Commercial property syndicates

[Aaron]

Thanks Aaron.Why I think PFI is undervalued.
I suppose I view PFI kinda like a residential property.
Land and construction prices have increased markedly.
I havent checked the NTA recently but surely it must have increased in recent times.

OK.Here is an example of my rationale.

ARV.It was trading at about a one dollar.NTA was two dollars.

Bugger me someone paid 1.70.

Its gone.

NTA is 2.70.

I prefer to invest for generational wealth.

Thanks for responding.

So yield and income generation do not matter?

The NTA is affected by interest rates and fluctuates accordingly. What happens if we are at the end of a long-term debt cycle a la Ray Dalio theoretically it started in 1945 and should end sometime soon.

https://www.linkedin.com/pulse/where...der-ray-dalio/

Commercial property has traditionally been valued on yield rather than whatever residential rentals are valued on.

That said if you are tying it up for generations maybe yield does not matter.

I have passed on residential rentals with a gross yield of 5% in the past and had I leveraged up and purchased anyway I would be a lot wealthier than I am now. I considered purchasing ARV and Manawa based on Morningstar recommendations as well so I am feeling a little FOMO at the moment.

[Aaron]

Looks like I have egg on my face PFI up over 4% in one day yesterday.

Although my understanding of capitalisation rates is limited. Say take the operating cashflow as at 31/12/2023 (balance date changed to June this year) of $47,049,000 divide that by .005 and you get $9,409,800.

So in theory PFI became $9mill more valuable after yesterday's cut or 1.9cents per share ($9,409,800/502,129,313shares). Yesterday's 9 cent rise must be anticipating further cuts or troyvdh was right and it was undervalued before the rate cut or more likely I have no idea and my thinking is wrong.

[kiwikeith]

Looks like I have egg on my face PFI up over 4% in one day yesterday.

Although my understanding of capitalisation rates is limited. Say take the operating cashflow as at 31/12/2023 (balance date changed to June this year) of $47,049,000 divide that by .005 and you get $9,409,800.

So in theory PFI became $9mill more valuable after yesterday's cut or 1.9cents per share ($9,409,800/502,129,313shares). Yesterday's 9 cent rise must be anticipating further cuts or troyvdh was right and it was undervalued before the rate cut or more likely I have no idea and my thinking is wrong.

Aaron I think you are a bit confused on capitalisation rates. Say a company is receiving a net lease income of $1m pa on a building. If the capitalisation rate is 6% then the value of the building is estimated at (1/0.06) $16.67m. If the capitalisation rate falls to 5.5% then the value of the building rises to (1/0.055) $ 18.18m.

The lease income does not change just the net asset value. What does happen is the level of gearing changes as there are now more valuable assets for same liabilities. Also the interest expense of the company may fall if the interest rate falls and that is real cash flow for the company.

[Aaron]

Aaron I think you are a bit confused on capitalisation rates. Say a company is receiving a net lease income of $1m pa on a building. If the capitalisation rate is 6% then the value of the building is estimated at (1/0.06) $16.67m. If the capitalisation rate falls to 5.5% then the value of the building rises to (1/0.055) $ 18.18m.

The lease income does not change just the net asset value. What does happen is the level of gearing changes as there are now more valuable assets for same liabilities. Also the interest expense of the company may fall if the interest rate falls and that is real cash flow for the company.

Thanks Keith

I think that is what I was pretty much saying, maybe not well worded.

Not sure which income figure to use for PFI so I took operating cashflow $47mill. I appreciate cap rates and the OCR may not be directly linked but I took the cashflow divided it by a 50bps cut to get an additional $9,409,800 increase in value (perhaps I should say NTA rather than value). No additional rent no additional buildings but $9mill value out of thin air, pretty amazing.

[troyvdh]

Aaron mate.Re egg on your face.
I have several chickens permanently ensconced on my face.
Life is short.
Re valuation of PFI (plus others like buying RYM at around the 3.50).The share price will increase as interest rates fall and as the economy improves.(and no black swans).
I pay not much attention re technicals and tend to focus at trends/long term charts including interest rates.Plus I believe the "mkt' tends to focus on 6 months hence.
Again RYM at 3.42....WOW....and it was always going to recover.
And yes this comment is not really appropriate for this thread....well maybe a wee bit.