REIT ASIAPAC
F E AT U R E
REITS’
VALUATION
UNDER
SCRUTINY
Q
“To be illiquid, and when they are placed into
a REIT, they are traded as a liquid asset. This
creates pressure whenever there is a sharp
change in the markets”.
Q
There are several reasons why an individual asset might retain
value above its contribution to a REIT – for example; it might
have alternative uses that keep the value at above what might be
expected in its current use. Again, the narrative to the valuation
must explain these issues to the client.
Q
In recent years, we have seen minority investors
contest
management’s
performance
and
particularly their decisions to acquire assets. These
debates have often centered around the valuations
at which REITs acquire assets and the basis on
which these valuations are concluded.
Managing Director,
Southeast Asia,
Australasia and
Japan for the
Royal Institution of
Chartered Surveyors
(RICS)
the maintenance and improvement in the quality of the work
undertaken by the valuation profession. VR operates in markets
all around the world assessing risk factors and applying a review
function using a risk lens that supports our understanding
of the profession’s resiliency to those risks, enabling actions
where necessary to mitigate risk. Actions such as professional
statements and training and ultimately, the review of standards
to which all members must adhere.
Again, this is challenging. One has to look at the macro as well as
the micro picture.
Asia Pacific REITs have come
of age as an established asset
class after close to two decades
of history. During this period,
management track records and
certain market practices have
come under scrutiny.
Chris Nicholl
Valuation standards have recently been in the
spotlight following high profile cases where investors
have disputed valuations of properties held in REITs.
What is RICS’ take on this, and what is your advice?
One of the most vocal in these debates has been
PAG, which had contested Hong Kong-listed Spring
REIT’s proposed acquisition of Huamao Place
shopping mall in China. In Singapore, retail investors
have led the charge in contesting valuations at
Sabana REIT. More recently, Bonitas Research
issued a short sell report on Australia’s Rural Farms
Group on the basis Rural Farms was holding assets
at inflated value.
Coincidentally, as the number of REIT listings
rises, notably those with cross-border assets, the
Singapore Stock Exchange Regulation (SGX RegCo)
on January 16 released a survey to ask for feedback
on proposals to raise the reporting standards of
property valuation.
Meanwhile, the global pandemic has wrecked
REITs’ income stream and brought previously lofty
valuations crashing.
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Looking into the future, would technology in the
form of algorithms and digital valuations replace
the need for a valuer’s expertise?
We asked Chris Nicholl, Managing Director
Southeast Asia, Australasia and Japan for the
Royal Institution of Chartered Surveyors (RICS), to
address some of these issues in the following Q&A.
Q
What is your view of asset valuation
under current market conditions of rapid
change?
It is challenging – but RICS professional valuers
can value in these challenging circumstances,
and their valuations can be relied upon by clients.
It is important that the valuer provides a clear
and transparent rationale for the outcome of the
Valuation assignment in their report. They should
also agree with their clients on any deviations from
what might be normal processes (e.g. limitations
on inspections) and how these limitations will be
overcome and recorded. They should do this in both
the instruction letter and the report in line with the
requirements set out in the RICS Global Valuation
Standards (Red Book).
Singapore’s regulators have proposed a tightening
of valuation standards in response to some of the
aforementioned issues. What is RICS’ views on the
proposals?
What is your view on income support? How should
valuers take this into account? To what extent should
this methodology be a market standard?
RICS valuers will observe the impact on the market of income
support as assessing its long- and short-term impact on the
market and values. It is too early to call the outcomes. Income is
a key component of all valuations and is central to the valuation
methodology.
(Income support is an arrangement where the REIT sponsor assists
in topping up the difference between the desired rental income
and the actual rental income for a stipulated period.)
RICS have responded to the SGX’s (Singapore Stock Exchange)
consultation supporting the full adoption of the International
Valuation Standards published by the IVS (International
Valuation Standards Council). RICS would prefer IVS to be the
single source of Valuation Standards both inside and outside
of Singapore. That way, a more consistent benchmarking of
values can be achieved in an international market that Singapore
can lead. RICS adopt IVS as the core standards for the Red
Book. RICS’s Valuer Registration (VR) scheme augments the
Red Book. VR offers a unique regime of activity that supports
Q
There have been some startups digitising and
automating valuation. To what extent is this an
unstoppable trend and what or where is the future of
the valuation profession?
RICS encourages the use of technology in valuation but to retain
the public interest mandate in our charter, we fully endorse the
IVSC’s requirement that the valuer is responsible for the valuation
model they employ in a valuation. Valuers must be involved in the
development of any Valuation Modelling to ensure the highest
level of professionalism to protect public interest.
WHAT ARE THE
ISSUES WITH
VALUATION? SINGAPORE
Valuation of property acquired by
Shairah-compliant Sabana REIT
conteste d
Here are some recent cases
that prompted valuation
debates. In 2017, disgruntled unitholders of
Sabana REIT lodged a complaint with
the Singapore police arguing that three
independently contracted firms reached
the same valuation of a property to be
acquired. All three concluded that the
property was worth exactly S$23 million,
which is also the price at which Vibrant,
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Sabana’s sponsor, would sell the asset to
Sabana. In 2011, Vibrant paid just $10.9
million for the asset.
Amid pressure from unitholders, the
Shariah-compliant REIT started a strategic
review of its operations while it answered
queries from the Singapore Stock
Exchange.
The REIT later terminated the proposed
acquisition, and a spate of resignations
ensued, including its chief executive
officer. At the end of 2017, the Shariah-