Alternative Investment Flashcards
Cost approach valuation
To use when:
o (1) when the subject property is relatively new,
o (2) for unusual properties, or
o (3) for properties where comparable transactions are limited.
Value of land + replacement cost – adjustment for est. dep.
Management fees (%)
Management fees/Gross income
Cap rate
Discount rate – Growth rate
NOI1/(comparable sales price)
Dove comparable sales price = value
Discount rate (for DCF)
Cap rate + growth rate
Value (V0) (direct capitalization method)
NOI1/(cap rate)=NOI1/(r-g)
Gross income multiplier
Sales price / gross income
Dove Sales price = value
da comparable transactions
Value of loan
Lower between LTV and DSCR calculations
1) Loan amount = (NOI1/DSCR) / interest rate
Dove Debt = NOI1 / DSCR
Oppure
2) Loan amount = LTV * Appraised value
Equity dividend rate
CF1/Equity
NAV
Assets - Liabilities
Paid in capital
X% * Capital drawn down
dove capital drawn down = committed capital
Carried interest
X%* (NAV – Committed capital)
DPI–> realized return (what LP receives)
Distribution expense / Invested capital
RVPI –> unrealized return
NAV(after distribution) / Invested capital
TVPI
DPI + RVPI
ROI
EXIT/POST
PRE
POST-Investment
Fractional ownership
Investment / POST
N. of shares allocated to VC investors
Shares allocated to founders *(f/(1-f)
Dilution (for the first round of investors) after second round
F1*(1-F2)
Price per share for VC investor
PRE/# of shares
Income approach to valuation
For appraisals
due metodi:
- direct cap method
- DCF method
NOI
- before financing cost and income taxes
- after vacany, collection losses, opex
Value of a property based on all risks yield (ARY)
Rent1/ARY
REIT
: real estate investment trusts = debt investments
exemption from corporate taxation
predictable earnings
higher yield –> div yield higher than publicly traded equities
they can do secondary equity offerings se un anno sono andati in negative e non hanno abbastanza cash per finanziarsi
Valuation –> NAVPS using current market values
o REOCs:
equity securities NO tax advantages
o MBS
residential or commercial mortgage-backed securities
- Advantages of investing in publicly traded real estate securities
superior liquidity,
o transparency,
o lower minimum investment,
o access to premium properties,
o active professional management,
o protections afforded to publicly traded securities, and
o greater diversification potential.
- Disadvantages of investing in publicly traded real estate securities
o lower tax efficiency
o lack of control
o costs of a publicly traded corporate structure
o volatility associated with market pricing
o limited potential for income growth
o forced equity issuance
o and structural conflicts of interests.
- Tag-along, drag-along clauses
Any time an acquirer acquires control of the company, they must extend the acquisition offer to all shareholders, including firm management;
o Not a good control mechanism for private equities
GP
party in a PE with unlimited liability for the firm’s debts
- carried interest is his profit from fung
Distribution waterfall
method of profit distribution between LP and GP
Venture capital
- funded with equity
- High returns from a limited number of highly successful investment and a significant number of write offs of low performing investments or failure
- Monitor achievement of milestones defined in business plan and growth management
- Expanding capital requirement in growth phase
- Assess risk is difficult because of new technologies, new markets and lack of operating history
- NO debt, NO cash flow, NO DCF, NO true comparable firms
- Drivers of equity returns: Pre-money valuation, investment, and subsequent dilution
- use ROI
PE
- funded with debt
- Low variance across returns form underlying investments. Bankruptcies are rare
- Monitors Cash flow management and strategic and business planning
- Low WC requirement
- Risk is measurable (mature businesses, long operating hstory)
- DCF ok, comparables ok
- Drivers of equity returns: Earnings growth, increase in multiple upon exit, and reduction in the debt
PE - exit routes
IPO, MBO, secondary market sales, liquidation
PE - committed capital
amount of funds investors committed to over the life of the private equity fund
o Funds from committed capital are drawn down over time as the firm needs more capital
J curve
pattern in private equity investment return, not risk. The return on investments usually declines initially, then increases as exit nears
Hurdle rate
carried interest will only be paid if the long-term returns of the fund exceed it–> but then it is paid on ALL THE DIFFERENCE NOT ONLY ON THE EXCEEDED PART
Clawback provision
investors can claim back carried interest if suboptimal performance of the fund over its life
Contango
futures prices > spot prices,
Backwardation
futures < spot
Insuance theory implies that backwardation is a normal condition
Roll return
> 0 in backwardation
results from closing out expiring contracts and reestablishing the position in longer-dated contracts
