APC Valuation Flashcards
What are the five methods of Valuation?
Comparable
Investment
Profits
Residual
Cost / Contractors
What are the three valuation approaches?
Asset (cost)
Income (CCF & DCF)
Market (comp & investment)
What are the key RICS publications?
RICS Valuation - Global Standards
(Red Book Global Standards)
Effective 31/01/22
-
Comparable Evidence in Real Estate Valuation
Guidance Note
1st edn, October 2019
What are PS1-2?
Mandatory Professional Standards.
PS1 - Compliance with standards where a written valuation is provided.
PS2 - Ethics, competency, objectivity and disclosures.
KEYWORDS: PS1 = compliance, written
PS2 = Ethics
What are VPS1-5?
Valuation Performance Standards.
VPS1 - Terms of Engagement
VPS2 - Inspections, Investigations and records
VPS3 - Valuation Reports
VPS4 - Bases of value, assumptions and special assumptions
VPS5 - valuation approaches and methods
VPS 1, 4, 5 - technical
VPS 2, 3 - performance and delivery
What are VPGA1-10?
Valuation Practice Guidance Applications.
VPGA1 - financial statements
VPGA2 - interests for secured lending
VPGA3 - businesses and business interests
VPGA4 - individual trade related properties
VPGA5 - plant and equipment
VPGA6 - intangible assets
VPGA7 - personal property (arts and antiques)
VPGA8 - real property interests
VPGA9 - portfolios, collections and groups
VPGA10 - material valuation uncertainty
What is the comparable method?
The use of data from similar properties and transaction to estimate the value of a property if it were to go on the market on a given date.
Comps can be adjusted up or down to reflect subject specifics.
What is the investment method?
Used where there is an income stream to value by assessing the potential return on investment via ongoing income being generated by a property.
A market rent is found (usually via the comparable method) and then used to find the investment value via a multiplier.
What is a growth implicit method of valuation?
Reflects any expectation in the growth of market rents or capital value.
Found using a capitalisation rate (often an ARY) and current market rent e.g. investment valuations.
What is a growth explicit method of valuation?
Reflects growth expectation in the cash flow and discount this at the required rate of return e.g. DCF valuations.
What is the hierarchy of comparable evidence?
New transactions
lease events
arbitration decisions
How is a new Code valuation different to an open market transaction?
New Code relies on no network assumption which does not allow for Landlords to benefit from income generated by site being a telecoms tower.
Valuation methodology more closely aligned to CPO principles and final sum is arrived at via assessment of consideration and compensation levels.
what is the Affinity Water Table?
EE Limited and Hutchinson 3G UK Limited v Affinity Water 2022
Rate card style valuation table for common types of sites:
Rural GF £600pa / £1,500 yr1
Rural GF adj.h £1,200pa
City/store £3,850pa
City/resi RT £5,000
Water tower £3,300pa
What is the Hanover valuation approach?
Vodafone v Hanover Capital 2020
Three stage method to arrive at site value:
- underlying value / alt use
- benefits for tenant
- burdens on landowner
How do you calculate an All Risks Yield?
Annual rental income / property value
x 100
What is a Years Purchase (YP) multiplier?
The multiplier of the net annual income to determine the capital value, used to obtain the capitalised value of a property.
What is a YP dual rate?
A model for leasehold valuation which assumes that a leasehold purchaser will set aside a sum out of the profit rent which will be invested into an annual sinking fund (ASF).
What is present value (PV)?
The current value of a future sum of money given a specific rate of return.
What is net present value (NPV)?
The difference between the present value of cash inflows and the present value of cash outflows over time.
Finds the current value of a future income stream, using the proper discount rate.
Used in capital budgeting and investment planning to analyse the profitability of a projected investment.
What are Parry’s Tables?
The purpose of the book is to provide a comprehensive range of different valuation and investment tables in one volume.
What is the hardcore/layer investment method?
- Capitalises present rent (hardcore rent) into perpetuity.
- Then capitalises the top slice rent (difference between the market rent and the hardcore rent) that will start from reversion into perpetuity, to defer as required.
- Then the two capitalised values are added.
What is a term and reversion valuation method?
The Term value is calculated by capitalising the current rental income produced by the current tenant.
The Reversionary value is the value of the property back in the Landlord’s possession
What is a DCF valuation?
Determines whether an investment is worthwhile based on future cash flows.
Finds the present value (PV) of expected future cash flows using a discount rate
How is DCF calculated?
DCF = cash flow per year / (1+r)*yr
where r = discount rate
(usually WACC of company)
*yr = to the power of the years CF being discounted.
What’s the effect of quantum?
Larger than average size properties, and low than average size properties are let at lower levels of value per unit of area than normal sized properties e.g. pre-Code telecoms properties fetched an inflated price per sqm.
What’s a simple traditional investment valuation?
annual net income x YP in perp @ x%
= capital value
What’s a term and reversion valuation?
Term value = annual net income
x YP for Xyrs @ x%
Reversion value = anticipated net income
x YP in perp @ x% (def x yrs)
Term + reversion = capital value
What’s a layer method valuation?
Core value = annual net income
x YP in perp @ x%
Layer value = uplift in annual income
x YP in perp @ x% (def. x yrs)
Core + Layer = capital value
If under-rented, use Core first.
If overrented, use Layer first.
What’s a residual method valuation?
Total development value (GDV) - (costs + profits)
= residual land value
OR
Total development value (GDV) - land cost
= project profit
What’s a Profits method valuation?
Capital value + Value of Land + Tenant’s Cap
= going concern value.
Capital value =
(Adjusted net profit / 2) x 3
Value of land and buildings =
(Adjusted net profit / 2) x YP in perp @ x%
Tenant’s capital =
fixtures and fittings
What’s a discounted cashflow valuation?
DCF = projected cashflow (over x years)
x discount rate (PV £1 @ x%)
If NPV (net present value) is positive then the investment is sound as profit is built in via discount rate.
What’s a contractors / cost method valuation?
Gross replacement cost
- depreciation for condition
= Net Replacement Cost
Net Replacement Cost
+ (Land cost + Interest on finance)
= Capital Value
Capital value / decapitalisation rate
= rental value
What’s the definition of market value?
Value on the valuation date achieved between willing buyer and seller in arms length transaction where both act on an informed basis.
