AlTs

Question 1

Name and describe the 3 ways to value direct property?

Answer 1

Cost Approach = Cost of Land - Cost of development = Value

Direct Capitalisation Apporach = Pretty much the Gordon growth model. Finding the Cash flows divided by the capitalisation rate

Discount cash flow = Just a DDM.

Question 2

What is the difference between gross and net rent

Answer 2

Gross rent = Landlord pays expenses

Net rent is tenant pays expenses

Question 3

How to calculate NOI and what does NOI mean

Answer 3

Net operating income.

It is calculated as

Potetnial total rental income + other income - Vacancies - Operating expenses

Question 4

What is NOT included in NOI

Answer 4

Income taxes

Question 5

What are 3 pros and 3 cons of property investment

Answer 5

Pro - Diversification, Inflation hedge, income and price appreciation

Con - Costly, may need leverage, lead times in construction, Lack of liquidity

Question 6

Why/when would someone use the cost approach to value a proprty, and what is the cost approach?

Answer 6

cost approach is value - cost to build

You would use it for new properties, unusual properties

Question 7

Is the capitalistion approach an income approach

Answer 7

Yes. same with the DCF

Question 8

What is the gross income multiple?

Answer 8

It is a multiple, kinda a redo of the direct capitalisation approach, that can be used to value property. It is the Sales value of the property / GROSS income.

You can multiply your expected gross income by the comparable gross income to get propertty value. It does not take costs into considerion

Question 9

What is the cap rate?

Answer 9

The cap rate is the discount factor - growth rate. DO NOT SUBTRACT IT A SECOND TIME

Question 10

What is the formula to find the cap rate from the direct cap formula?

Answer 10

Cash flows / Sales price

Question 11

What is the cap rate formula

Answer 11

Cash flow / CAP = Value

Question 12

Which is more risky, stocks or private equity real estate

Answer 12

Private equity real estate portfolios are less risky than stock portfolios and have lower expected returns. Private equity real estate has bond-like characteristics because of the stream of lease payments and, at the same time, has stock-like characteristics because of the dependency on the strength of the overall economy when leases are renewed.

Question 13

Does private equity real estate have tax exemptions

Answer 13

Yes

Question 14

How to calculate the growth rate with the going in cap rate

Answer 14

Discount rate - going in cap rate

Question 15

How to calculate direct capitalisation value?

Answer 15

It is the going in cap rate under the first noi

Question 16

What are the key differences between DCF and DC

Answer 16

DCF is more complex, and DCF relies on comparable transactions

Question 17

What sort of depreciation do you subtract from the cost value>

Answer 17

Functional, economic, location etc.

Question 18

Using the sales comparison method, are undesirable qualities in comparable properties added or subtracted from its value

Answer 18

Added (yes added)

Question 19

How is the return of an index calculated?

Answer 19

NOI - Capex + Change in value / Begininng market value of property

Question 20

Which is more volatile, appraisal indexes or transaction indexes and why

Answer 20

Appraisal indexes are smoothed, transaction indexes actually show market vol

Question 21

Name the 3 ratios important for public property valuation

Answer 21

Debt to service coverage = NOI / Interest+Principal Higher is better

Loan to value = Loan value / Value of property, Lower is better

Equity Dividend Rate = Cash return / equity, higher is better

Question 22

Name 3 types of publically traded real estate

Answer 22

REOC
REIT
MBS

Question 23

What the hec is an REOC

Answer 23

Real Estate investment companies. Pretty much a incorporated developer.

Question 24

Does a reit have tax benefits

Answer 24

Yes

Question 25

How to calcuate NAV of reit

Answer 25

Market value of Assets (NOI/r) - Liabilities. This does not always match what is in the market

Question 26

Important: Fund From Operation. formula. and alternative/better formula

Answer 26

FFO = Net income + NCC + Defferred Taxes - Gains + Losses. This is the real economic cash the firm is generating. It is a better NOI FFO - Non cash rent = Adjusted FFO. This is a better representation of cash on hand Non cash rent = Cash recieved - cash you should've received. The formula should be showing kind of like your normalised earnings

Question 27

Formula for non cash rent (for FFO)

Answer 27

Rent recieved - Cash supposed to recieve for period

Question 28

What are some key characteristics of reits

Answer 28

Distros, tax efficiency, decreased vol

Question 29

Which is more diverse, reoc or reit

Answer 29

REIT- can invest in multiple jurisdictions

Question 30

Which is more operationally flexible , reoc or reit

Answer 30

Reoc

Question 31

Affo formula

Answer 31

Ffo- non cash rent - maintenance

Question 32

What is the key consideration to re investing

Answer 32

Leverage exposure

Question 33

Nav formula

Answer 33

Noi/ r + cash - debt

Question 34

Key differences between REITS and REOCs

Answer 34

Tax structure and how they generate income/returns. Reocs generate income from sales/development of properties, and have no special tax exemptions.

Question 35

What are the three considerations of the LBO model?

Answer 35

Cash flow of target Total amount of financing the pe firm needs Total cost of that financing

Question 36

What is the post-money valuation formula?

Answer 36

Pre money valuation + investment or present value of the exit value

Question 37

How to calculate equity stake of PE fund using post money valuation?

Answer 37

Investment / Post money valuation

Question 38

What is a key difference between VC firms and LBO firms?

Answer 38

LBO firms use nearly all debt, VC firms use equity

Question 39

When would you use a DCF to value a firm. Would a VC firm use it, or LBO firm

Answer 39

Operating history, predictable cash flows. LBO firm only

Question 40

When would you use a Real Option model, and who would use it?

Answer 40

Immature companies only, it is for Venture Capital Firms

Question 41

What are the three considerations of the LBO model?

Answer 41

Cash flow of target Total amount of financing the pe firm needs Total cost of that financing

Question 42

What is the post-money valuation formula?

Answer 42

Pre money valuation + investment

Question 43

How to calculate equity stake of PE fund using post money valuation?

Answer 43

Investment / Post money valuation

Question 44

Formula for fraction of shares owned by PE company

Answer 44

Investment / Post money value

Question 45

For a VC firm's valuation, how do we calculate what we subtract from the post investment Value to account for risk?

Answer 45

It is the possibilitiy or probability of failture to the power of how many years that is happening. E.g, risk of failture = 80%^4 then multiple that by the TERMINAL value. Subtract that answer from the terminal value to get the new one. Or just change the discount rate

Question 46

What is a tag along, drag along provision?

Answer 46

Ensures management of company are included in any acquisition offer

Question 47

Which type of firm (LBO or VC) can a MBO not take place? And what is a MBO

Answer 47

Management buyout. VC firm management do not have access to the capital needed for a MBO

Question 48

Which quant measures in Private Equity do you want high?

Answer 48

DPI and RVPI (realised and unrealised return)

Question 49

Is an income approach applicable for VC companies?

Answer 49

NO

Question 50

Formula for fraction of shares owned by PE company

Answer 50

Investment / Post money value

Question 51

For a VC firm's valuation, how do we calculate what we subtract from the post investment Value?

Answer 51

It is the possibilitiy or probability of failture to the power of how many years that is happening. E.g, risk of failture = 80%^4 then multiple that by the TERMINAL value to get the extra bit you subtract from the post invesemnt value.

Question 52

Which is harder to value risk, LBO or VC?

Answer 52

VC

Question 53

Which type of firm (LBO or VC) can a MBO not take place? And what is a MBO

Answer 53

Management buyout. VC firm management do not have access to the capital needed for a MBO

Question 54

Which quant measures in Private Equity do you want high?

Answer 54

DPI and RVPI (realised and unrealised return)

Question 55

Is an income approach applicable for VC companies?

Answer 55

NO

Question 56

Index return formula for RE index?

Answer 56

NOI - Capex + Positive Values Change / Previous period Value

Question 57

What are the 3 components of total return of a commodity contract

Answer 57

Spot return plus roll return plus collateral return

Question 58

When spot prices are higher than future prices, the market is in....

Answer 58

Backwardation

Question 59

When spot prices are lower than future prices the market is in.....

Answer 59

Contango

Question 60

What is collateral return?

Answer 60

Return of the exchange rate (eg) during the life of a contract

Question 61

What is the name of the spread between future and spot prices

Answer 61

Calendar spread or basis

Question 62

If the need to hedge your commodity is high in the market , what happens to future prices?

Answer 62

Heighten

Question 63

What is the formula for future price taking storage into consideration

Answer 63

Future = spot + storage - convenience yield

Question 64

If your asset is abundant in the market, the convenience yield is....

Answer 64

Low

Question 65

Will farmers sell at a lower price to lock in prices ?

Answer 65

Heck yes

Question 66

What are the 3 commodity future theories, and what do they mean

Answer 66

Hedging Pressure Theory = speculators want to lock in a price today Insurance theory = Farmers/hedgers want to lock in a price today Storage theory = Cost of storage and benefit of convenience yield stipulate future price

Question 67

If the storage cost is high, is the market in backwardation or contango

Answer 67

Contango

Question 68

If the convenience yield goes up heaps, is it more likley the market is in backwardation or contango

Answer 68

Backwardation

Question 69

Explain backwardation and contango

Answer 69

Backwardation is the spot price is higher than the future price, contango is the spot price is lower

Question 70

If there were a heap of hedgers in the market, would the market be in backwardation or contango

Answer 70

Backwardation. More hedgers = more farmers wanting to lock in future price. More future contracts in supply = lower price. Lower f relative to s = backwardation

Question 71

Explain what convenience yield is

Answer 71

Convenience yield is the non-monetary benefit of holding an asset. Like, since i hold some cool commodity, like a baseball card, holding it has some sort of value to me, so that would decrease the future price, as the other party does not get to enjoy that.

Question 72

Do speculators provide liquidity or not?

Answer 72

Yes they do mate

Question 73

Formula for roll return

Answer 73

Change in future - Change in spot OR Future near - Future far / Future near

Question 74

If there is an abundance of hedgers in the market, the future price will be....

Answer 74

Low, therefore the market will be in backwardation

Question 75

Formula for roll return

Answer 75

Change in future - Change in spot OR Future near - Future far / Future near

Question 76

Which is the most expensive route of exit strategy in PE

Answer 76

IPO`

Question 77

If the market is in backwardation, will the roll return be positive or negative

Answer 77

Positive

Question 78

Risk free * initial capital required is what?

Answer 78

The collateral yield

Question 79

What must you do when rolling forward a contract, what do you need to buy?

Answer 79

Long term contracts, and sell short term contracts

Question 80

Explain heteroskadacity simply

Answer 80

Heteroskadacity is that the variance is correlated with the independent variable