VALUATION METHODOLOGY

13.1 Three different methods are generally used to estimate the value of real estate. They are the income approach, the sales comparison approach and the cost approach. The sales comparison approach is considered the best method for appraising single family homes. The cost approach is used to appraise special purpose buildings such as churches, schools and public buildings. The income approach is used to estimate the market value of income producing properties such as hotels, office buildings, warehouses, apartment buildings and shopping centers.

13.2 Development valuation of the Carlton Savannah hotel puts the value at TT$312 million or USD equivalent of US$50.8 million. A valuation methodology used for the Apartments and Health Club & Spa is the income or discounted cashflow approach. The assumptions and projections are as follows:




13.3 Based on the assumptions, the Present Value (“PV”)of the Investment Property Income to be derived from the assets represented in the Carlton Savannah REIT (Jamaica) Limited is approximately US$17.426 million or the Jamaican equivalent of J$ 1.255 billion.

Trinidad & Tobago withholding tax rate is assumed at 15%.

Discount Rate
13.4 The discount rate is an interest rate commensurate with perceived risk and is used to convert future investment income to present value. The discount rate used is 11.3%.


To derive the discount rate, the weighted average cost of capital was used. This was calculated as follows.

((Total Debt÷Total Capitalization)*Cost of Debt) + ((Total Equity ÷ Total Capitalization)* Cost of Equity)

13.5 For the Carlton Savannah REIT (Jamaica) Limited there is no debt and so the discount rate becomes the Cost of Equity. The 11.3% used includes country risk premium of 6.3% and beta of 0.8.

Of note, stock beta is difficult to calculate given the lack of data in local/regional markets for REITs. An international study found that REITs have beta <1. Though not perfect, this source was used to approximate the beta.

[1] Real Estate Investment Analysis, Advantage Software LLC
[2] See Documents Available for Inspection.
[3] Country Default Spreads and Risk Premiums, Aswath Damodaran
[4] Another Look at the Asymmetric REIT-Beta Puzzle, Kevin C.H. Chiang, Ming-Long Lee and Craig H. Wisen