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.
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