Chapter 10 Flashcards
(7 cards)
Define prime property
Property that’s the most attractive to investors
Scores highly on:
o Location
o Age and condition
o Quality of tenant
o # of comparable properties available to determine the rent at rent review and for valuation purposes
o Lease structure
o Size
What are the benefits of indirect property investments?
- Large property companies can invest in LARGE properties which may be beyond the scope of smaller pooled funds
- No restriction on investments or management expenses incurred
- Large property companies can invest in property developments which are greater risks
- Good long-term hedge against unexpected inflation
- Bc: delays in time to completion
- Over-run in estimated building costs
- Ability to find tenants at E(rental income) once completed
- increase yield requirement
How are property shares valued?
NAV=(Value of net assets)/(# of shares) net of liabilities AND intangible assets like goodwill
Used to measure underlying value of real estate investment like REITs and property company
A discount to NAV shows:
Differences between the way investors value shares and property
Risk of loss on forced sale
A prem could be bc:
Market has + view of developments giving the potential for capital gains
The valuations underlying NAV were conservative
Property company has good management track record
Describe the 4 ways property can be invested in
- Pooled property funds
Could use open-ended and closed-ended investment funds
* Have elements that specify the types of property they invest in, limits on liquidity, management charges deducted from fund, etc. - Property company shares
Invest in shares of a property company like a property developer - Listed JSE REITs
REITs= Real Estate Investment Trusts
* Companies that manage, operate and own a real estate pf consisting of income-producing property
* Company REITs and Trust REITs - Direct property investment
What are the characteristics of direct property investment?
SYSTEM TAR UU
What are some problems with industry groupings?
- Companies may differ greatly even in same sector bc of size, or they operate in diff niches of the market
- Some companies operate throughout several sectors lots of companies are diversifying into new sectors by M&As and take-overs
Why is equity characterised by industry?
Practicality
* Factors : resources, markets and fin structure
* Factors affecting one company in an industry are likely to be relevant to other companies in same sector
* Much of the info for companies in the same industry will come from a common source and will be presented in a similar way
* No single analyst can expect to be an expert in all areas, so specialisation is NB
* The grouping of equities according to a common factor gives structure to decision making process assists in pf classification and management
Correlation of investment performance
* Share price movements of companies in same industry correlate more closely than those in others
* Share price movements reflect in operating env affect individual industries in similar ways
* listing of share prices are sub-divided by business sectors
