I think it might be easy to target FKP, as many investors don't...

I think it might be easy to target FKP, as many investors don't understand the cashflow implied by a val of the retirement portfolio of $920m.

Today's net cashflow is only about 3.6%, and this seems very low for a property investment, and is below the price money can be borrowed at. However this is deceptive.

With a discount rate of 12.5%, val of $920m, net CF this year of $33.2m, this implies that the net cashflows will grow by about 11% per annum, using a 50 year term and no terminal value. ref http://eprints.qut.edu.au/41133/2/41133.pdf for info on acceptable valuation methodologies.

So the net cashflows were $33.2m this year. In about year 4 or 5 the cashflows become breakeven with the cost of borrowing approx. After that an investment is really starting to make significant returns. In (say) ten years it would be $94m net cashflow (about 10% yield on today's valuation), and assuming some simple continuation the val of the portfolio would then be $2.6b, as it is valuing quite a long period of increasing cashflows.

The terms under which these retirement villages sell to buyers is very lucrative long term. A the moment the market is valuing (FKP controlled) Forest Place Group (FPG) at about 90% of NTA. It is paying a div yield of about 2.6%. It was trading at 90c in 2010 when there were still GFC debt worries and currently is $2.30. There is a lot of dividend growth factored into the SP, and rightly so.

Anyway - I think FKP will eventually be rerated back to about 90% of NTA. Things can get silly but eventually they end up being at a suitable val. (Funny that FKP is worth more in break-up value than it is alive at current prices.) Another factor is that the biggest risk is financing the early years. Anybody with significant capital will have FKP trading at about 90% of book value straight away if listed. So if a takeover was to take place at 75% of NTA - the buyer would get an immediate 15% (say) uplift to 90% of NTA, and look like a genius. These financing problems are simply a matter of not paying dividends above current cashflow IMO, and gradually realising some non core assets.

GLTA