How would a secure long term tenancy force a discount of a commercial property, exactly? I'm curious, as I would have thought that property buyers seeking vacant possession from day one wouldn't really be shopping around for buildings that are subject to long term secure leases.
I've given this some more thought, and I think I get where you are coming from ... but stop me if I'm on the wrong track. I'm thinking along the lines of considering water rights values in the same way one would consider valuing bonds rather than real estate.
On the basis that someone were to buy water rights subject to a lease of x years at $y/ML, if the spot price of the day is higher than the lease price, the rights would need to be sold at a discount. Conversely, if the spot price is lower than the lease price, there would be a premium attached to buying into a leased investment with an above market return.
It's definitely worth paying closer attention to D2O's valuation methodologies, as a long term lease fixes a price on these assets for a period of time. Applying market value to water rights that are committed to a long term lease could lead to misleading NAV.
Leases to related entities are also a concern. But, if said leases are entered into on commercial terms and at a fair market value at the time said lease was entered into, I'm not overly concerned. It's still an area to watch though, although I'm not sure whether I'd automatically be inclined to load a discount on this basis.
At the moment, D2O offers the only pure irrigation/water rights play on the ASX. I believe that as pressure continues on the MDB and as crops such as almonds start taking hold, water prices will increase over the long term.
That said, D2O represents a small portion of my overall portfolio. Moreover, I was able to engineer something of a discount for myself by entering D2O by purchasing D2OO options only, selling 90% of those for a profit, and then applying the profit from the sale of those options towards exercising my remaining D2OO options, which are now my D2O shares.
Appreciate your thoughts, and you've given me at least one point to investigate further. Even if I end up agreeing with you and selling all my D2O tomorrow, I'll still be in the money.
