SREC Level 3 Flashcards
Talk me through your operator review
Cinema Operator
- I conducted an operator review for my client, an investment management firm who was reviewing their portfolio as they were considering pivoting their strategy to more secure income.
- I provided a report on both the general cinema market and the covenant strength of the tenant to give them a better idea of income risk at their property
Why did your client want an operator review?
Cinema Operator
- Considering pivoting their strategy to more secure income
What was included within your report
Cinema Operator
- Commentary around the cinema market and key factors influencing supply and demand
- A review of the companies strategy and financial strength by reviewing their financial statements
What was your advice?
Cinema Operator
- I advised my client the key challenges facing the cinema market were significant and were hitting all operators
- I advised that the tenant was facing a significant amount of debt maturing in 2026 which could lead to a refinancing
How did you conduct market research?
Cinema Operator
- I gathered an analysed data from various sources and presented it in a digestible format
- Looking at key indicators of the market such as how GBOR was trending overtime
- Also looking at the trends around distribution channels for films
Tell me about the financial strength of the tenant
Cinema Operator
- Currently unprofitable and a large debt position
- Weak financial strength coupled with a weak outlook in the general cinema market
What was the operators business strategy?
Cinema Operator
- Focusing on reducing their debt position
How did covid impact cinema market?
Cinema Operator
- Stopped supply
- Stopped peoples ability to watch films
- Hit operators margins significantly then coupled with a weakened recovery due to writers strike and rise of subscription services
What was the operators business plan?
Healthcare Operator
- Operate more homes across uk while releasing capital
What deal structures did you consider?
Healthcare Operator
- Management agreements, net lease structure and joint ventures
Whats a Management agreement?
Healthcare Operator
- A management agreement is where the operator sells the whole co portfolio an takes an agreement to manage the operations of the company where they are paid an annual fee.
- Usually a proportion of revenue/EBITDAR.
Why was ManCo best option for client?
Healthcare Operator
- Poor appetite for net lease transactions at competitive pricing and therefore manco presented an option to maximise the capital received.
- And provided a large sum of day 1 capital.
How did you present your scenario analysis?
Healthcare Operator
- Presented my scenario analysis in a report which showed hypothetical cash flows based on each deal structure
ManCo vs PropCo
Healthcare Operator
- Manco – sell wholeco and they pay operator and annual fee
- Net lease – operator sells freehold, keeps opco and pays a rent to the landlord based on a rent bid of around 2x rent cover.
How did ManCo achieve the operators objectives?
Healthcare Operator
- Sold the freeholds and some of the opco
- Allows them capital to expand and invest in there business
- Maximise value
