MTLfinecity wrote: Hi Frankie,
I appreciate your thoughts.
Let me explain why I made those mistakes. I understand very well why you use stabilized noi for valuation and put what seems to be a reasonable valuation on future density . You are computing liquidation value. And I respect that. However, in my many years of investing experience, this valuation model never gave the valuation below which the stock simply cannot go any lower. The conservative cashflow model I use usually allows me to figure out the lowest valuation on a company. I'm fully aware that objectively banks and private buyers don't use cashflow model. But we are in the public market here. I usually buy when there is a discount to cashflow model. (20%) and a huge discount to liquidation model ( 60+% discounted needed). At the end of the day, it's all about entry point, your model and my model will give a similar entry point, we just need different margin of safety.
I need to explain why I say macro and interest rate are important here. I know the 6% ish credit facility expires in 2 years, and the exposure is low at a micro level. However, if 10 year Canadian government bond yield keeps going up, the cap rate gonna keep going up and that's the real risk. If we get no more further rate hikes, REITs in general gonna start to stabilize soon.
Many are criticizing the management for the all time low. But the all time low is actually caused by 10 year bond and the pandemic. Who could have predicted that?
We'll see how things evolve from here going forward. Dream office should probably do like allied, sell some assets and make sure that cash needs are very well covered for the next few years.
Thanks
Frankie10 wrote: You can't explain away error and call it being conservative... you can't just value the assets at to be conservative. they spent money and that investment has value.
"The real problem for me here is the interest rate and the cap rate."
- debt is fixed and the entity is well capitalized to refinance and sell assets (inv properties and/or DIR)
- implied cap rate is 8.7%.
- i see no issues here
- short-term actual cashflow is an issue (as you have noted) - addressed by using DIR as liquidity (hopefully a single asset sale is done to create a buffer).