Yields Flashcards
Calculate the INITIAL Yield after acquisition costs for the following property:
Sale Price $ 4,500,000
Net Income $ 202,500 (at the time of sale)
Acquisition costs 7% of sales price
ROUND YOUR ANSWER TO 2 THE NEAREST 2 DECIMAL PLACES
0 (with margin: 0)
4.2 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
$ 202,500 / ($ 4,500,000 *1.07%) x 100
= $ 202,500 / $ 4,815,000 x 100 = 4.20%
Calculate the REVERSIONARY Yield after acquisition costs for the following property:
Sale Price $ 4,500,000
Net Income $ 202,500 (at the time of sale)
Acquisition costs 7% of sales price
Market Rental Value $ 230,000
ROUND YOUR ANSWER TO 2 THE NEAREST 2 DECIMAL PLACES
4.78 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
ANSWER
$ 230,000 / ($ 4,500,000 *1.07%) x 100
= $ 230,000 / $ 4,815,000 x 100 = 4.78%
Calculate the EQUIVALENT Yield after acquisition costs for the following property:
Sale Price $ 4,500,000
Net Income $ 202,500 (at the time of sale)
Acquisition costs 7% of sales price
Market Rental Value $ 230,000
Rental Review – Due in 24 Months
ROUND YOUR ANSWER TO 2 THE NEAREST 2 DECIMAL PLACES
4.73 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
ANSWER
$ 202,500 + PV (FV $27,500, N24, I 4.20/12) / ($4,500,000 *1.07%) x 100
= $202,500 + $25,288 / $4,815,000 x 100
= $227,788 / $4,815,000 x 100 = 4.73%
Known property data:
Current/passing net income $200,000 pa
Current market rent, due in 2 years $214,000 pa
Sale Price $2,100,000
Analyse the equivalent yield from the known property data above (calculate your answer assuming payments are annually in arrears).
Notes: Calculations to 4 decimal places, with answer rounded to 2 decimal places. Use reversionary yield as discount rate.
10.07%
Initial Yield = 200,000 / 2,100,000 x 100 = 9.5238%
Reversionary Yield = 214,000 / 2,100,000 x 100 = 10.1905%
Equivalent Yield
= ( 200,000 + PV of $14,000 in 2 years discounted at 10.1905%) / 2,100,000 x 100
= ( 200,000 + [ FV = 14,000, N = 2, I = 10.1905, COMP PV ] ) / 2,100,000 x 100
= ( 200,000 + 11,530.2767 ) / 2,100,000 x 100
= 211,530.2767 / 2,100,000 x 100
= 10.0729%, rounded to 10.07%
An office building with one tenant occupying the entire space has just sold.
Known data:
Lease terms: 10 years from 1/04/17
Rent review: 3 yearly to market
Initial lease rent: $310,000 pa from 1/04/017
Most recent rent review: $350,000 pa from 1/04/20
Outgoings: Fully paid for by the tenant
Sale price and sale date: $4,070,000 1/04/21
Your research indicates the market rent is actually $390,000 pa but the next review is 2 years away.
Compute the equivalent yield from the data above assuming payments are annually in arrears.
Notes:
Assume the discount rate is the reversionary yield.
Calculations to be at 4 decimal places, with answer rounded to 2 decimal places.
9.42%
Initial Yield = 350,000 / $4,070,000 x 100 = 8.5995%
Reversionary Yield = 390,000 / $4,070,000 x 100 = 9.5823%
Equivalent Yield
= ( 350,000 + PV of $40,000 in 2 years discounted at 9.5823%) / 4,070,000 x 100
= ( 350,000 + [ FV = 40,000, N = 2, I = 9.5823, COMP PV ] ) / 4,070,000 x 100
= ( 350,000 + 33,310.3479 ) / 4,070,000 x 100
= 383,310.3479 / 4,070,000 x 100
= 9.4179%, rounded to 9.42%
What is Initial Yield?
Based on passing rent at time of sale.
Intial Yield is based on the passing net income and the sales price.
‒ Note that passing net income has no regard to vacancy or market rental levels.
‒ Passing Rent / Sales Price = Initial Yield
What is Reversionary Yield?
Based on market rent (fully let).
Reversionary Yield is based on the market net rental (fully let) and the sales price
‒ Market Rent (fully let) / Sales Price = Reversionary Yield
What is Equivalent Yield?
Based on reversionary yield adjusted for time.
Equivalent Yield is the reversionary yield adjusted for time
‒ (Passing Rent +/- PV reversionary income ) / Sales Price = Equivalent Yield
Calculate the initial, reversionary and equivalent yields reflected in the following transaction:
‒ Sale Price. $2,100,000
‒ Net Income $150,000
Current leases have 4 years to run during which time rent reviews to market will add the following amounts to the initial rent.
‒ Month 12 $ 12,000
‒ Month 24 $ 36,000
Initial Yield: 7.14%
Reversionary Yield: 9.42%
Equivalent Yield: 9.08%
Equivalent Yield should always sit between the Initial Yield and Equivalent Yield.
What is a Net Lease?
Lessor recovers all outgoings from tenant
i.e. tenant pays outgoings directly or lessor fully recovers from tenant.
What is a Net Lease?
Lessor recovers all outgoings from tenant
i.e. tenant pays outgoings directly or lessor fully recovers from tenant.
What is Gross Lease?
The lessor receives a single gross rent figure. Most leases provide for the lessor to recover “increases in outgoings above a base year” to allow the lessor to maintain the net return during the lease period until the next rent review.
What is the difference between Net Lease and Gross Lease?
Many commercial leases include provision for lessor to recover outgoings from lessee as a payment over and above lease rent. The combination of rent and the outgoings equals the ‘grossed up’ rent.
Net Lease:
Lessor recovers all outgoings from tenant
i.e. tenant pays outgoings directly or lessor fully recovers from tenant.
Gross Lease:
Lessor receives single gross rent figure. Most leases provide for lessor to recover “increases in outgoings above a base year” to allow lessor to maintain net return during lease period until next rent review.
What is Gross Lease?
Lessor receives single gross rent figure. Most leases provide for lessor to recover “increases in outgoings above a base year” to allow lessor to maintain net return during lease period until next rent review.
What is Gross Rent?
Total Cost to the Tenant OR Total Income to the owner before payment of outgoings.
