Understand. Thank you, Rusmin.

I have another question. Is the intrinsic value (or fair value) of a Reit is the price which is corresponding to the price in the average P/B ratio?

Yes, that’s one way you can use to derive the intrinsic value. We also use the historical yield as another way to get the intrinsic value. The approach is slightly different as we based on historical high and low yield. We find the two points of the low and high, then we take its average as the fair value.

Got it. Many thanks.

Hi, Rusmin

I used Excel to work out the average P/B ratios for FCT, Keppel DC and CICT and got the Intrinsic Value of them. My workings are as follows:

FCT

Time period: 1/1/2018 to 25/7/2024

Average PB ratio: 1.14

NAV as at 31/3/2024: 1.16

Intrinsic value: 1.33

Keppel DC

Time period: 1/4/2019 to 25/7/2024

Average PB ratio: 1.79

NAV as at 3/5/2024: 1.33

Intrinsic value: 2.38

CICT

Time period: 1/1/2014 to 25/7/2024

Average P/B ratio: 1.07

NAV as at 31/12/2023: 2.13

Intrinsic value: 2.27

Comparing with your intrinsic value of them in DM Pro, which are 1.17, 2.04 and 2.27 respectively, only CICT got the same result, whereas FCT and Keppel DC are quite different.

You mentioned that you used historical high and low yield to calculate the intrinsic value. I think your approach is more suitable for Reits because on one hand NAV may not reflect the real value of the Reits and on the other hand yield is the most important factor considered by income investors. Am I right?

I also used average P/E ratio to work out the intrinsic value of QAF.

Time period: 1/4/2015 to 25/7/2024

Average P/E ratio: 20.57

EPS TTM: 0.05

Intrinsic value: 1.03

Again, it is different from yours of 0.89.

Does it mean, even for a non-Reit dividend stock, the high and low yield approach is more appropriate, because income investors pay more attention on yield than earnings?

Thanks.

Our intrinsic value is based on historical high and low yield so that explains slight differences in IV. In any case, PB would still do fine since you’re getting IV very close to our number. Remember that Intrinsic Value is always a rough estimate and like what Keynes once said, it is better to be roughly right than precisely wrong. So it is okay to have slight difference since we are using slightly different data point and methodology to get the final number.

We used yield as data point because PB do get affected if the REIT changes their underlying assumption on the valuation of underlying properties. We’ve seen HK REITs with property yield shrank over time which resulted in extremely high NAV. PB would give us a more aggressive value versus if we were just use the yield.

For QAF, you need to make adjustment to their earnings. They’ve got quite a fair bit of one-off items over the last five to ten years. If you use their historical yield, it will be more straight forward but PE works fine too. Again, there will be two different IV for sure since we use different approach but it won’t be too far off.

Hi, Rusmin, thanks for your explanation. Now I get the idea.:)

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