Forum Archive Index - July 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
> 
> I know some of you out there own shares in companies that run
> hotels. How do you value such companies, and why?
> 
>

OK, no-one bit, so I want to see if anyone can pick holes in my 
own theory.  

Traditionally property companies are always valued at around 
10% below their asset backing.  

This seems to be a good rule of thumb because if rents start to rise, 
then the property is revalued upwards to reflect the rent increase 
boosting the asset backing and restoring a share price discount to 
NTA.  Conversely if properties are 'over-rented'(sic), then properties 
are written down in value, and, surprise surprise, this better 
reflects the market share price.

However, I have observed that hotel companies sometimes struggle to 
even achieve this 90% of NTA value when quoted on the sharemarket.  
My theory is that because they are not always occupied fully there is 
an extra discount factor that must be used to value hotel companies. 

Does anyone agree?  Or is there some other reason?  If there should 
be an extra discount factor, what should this extra discount factor 
be?

SNOOPY



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