Ann: FKP Appoints Geoff Grady as CEO , page-36

I actually believe stated NTA of close to $4 is correct...however what many investors don't understand is the difference between accounting values and market values.

Sounds confusing? It is. But this basically comes down to how accounting for property developers works and relates to the inventory on their books.

Accounting standards require FKP to hold its property inventory at the lower of cost or net realisable value. This is not, as many investors think, the same as market value.

Here's a simplified example.

FKP might own a block of land that is sitting on the books for $10m. Over the next 3 years it has to spend $25m to develop the asset and at the end of the day it will receive $35m.

Under accounting standards the asset can still be held at the $10m net realisable value ($35m-$25m development costs).

But what would a a new developer pay for these assets???

Only a moron would pay $10m. The whole idea of being a property developer is to make a profit and when combined with the time value of money this property would be worth substantially less than $10m - potentially only a few million.

So cost and NRV (accounting concepts) doesn't equal market value (stockmarket concept) and that's a large part of the reason the stock trades at such a discount.

Of course not all FKP's developments will generate no profit and I believe the stock is cheap. Basically its not worth $4 but should be worth more than the current price.

So until FKP is earnings a 12%-15% return on its development assets then they are worth less than the quoted NTA.

Hope that helps.