Profits Flashcards
What section of the RICS Valuation - Global Standards summaries trade related vals?
VPGA 4
What is adjusted net profit?
This is the valuer’s assessment of the actual net profit of a currently trading operational entity.
What does EBITDA stand for?
Earnings before interest, taxes, depreciation and amortisation
What is EBITDA?
This term relates to the actual operating entity and may be different from the valuer’s
estimated FMOP.
What is fair maintainable operating profit?
This is the level of profit, stated prior to depreciation and finance costs relating to the asset itself (and rent if leasehold), that the reasonably efficient operator (REO) would expect to derive from the fair maintainable turnover (FMT) based on an assessment of the market’s perception of the potential earnings of the property
Fair maintainable turnover (FMT)?
This is the level of trade that an REO would expect to achieve on the assumption that the property is properly equipped, repaired, maintained and decorated
An operational entity usually includes:
• the legal interest in the land and buildings
• the trade inventory, usually comprising all trade fixtures, fittings, furnishings and
equipment and
• the market’s perception of the trading potential, together with an assumed ability to
obtain/renew existing licences, consents, certificates and permits.
Consumables and stock in trade are normally excluded.
Personal goodwill (of the current operator)
This is the value of profit generated over and above market expectations that would be extinguished upon sale of the trade related property, together with financial factors related
specifically to the current operator of the business, such as taxation, depreciation policy, borrowing costs and the capital invested in the business.
Reasonably efficient operator (REO)
This is a concept where the valuer assumes that the market participants are competent operators, acting in an efficient manner, of a business conducted on the premises. It involves estimating the trading potential rather than adopting the actual level of trade under the existing ownership, and it excludes personal goodwill.
Tenant’s capital?
This may include, for example, all consumables, purchase of the inventory, stock, and working capital.
Trade related property
This is any type of real property designed or adapted for a specific type of business where the property value reflects the trading potential for that business.
What is step 1 of the profits method?
An assessment is made of the FMT that could be generated at the property by an REO.
What is step 2 of the profits method?
Where appropriate, an assessment is made of the potential gross profit, resulting from the FMT.
What is step 3 of the profits method?
An assessment is made of the FMOP. The costs and allowances to be shown in
the assessment should reflect those to be expected of the REO – which will be the most
likely purchaser or operator of the property if offered in the market.
What is another word for the FMOP?
Divisible balance
What is step 4 of the profits method?
A. Apply suitable capitalising rate of return reflecting risk and rewards of the property using relevant comparables.
B. Improvements and repairs impact on trade implicit in FMT with an allowance of these costs made in the operating costs.
What legislation governs Premises Licenses?
Licensing Act 2003: a single integrated scheme for licensing premises which are used to serve alcohol
What is a premises licence?
A premises licence, or a club premises certificate, is a permanent licence granted for a specific location, that authorises the holder to carry on any or all of the following licensable activities: the sale of alcohol. the supply of alcohol by a club to its members and guests.
Other trade-related legislation?
• Transfer of Undertakings (Protection of
Employment) Regulations 2006;
• Food Act 1984 (as amended);
• Food Safety Act 1990 (as amended);
• Equalities Act 2010Public houses are typically viewed under one
of six broad types:
• town centre: circuit bar (including chameleon bar); • town centre: traditional pub (either food or wet led); • community: urban; • community: suburban; • community: rural; and • food led: destination.
They are typically operated in one of four ways:
• under direct management;
• by a lessee, occupying by way of a full repairing
and insuring lease;
• by a tenant, occupying under the terms of an
internal repairing short term agreement; and
• by individuals as owner/occupiers.
What is free of tie?
Owned by brewers or pubcos
Freehold or leasehold
Tenancy granted with supply ties
Name some typical special assumptions?
(a) on the basis that trade has ceased and no
trading records are available to prospective
purchasers or tenants;
(b) as in (a) but also assuming the trade inventory
has been removed;
(c) as a fully-equipped operational entity that
has yet to trade (also known as ‘Day One’
valuation); and
(d) subject to stated trade projections –
assuming they are proven. This is appropriate
when considering development of the
property
Standard pub assumptions?
it is normally assumed that all licences
and permits will be transferred or granted on the
date of transfer of the property interest
