2nd Liner Prop Stocks

Peter123: According to the grapevine, Tan Yong Keng called up CES boss and said: "brother, don't worry, I like your company, so I buy your shares for investment. No hostile takeover. You can relax."

 

thanks a million Sumer! 
Can you share with us how you went about estimating the RNAVs?

Hi Joes, hope it's ok that I post a hurriedly written explanation on calculating RNAV of property stocks.
Basically, calculate:
(1) the unbooked earnings from its present and future projects, based on taking selling prices (estimated or actual) less all costs (land, construction, marketing, finance, etc), on a psf basis. (Eg, $1,000 psf selling price minus cost of $800 psf). The difference is the gross profit psf. Then get the GFA (gross floor area) based on (1) brochures or (2) multiplying land area by plot ratio and then add 5-15% more GFA based on your expectations of how much more "free" balcony, garden and roof terrace spaces. Multiply gross profit by GFA and you get the total gross profit for the project.
You can then discount it to present value (pse google what this means), or to skip this step (it's basically an estimate after all), you may choose to estimate more conservative GFA, sales price or higher costs, which will let you have a lower gross profit. For net profit, simply deduct tax from gross profit. Divide net profit by the outstanding shares, and you get the NAV per share for the future earnings (A).
(2) for assets owned or will be owned (eg, a hotel under construction), estimate based on studying similar buildings, room values, etc. For eg, if a co is building a 500 room 4-star hotel, after studying recent hotel transactions, valuation of hotels of listed companies, etc, you may decide that it's worth $600,000 per key. Likewise, for office or retail space owned or under construction - just do your estimation based on researching values and prices in the market. Then, simply do the maths to arrive at a value for the assets. Then take this value and minus the present book value (for an asset already owned) or the total cost of constructing the building (for an asset to be developed and kept) to arrive at the valuation above cost or book value. Divide this by the outstanding shares, and you get an excess NAV per share for the asset (.
(3) take the NAV per share (C ) already given by the company at the end of each quarter or half year and add (A), (, (C) up to get your total RNAV.
Above is just my crude method of arriving at RNAV which I find to be reliable enough. Of course there are more refined methods. However, in all methods, a good amount of assumptions and opinions are involved, and these are the variables that affect the final figure, not so much the method of calculation.
For eg, when I bought into SC Global at about $1-$1.20 last year, my estimate of its RNAV was about $3 - $3.50. I remember reading an analyst report setting a target price for the counter at below $1. I was thinking then that a 40% discount to RNAV would be a good target to hold the stock until, ie, at about $1.80-$2.10. I don't think the wide difference in our target price was due to the way we calculated the RNAV of SC Global, but the assumptions and estimates we used in the calculation. I suppose my assumptions must have leaned more towards a neutral scenario rather than a free fall in physical property prices.
 

Hi Sumer,

Would like to seek your view on Heeton. RNAV $1.60 - $1.70 look like a good buffer at current price of $0.67

Just checked URA site, can't find any sales record for their Lumos project and Not a single sales for I Liv At Grange outof the 30 units which is not a good single.

Do you happen to have any information on sales for Lumos? Noticed that they have 53 units. Any idea how many were sold?
Regards
Yee
 
The Lumos, a 53-unit completed condo at Leonie Hill, first came on the market here in 2007. Since then, 18 units have been sold. But the developer halted sales in recent years to wait for the property market to pick up and review marketing strategies. Now, the project is back on the market at what the developers deem more 'attractive' prices.
Source: mrproperty.sg/tag/the-lumos/

Thanks Sumer for your sharing. There are a couple of questions from readers posted below your article  SUMER: My (conservative) estimate of RNAVs of some property stocks

Could you take a look and respond accordingly? Much appreciated. 

Oops, didn't realise there were questions asked.
Orchid: yes, future net profits are worked into RNAV, and discounted by a rate one deems suitable. So, profits have an impact.
RNAV should not be the sole reason to buy a stock. Personally, I like to look for catalysts, in addition to using RNAV as an added incentive and cushion should the catalysts not surface. Pure earnings stocks without RNAV to back up can plunge on earnings disappointment or loss of old business, for eg.
As an example, when I looked at CES when it was below 50ct, it was not RNAV per se that made me invest in it, but the string of catalysts listed in my earlier posts (launch of Alexandra shops, PS100, Tower Melbourne). Then, as I add in the future profit stream (lots of its props were already pre-sold), I discovered that its RNAV could surge substantially.
So, if catalysts are lacking, and a co is losing money, again you have to see if it's a one-off loss, or recurrent, etc. And if there are many positive catalysts apart from that lack of earnings, you then have to consider which side the final judgment tilts towards.
Boh Tea: RNAV is about assumptions and estimates, and hence, my estimates were based on certain assumptions, naturally. I think my estimate for HH floats between the co keeping ZP for recurrent income (which would have a low value) and finally selling it off after 2 years (which would give a high value; note I think the 2 year thing is to avoid tax). I then decided on an "in between" kind of figure.
I understand the co is taking up 1 or 2 floors of the office space, but this is insignificant compared to the total GFA of the 2 hotels, retail and office spaces.
COSTs: Sorry, I don't quite understand the part where you talk about cost. RNAV is based on estimates and assumptions, which are necessary for you to arrive at any figure. You have to "stop" somewhere between the most optimistic and most pessimistic scenarios, otherwise you can never arrive at any RNAV. That's why10 other people doing a calculation on RNAV will arrive at 10 different figures, depending on where they "stop" in that scale of scenarios.
For eg, in the case of Heeton, taking The Lumos alone, my estimate is based on a final selling price of $2,000 psf for its remainder units. This is $500 psf lower than the current price the co is trying to sell at, and $1,000 psf below the prices of the units they had already sold. I could "stop" at $2,500 psf, or $1,500 psf, but I chose $2,000 psf, which to me, at this moment, is reasonably "doable", taking into account they did not sell any unit at their current asking price of $2,500-2,700 psf, and also that a stock clearance sale of $1,500 psf would be unnecessarily pessimistic.
erelation: Yes, Heeton is not able to sell any unit at iLiv and the remainder units at Lumos, and that's a negative. I also dislike the fact that they have not monetized Sun Plaza, and has changed plans for El Centro (being rented out again instead of being redeveloped as expected earlier). However, it is exposed like KSH to several projects with retail shops, and these will likely be sold at good margins.
Heeton has also presold a good number of units at The Boutiq, Sky Green and Palacio, allowing some steady stream of profit. At the same time, because there are so few issued shares, the effects of profits and asset value on a per share basis are quite substantial. Also, it turns out that holding Sun Plaza had not been too bad a move considering that retail space prices have gone up a lot.
RNAV calculation is an art and not a science. So there will always be questions on why this assumption is taken or why another estimate is not chosen. I can only say that the figures given in my table earlier are only "my" estimates of the RNAVs - one of perhaps 100 estimates that can be arrived at by 100 different people. I don't think my estimate is "right" but just "one of many possible estimates".
Finally, do use RNAV in conjunction (perhaps as a support) with your takes on catalysts, theme plays, market timing, new flows, management's trustworthiness and agility, etc. Ultimately, it is demand and supply for a share that affects the share price, not RNAV per se.
Btw, I am currently busy with some personal business, so I may not be able to contribute for the time being.