The mention of discounted cashflow I believe is likely to refer to properties under construction or redevelopment. IOW properties to which no income is attached today, but from which a steady income will be expected upon completion in years to come. The 'discount rate' you refer to in AR2023 p52 is 14-20%, with an average rate of 15%. But I don't believe this has any bearing on the 'income capitalisation approach' that would be used for the valuation completed buildings (which is most of them).
A 3% return on a nine hundred thousand dollar house would produce an annual 'income before tax gross return' of 0.03 x $900k = $27,000, or $519 per week. What Lyall is saying is that this kind of return is not good enough for sharemarket investors. But if sharemarket investors buy that house at half price, then the yield on the new shareholder capital outlaid will double to 6%. Thus to our sharemarket investor purchasing units in this listed entity 'on market', the yield doubles to 6%, which sounds a more reasonable proposition.
I do not understand why you have brought those high discount rates into the argument. I don't think they are relevant.
Again I don't accept an average discount rate of 15% as a basis for property valuation for completed OCA property. Perhaps rather than saying a 50% discount rate will persist forever (and putting that 50% number on it) what I should have said was: "A listed owner of residential property can expect to see the market value of their shares reduce so that the expected overall return from the shares purchased 'at the right price' on market closely matches the expected returns from most other listed shares in non-housing industries." This 'discounting effect' on listed residential property is structural and permanent.
SNOOPY