Real Estate Appraisal and Analysis
Structuring and developing flexible cash flow models for analysing real estate investments. At the end of this module participants should have an understanding of the component parts of a real estate cash flow model, the macro and micro influences and will have examined working spreadsheet models.
Appraisal & Valuation Fundamentals
What should financiers and investors ask for? What should they look for? Worked examples
- Terminology & Techniques
- Appraisal methods
- Different methods for different assets & markets
- Hard to Value assets
- Regulation & Guidance
- Types of Income
- How do lease terms affect value?
- Understanding cap rates
- Types of yield
- Fundamental analysis
- What are the key drivers of value?
Structuring a Real Estate Cash Flow & Analysis
How to structure, avoiding common mistakes. Investor approach -v- Financiers concerns. Worked examples and practical issues
- Business Plans
- A Cash Flow primer: typical patterns of cash flows
- Discounted Cash Flow construction: Key inputs, variables and outputs
- A line by line assessment down to Net Operating Income
- Projecting cash flows: expenses v growth
- Lease roll-overs & expiries
- Use of Capital Expenditure
- Property Cycles: opportunities and threats. What to look for in different stages in the cycle.
- The Exit: When, Why, How?
- IRR & NPV: Ratio Analysis and Diagnostics
- Solving the maximum price to pay / target sale price
SPREADSHEET ANALYSIS: Investment Appraisal & Cash Flow Evaluation
Discounted Cash Flow. Shaping up the basic Investment equity deal
- IRR, NPV, Income and Exit ratios. Assess uncertainty & the merits of the investment
- Setting the target rate of return. What is an appropriate discount rate?
- What else will show whether it is a good deal?
- What if testing and adding sensitivity analysis
Real Estate Acquisition, Management and Finance
Procedures for sourcing, closing and adding value will be covered as well as using the capital stack to finance the acquisition.
Spreadsheet concept models and interactive case studies will be used to illustrate various approaches, techniques and potential solutions.
Sourcing Product & Asset Management
- From Sourcing to Closing
- Due Diligence: Identifying potential Red Flags
- Asset Management techniques
- Adding and enhancing value
- Leasing strategies
Structuring Property Investment Transactions
Types of Finance, their Impact on returns and key Lending Ratios, financial covenants, understanding risks, pricing and risk mitigation
- Gearing up an investment acquisition (use of leverage)
- Typical financial covenants and points for negotiation
- Methods for sizing the debt
- Applying financial covenants to the cash flow
- Stretched debt to quasi equity
- Lookback IRRs, warrants and convertibles
- Preferred equity
Case study: Investment Acquisition and Finance
Impact of Leverage & Use of Debt
Participants will discuss terms for financing for an investment opportunity.
Analysing the Operating Cash Flow and considering capital alternatives
A spreadsheet model will be used to illustrate the cash flow implications and key structuring issues.
Spreadsheet analysis: Extending the Cash flow Model
Adding senior debt & mezz tranches. Analyse & adjust a leveraged cash flow model
Use and application of Mezzanine Finance.
Different structures, such as Look Back and Side by Side participation
Property Investment Vehicles
Different types of investment instruments and structures are examined together with the way in which they are valued and traded.
The module includes an introductory study of indirect private and public real estate vehicles and their comparability to direct real estate investment.
Types of Real Estate Vehicles and their Analysis
- Investment Styles
- Private v Public
- Closed End v Open End
- REITs & Real Estate Companies
Case study: Net Asset Values (NAV) Exercise:
Analysis of a REIT. Based on its fundaments should it be trading at a discount or premium to NAV?
Issues with Real Estate appraisal or market sentiment?
Management styles & intangible franchise value
Public market valuations -v- real estate market valuations
Spreadsheet analysis: Calculating & Analysing Listed Vehicles
Components of NAV calculations & sensitivities of inputs
Alternative methods including FFO & AFFO
Is a publicly traded REIT or Real Estate Company suitable for a Real Estate portfolio?
Private Equity Vehicles & Joint Ventures
- Structure and Approach
- Different structures for different players
- Risk and return
- Priority of distributions
- Allocating risk & return
- Prefs, Promotes & Waterfalls
- Showing the Exit and risk
Spreadsheet analysis: Private Equity models
Spreadsheet models will be used to demonstrate the set-up of JVs and private equity structures. Delegates will test possible outcomes of changing pref / promote options on the templates provided.
Real Estate Development & Finance
This module considers identifying investment opportunities through development. It covers appraisal models and techniques for financing with debt and equity. Spreadsheet concept models and interactive case studies will be used to illustrate various approaches, techniques and potential solutions.
At the end of this module participants will be able to appreciate the risk elements in development and analyse ground up land development opportunities.
Development Appraisals & Viability
- Methods & Approaches: From residuals to cash flows
- Down to affordable land cost or profit
- Line by line items
- Ratio analysis: What indicates a viable project?
- How is profit being generated?
- Structuring the Cash Flows
- Analysing the Outputs: IRR & NPV issues
Spreadsheet analysis: Development Appraisals
A spreadsheet model will be used to demonstrate the set-up of development proposal. Ratio analysis & risk analysis techniques will be used to show the implications of changing market conditions.
Structuring the Development Finance
- Pre-let or speculative?
- Construction loan mechanics
- Main Underwriting Criteria
- Project Monitoring issues
- Exit strategies
- 3rd Party Equity and JVs
- Forward Sale and Full Forward commitments
- Matching the loan to the cash flows and the risks
Spreadsheet analysis: Real Estate Development Finance
Spreadsheet models will be used to demonstrate the impact of finance on Pre-let and Speculative schemes. Debt and Equity issues will be considered and analysed.
Case study: Development and Finance project
Participants will work in small groups to analyse a case study that considers the strategic options, risk & potential returns of a development proposal and consider appropriate methods of raising & pricing the finance.
Real Estate Portfolio Analysis and Management
This module considers the ways that appraisal techniques may be adapted from single projects to portfolios. Portfolios for different types of players will be considered. Corporate real estate portfolio issues are also covered such as the factors that influence lease / buy decisions, and the scope for sale & leasebacks.
At the end of this module participants should be able to analyse portfolios, both from the investor and corporates point of view, as well as gaining insight to associated corporate finance and risk issues.
Real Estate Corporate Portfolios
- Opportunities & Change
- Accounting issues: Finance Lease or Operating Lease?
- Buy or Lease decisions
- Modelling and analysis examples
From Leasebacks to Structured Leasebacks
- Releasing capital
- Importance of Flexibility
- Stages of development, change & different structures
- Mini Case Studies
SPREADSHEET ANALYSIS: Portfolio Risk and Return
Participants will work in small groups to analyse real data to consider techniques that can be used to optimise the risk return characteristics of a real estate portfolio strategy.
Creating & Managing Investment Portfolios
- Efficient portfolio construction
- Comparative risk/return between Real Estate and other investments
- Tactical and Strategic Asset Allocation Strategies;
- Performance Measurement
- Asset plans and Derivative strategies
Spreadsheet analysis: Asset Plans
Hold / Refinance /Renovate/ Sell analysis; Attributing performance; Incremental Cash Flow analysis & Risk webs.
Suggested Further Reading and References
Course summary and close