VALUATION OF REITS - Securities and Exchange Board of · PDF fileVALUATION OF REITS 20th March...
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Transcript of VALUATION OF REITS - Securities and Exchange Board of · PDF fileVALUATION OF REITS 20th March...
VALUATION OF REITS 20th March 2015
Presented by: Amit Oberoi
National Director | Valuation & Advisory Services, and Research
COLLIERS INTERNATIONAL
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Any Business Is Inherently Risky
Triggers for Valuation of a REIT or REIT property
Responsibilities of the Appraiser
Valuation Process
Challenges to Valuation
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Triggers for Valuation
@ IPO, Calculation of NAV
Based on Valuation
Periodic Reporting -
Annual & Half Yearly
Purchase or Sale of
Property
Related Party
Transactions
Incase of Any Material Development
that may impact Valuations
REASONS
Audit / Transparency
Ascertain fairness of
transaction for related party
transactions
Regulatory Checks
Value of Assets is not less
than INR 500 cr.
> 80% of value of REIT should
be invested in Income
Generating Assets
< 10% of the value of REIT
should be invested in under-
construction & non-rent
generating assets.
> 75% of value of REIT should
be rent generating
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Responsibilities of the Appraiser
SEBI Guidelines: … ensure that the valuation of the REIT is impartial, true and fair … … ensure adequate and robust internal controls to ensure integrity of its valuation reports. … ensure that it has sufficient key personnel with adequate experience and qualification to perform property valuations… The valuer(s) and any of its employees … shall not (i) invest in units of the REIT or in the assets being valued; and (ii) sell the assets or units of REITs held prior to being appointed as the valuer.
Quality Control
In India we @ Colliers follow RICS & IVS
valuation standards. The team is certified
under ISO 9001:2008
All appraisers have at least a post
graduate degree.
Each appraiser/consultant has to
undertake 12 training courses every year
We have a standard operating procedure
and standardized templates
All reports are vetted by a senior
appraiser.
We follow the NPS system of
measurement of client satisfaction.
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Responsibilities of the Appraiser …(contd)
SEBI Guidelines: … act with independence, objectivity and impartiality in performing the valuation … The valuer shall not accept remuneration, in any form, for performing a valuation of the REIT assets from any persons other than the REIT or its authorized representative. … shall not make false, misleading or exaggerated claims in order to secure the assignment. … disclose to the trustee, any pending business transactions, contracts under negotiation and other arrangements with the manager or any other party whom the REIT is contacting with …
RICS Standards – Red Book
“As it is fundamental to the integrity of the
valuation process, all members practising
as valuers must have the appropriate
experience, skill and judgment for the task
in question and must always act in a
professional manner free from any undue
influence, bias or conflict of interest.”
PS 2 Ethics, competency, objectivity &
disclosure
Responsibility for the Valuation
Professional & Ethical Standard
Member Qualification
Independence, Objectivity and Conflict
of Interest.
Terms of Engagement
Duty to 3rd Party
Disclosures
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Valuation Process
Identification of
property rights
to be valued
Definition of
value
Date of value Limiting
conditions
Location Highest and Best
Use
Property specific
characteristics
Market (Direct
Comparison)
Cost Income
Final value estimate
Appraisal report
Subject Property Analysis
Application of Relevant Appraisal Approaches
Reconciliation of Value Estimates
Description of Problem
Report Preparation
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Approaches to Value
Market / Sales
Comparison Approach
Cost Approach
(Land + Improvements)
Income Approach
Direct Capitalization
Method
Discounted Cash Flow
Method
Valuation of …
Ready Income Generating Properties*
Under Construction Properties
Ready (non-income generating properties)
Vacant Land
Excess FSI
TDR
…
* Various types of assets
Use All Applicable Approaches to Value
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Reporting: Best Practices
Report for Valuation of a REIT should,
Be Absolutely Transparent, so that the Reader can Clearly Understand How
the Valuer has Arrived at the Numbers
All Variables must be Supported by Data Points and Clear Explanation in-case
of deviations (Since the Product is Income Producing, a DCF model would
normally be used).
Value Arrived Should be Cross Checked with Sales Data
All Disclosures Should Clearly be Mentioned in the Report
(Reporting Requirements are MORE Demanding)
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Challenges in Valuations
Lack of Market Transparency There have been few institutional sales of properties, and even for these there is limited data available for sale price per sq.ft. or to be able to derive cap rates. Organized Market Limited to Office Real Estate There is limited organized market for asset types like healthcare, industrial, research labs, prisons, etc.; therefore key valuation benchmark (like cap rates) are not available. Restricted Disclosures At times REITs do not disclose all material facts to the appraiser (e.g. related party transactions, access to lease deed, access to legal reports, any encumbrance on the property, etc). The appraiser should clearly mention these as caveats in the report. Some Assets are Challenging to Appraise e.g. TDR – Very volatile asset class, value depends on demand and supply Regulatory Challenges – Multiple interpretations to law. Unique Assets – e.g. valuation of a hotel located in cantonment Restrictive Covenants – e.g. restrictions on sale, leasehold property in an area where all else is freehold. …
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Appendix I: Office Real Estate Ready Leased Stock
Mumbai
Financial
Capital of India
Market Size
99 MN SF
Pune
Emerging IT/ITeS
destination
Market Size
42.5 MN SF
Chennai
Automobiles &
IT/ITeS Hub
Market Size
47 MN SF
Bengaluru (Bangalore)
Silicon valley of
India
Market Size
123 MN SF
Kolkata
Old administrative
capital of India
Market Size
25 MN SF
Delhi NCR
Political Capital
of India
Market Size
88 MN SF
Source: Colliers International (Data for Top 6 Cities of India)
0
10
20
30
40
50
60
2008 2009 2010 2011 2012 2013 2014 F 2015 F
New Supply (In Mln sqft) Absorption (In Mln sqft)
Year wise supply, absorption & vacancy Market Size (approx) 425 million
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Appendix II: Office REIT Ready Stock
24.58, 36%
42.50, 62%
1.34, 2%
Strata Sold REIT Ready Not Known
27.60, 57%
20.88, 43%
Strata Sold REIT Ready Not Known
1. Gurgaon: REIT Ready* Office Stock (Total = 48.48 million sq.ft.)
2. Mumbai: REIT Ready* Office Stock (Total = 68.42 million sq.ft.)
58.02 , 47%
63.81 , 51%
2.15 , 2%
3. Bengaluru: REIT Ready* Office Stock (Total = 123.98 million sq.ft.)
Embassy, 22.32
Bagmane, 9.60
RGA, 6.12
Kalyani Group, 2.45
RMZ, 1.97
Ascendas, 1.55
Salarpuria, 1.26
Mfar, 1.01
Others, 18.54
* Grade A&B, ready for occupation on lease.
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Concluding Remark
REITs will Increase Transparency
and Improve Corporate
Governance
Confidential – Colliers International 2014
Thank You!
485 offices in 63 countries on 6 continents
United States: 146
Canada: 44
Latin America: 25
Asia Pacific: 186
EMEA: 84
$2.1 billion in
annual revenue
1.46 billion square feet
under management
15,800 professionals
and staff
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Colliers International 1st Floor, Technopolis Building DLF Golf Course Road, Sector 54 Gurgaon, Haryana | India
AMIT OBEROI National Director Valuation & Advisory Services Research & Business Intelligence [email protected]
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