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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (57706)	8/7/2016 12:11:32 PM
From: E_K_S	Read Replies (2) \| Respond to of 78673

From your chart that is 2.21%. What about for specific sectors like REIT? I have a friend who is a real estate developer in Silicon Valley and Seattle and was able to refinance a $50mln residential project loan at 2.95%. Put that into your model for 30 years and see how the DCF look in the out years. It was interesting as he said he went through the small business administration so there was some government backed product helping to get secured capital (at very low rates) to build these new projects. Such a long term loan/rate makes the project cap rates very attractive so my thinking is the smart REIT companies are securing similar loans and rates. I have never seen rates so low for such long term issues and when bundled w/ a project that also has a similar long term life, the value proposition is huge especially if/when the cycle turns (say in 10 years). I think that may be one thing Buffet is missing or maybe we see some larger investments that focus on real estate and future FFO's financed w/ 2.5% 30 year debt. EKS

To: bruwin who wrote (57706)	8/7/2016 12:24:45 PM
From: Graham Osborn	Read Replies (1) \| Respond to of 78673

Hi bruwin, the actual number you are using is the same in both cases, so the assumptions there are the same. In the equity-bond model however you assume a uniform growth rate for an extended period of time vs my assumptions in the model, which were flattening revenue. Therefore the equity-bond method (at least as Mary Buffett defines it) would actually be MORE aggressive. They worked OK when bond yields were declining over a period of years, but now I think its assumptions probably are garbage. DCF is often abused, but if applied consecutively it provides more flexibility than those simplifying formulae.