Ratings Process for Listed Property
Core Property Research evaluates recommendations on listed A-REITs continuously, based on a range of qualitative and quantitative criteria ranging from management, appropriateness of the A-REIT’s capital structure and the property portfolio metrics. From a quantitative perspective, Core Property’s recommendations are based on Total Expected Returns (forecast distribution yield plus forecast capital gain or loss) for a 12-month time horizon, using a range of valuation methodologies. The two most commonly used valuation techniques are Discounted Cash Flow (DCF), which uses an A-REI’s expected free cash flow, and the net Asset Valuation (NAV) approach.
The 12-month Total Return is compared with set total return bands and assigned a 12-month recommendation based on the Recommendation Definitions below.
If the 12-month Total Expected Return is forecast to be more than 15% or more.
If the 12-month Total Expected Return is forecast to be at least 10% and less than 15%.
If the 12-month Total Expected Return is forecast to be at least 5% and less than 10%.
If the 12-month Total Expected Return is forecast to be at least 0% and less than 5%.
If the 12-month Total Expected Return is forecast to be less than 0%.
At times of extreme volatility, it is quite possible that the recommendations will swing between each of our bands. During such times, Core Property will adopt a more flexible approach to recommending stocks, based on a slightly longer duration, and as such, recommendations may appear to be inconsistent when compared with the bands. This is to avoid clouding value judgments with short-termism.
Ratings Process for Unlisted Property
Core Property Research has developed a framework for rating property and property related investment product offerings in Australia. The methodology gives consideration to a number of qualitative and quantitative factors. Essentially, the evaluation process includes the following key factors: product and underlying portfolio construction; strength and depth of management team, product structure, risk management, financial analysis, and likely outcomes.
It is important for financial planners and investors to view the recommendation and rating in the context of comparable products only and not across all products rated by Core Property.
Financial Advisers and investors should note that for all ratings categories, the product may not suit the risk/return profiles of all investors.
This is the highest rating provided by Core Property and is indicative of the product exceeding the requirements of our review process across a number of parameters.
Indicates that the product has an above average grade profile across a number of Core Property’s parameters, and has the potential to deliver above average risk adjusted total returns.
Indicates that the product has met the aggregate requirements of Core Property’s criteria. The product has an acceptable risk/return trade-off and is potentially able to generate risk-adjusted returns in line with stated investment objectives.
Core Property Research believes this is a product that has a number of positive attributes; however, there are a number of risks that make investing in this product a speculative proposal. While Core Property Research does not rule out investing in this product, investors should be very aware of, and be comfortable with the specific risks. The product may provide unique diversification opportunities, although concerns over one or more features mean that it may not be suitable for most investors.
Indicates that the product has failed to meet the minimum aggregate requirements of Core Property’s criteria. While the product may have some positive attributes, funds in this category are considered high risk.