APC Valuation

Question 1

What are the five methods of Valuation?

Answer 1

Comparable
Investment
Profits
Residual
Cost / Contractors

Question 2

What are the three valuation approaches?

Answer 2

Asset (cost)
Income (CCF & DCF)
Market (comp & investment)

Question 3

What are the key RICS publications?

Answer 3

RICS Valuation - Global Standards
(Red Book Global Standards)
Effective 31/01/22
-
Comparable Evidence in Real Estate Valuation
Guidance Note
1st edn, October 2019

Question 4

What are PS1-2?

Answer 4

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

Question 5

What are VPS1-5?

Answer 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

Question 6

What are VPGA1-10?

Answer 6

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

Question 7

What is the comparable method?

Answer 7

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.

Question 8

What is the investment method?

Answer 8

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.

Question 9

What is a growth implicit method of valuation?

Answer 9

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.

Question 10

What is a growth explicit method of valuation?

Answer 10

Reflects growth expectation in the cash flow and discount this at the required rate of return e.g. DCF valuations.

Question 11

What is the hierarchy of comparable evidence?

Answer 11

New transactions
lease events
arbitration decisions

Question 12

How is a new Code valuation different to an open market transaction?

Answer 12

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.

Question 13

what is the Affinity Water Table?

Answer 13

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

Question 14

What is the Hanover valuation approach?

Answer 14

Vodafone v Hanover Capital 2020

Three stage method to arrive at site value:
- underlying value / alt use
- benefits for tenant
- burdens on landowner

Question 15

How do you calculate an All Risks Yield?

Answer 15

Annual rental income / property value
x 100

Question 16

What is a Years Purchase (YP) multiplier?

Answer 16

The multiplier of the net annual income to determine the capital value, used to obtain the capitalised value of a property.

Question 17

What is a YP dual rate?

Answer 17

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).

Question 18

What is present value (PV)?

Answer 18

The current value of a future sum of money given a specific rate of return.

Question 19

What is net present value (NPV)?

Answer 19

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.

Question 20

What are Parry’s Tables?

Answer 20

The purpose of the book is to provide a comprehensive range of different valuation and investment tables in one volume.

Question 21

What is the hardcore/layer investment method?

Answer 21

1. Capitalises present rent (hardcore rent) into perpetuity.
2. 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.
3. Then the two capitalised values are added.

Question 22

What is a term and reversion valuation method?

Answer 22

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

Question 23

What is a DCF valuation?

Answer 23

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

Question 24

How is DCF calculated?

Answer 24

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.

Question 25

What’s the effect of quantum?

Answer 25

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.

Question 26

What’s a simple traditional investment valuation?

Answer 26

annual net income x YP in perp @ x%
= capital value

Question 27

What’s a term and reversion valuation?

Answer 27

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

Question 28

What’s a layer method valuation?

Answer 28

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.

Question 29

What’s a residual method valuation?

Answer 29

Total development value (GDV) - (costs + profits)
= residual land value

OR

Total development value (GDV) - land cost
= project profit

Question 30

What’s a Profits method valuation?

Answer 30

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

Question 31

What’s a discounted cashflow valuation?

Answer 31

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.

Question 32

What’s a contractors / cost method valuation?

Answer 32

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

Question 33

What’s the definition of market value?

Answer 33

Value on the valuation date achieved between willing buyer and seller in arms length transaction where both act on an informed basis.