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AlTs Flashcards

1
Q

Name and describe the 3 ways to value direct property?

A

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.

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2
Q

What is the difference between gross and net rent

A

Gross rent = Landlord pays expenses

Net rent is tenant pays expenses

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3
Q

How to calculate NOI and what does NOI mean

A

Net operating income.

It is calculated as

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

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4
Q

What is NOT included in NOI

A

Income taxes

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5
Q

What are 3 pros and 3 cons of property investment

A

Pro - Diversification, Inflation hedge, income and price appreciation

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

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6
Q

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

A

cost approach is value - cost to build

You would use it for new properties, unusual properties

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7
Q

Is the capitalistion approach an income approach

A

Yes. same with the DCF

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8
Q

What is the gross income multiple?

A

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

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9
Q

What is the cap rate?

A

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

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10
Q

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

A

Cash flows / Sales price

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11
Q

What is the cap rate formula

A

Cash flow / CAP = Value

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12
Q

Which is more risky, stocks or private equity real estate

A

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.

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13
Q

Does private equity real estate have tax exemptions

A

Yes

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14
Q

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

A

Discount rate - going in cap rate

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15
Q

How to calculate direct capitalisation value?

A

It is the going in cap rate under the first noi

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16
Q

What are the key differences between DCF and DC

A

DCF is more complex, and DCF relies on comparable transactions

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17
Q

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

A

Functional, economic, location etc.

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18
Q

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

A

Added (yes added)

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19
Q

How is the return of an index calculated?

A

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

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20
Q

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

A

Appraisal indexes are smoothed, transaction indexes actually show market vol

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21
Q

Name the 3 ratios important for public property valuation

A

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

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22
Q

Name 3 types of publically traded real estate

A

REOC
REIT
MBS

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23
Q

What the hec is an REOC

A

Real Estate investment companies. Pretty much a incorporated developer.

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24
Q

Does a reit have tax benefits

A

Yes

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25
Q

How to calcuate NAV of reit

A

Market value of Assets (NOI/r) - Liabilities.

This does not always match what is in the market

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26
Q

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

A

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

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27
Q

Formula for non cash rent (for FFO)

A

Rent recieved - Cash supposed to recieve for period

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28
Q

What are some key characteristics of reits

A

Distros, tax efficiency, decreased vol

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29
Q

Which is more diverse, reoc or reit

A

REIT- can invest in multiple jurisdictions

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30
Q

Which is more operationally flexible , reoc or reit

A

Reoc

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31
Q

Affo formula

A

Ffo- non cash rent - maintenance

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32
Q

What is the key consideration to re investing

A

Leverage exposure

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33
Q

Nav formula

A

Noi/ r + cash - debt

34
Q

Key differences between REITS and REOCs

A

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

35
Q

What are the three considerations of the LBO model?

A

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

36
Q

What is the post-money valuation formula?

A

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

37
Q

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

A

Investment / Post money valuation

38
Q

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

A

LBO firms use nearly all debt, VC firms use equity

39
Q

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

A

Operating history, predictable cash flows. LBO firm only

40
Q

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

A

Immature companies only, it is for Venture Capital Firms

41
Q

What are the three considerations of the LBO model?

A

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

42
Q

What is the post-money valuation formula?

A

Pre money valuation + investment

43
Q

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

A

Investment / Post money valuation

44
Q

Formula for fraction of shares owned by PE company

A

Investment / Post money value

45
Q

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

A

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

46
Q

What is a tag along, drag along provision?

A

Ensures management of company are included in any acquisition offer

47
Q

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

A

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

48
Q

Which quant measures in Private Equity do you want high?

A

DPI and RVPI (realised and unrealised return)

49
Q

Is an income approach applicable for VC companies?

A

NO

50
Q

Formula for fraction of shares owned by PE company

A

Investment / Post money value

51
Q

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

A

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.

52
Q

Which is harder to value risk, LBO or VC?

A

VC

53
Q

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

A

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

54
Q

Which quant measures in Private Equity do you want high?

A

DPI and RVPI (realised and unrealised return)

55
Q

Is an income approach applicable for VC companies?

A

NO

56
Q

Index return formula for RE index?

A

NOI - Capex + Positive Values Change / Previous period Value

57
Q

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

A

Spot return plus roll return plus collateral return

58
Q

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

A

Backwardation

59
Q

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

A

Contango

60
Q

What is collateral return?

A

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

61
Q

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

A

Calendar spread or basis

62
Q

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

A

Heighten

63
Q

What is the formula for future price taking storage into consideration

A

Future = spot + storage - convenience yield

64
Q

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

A

Low

65
Q

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

A

Heck yes

66
Q

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

A

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

67
Q

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

A

Contango

68
Q

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

A

Backwardation

69
Q

Explain backwardation and contango

A

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

70
Q

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

A

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

71
Q

Explain what convenience yield is

A

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.

72
Q

Do speculators provide liquidity or not?

A

Yes they do mate

73
Q

Formula for roll return

A

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

74
Q

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

A

Low, therefore the market will be in backwardation

75
Q

Formula for roll return

A

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

76
Q

Which is the most expensive route of exit strategy in PE

A

IPO`

77
Q

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

A

Positive

78
Q

Risk free * initial capital required is what?

A

The collateral yield

79
Q

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

A

Long term contracts, and sell short term contracts

80
Q

Explain heteroskadacity simply

A

Heteroskadacity is that the variance is correlated with the independent variable

Cfa GM (11 decks)

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