KBS Valuation

KBS Valuation

Postby CREInvestor1 » Tue Dec 27, 2011 12:51 pm

KBS REIT II recently issued NAV of $10.11/share. Based on their stated valuation assumptions (discount rate: 7.7%, terminal cap rate: 6.98%, NOI growth rate: 3.58%, valuation holding period: 10 years) I am calculating an implied cap rate of 5.6% to get to a gross NAV of the real estate portfolio of $2.767 billion (as disclosed in the 8-K) versus an acquisition cost basis of $2.489 billion before fees.

This seems like a wildly optimistic valuation for a portfolio of primarily suburban office buildings, that conveniently makes back the front end costs of this REIT. What liability is the sponsor and the valuation firm (Duff & Phelps) taking on for giving these valuations? If FINRA goes through with their plan for share valuations, it seems like a toothless reform if sponsors can give wildly optimistic valuations without any liability.

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