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Real Estate Valuation > Income Approach_All Risks Yield (UK) > Flashcards

Income Approach_All Risks Yield (UK) Flashcards

1
Q

Current Rent

A

contractual, actual rent

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2
Q

rental value

A

market rent, value at market

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3
Q

Core

All-risks yield (ARY)

A

current contractual rent

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4
Q

Term vs Reversion

A

Term
- time frime until current rental contract expires or
- until next possible rent increase

Reversion
- time after adjustment of current rent to market rent

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5
Q

ARY Method

A

all-risks yield method
- CF divided into net income during Term and after term (Reveresion)

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6
Q

Top Splice

A

difference between future expected and current net rental income

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7
Q

Over-rented Property
vs.
under-rented Property

A

Over-rented Property
- current rent above rental value

Under-rented Property
- current rent under rental value

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8
Q

Term

Calculation

A

Capital Value =
Net Current Rent x Years Purchase (Annuity)

where adjusted yield i < ARY

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9
Q

Reversion

Calculation

A

Capital Value =
Expected Net Market Rent x Years Purchase (Perpetuity)

where adjusted yield i = ARY

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10
Q

Adjusted Yield for Term

A

typically 0.5% - 2% below market yield

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11
Q

Performance Evaluation of all-risks yield method

A

**- Initial yield: **Term rental income / capital value
**- Reversion Yield: **Net reversal rental income / capital value
- Equivalent Yield: average of Initial and Reversion Yield

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12
Q

Adjusted all-risks yield

A
  • all-risks yield used for current lease term, which will be adjusted according to market all-risks-yield
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13
Q

Market all-risks yield

A

all-risks yield in market, which will be used in reversion process

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14
Q

all-risks yield for term

A

= market all-risks yield - adjustment

adjustment = 0.5 % - 2% below market all-risks yield

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15
Q

Equivalent Yield
Calculation!

Performance Ratio

A
  • average of initial yield and reveriso yield to produce real income stream over time
  • also known as IRR
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16
Q

Core - Top-Slice Model
as opposed to Term/Reversion Model

A
  • instead of vertical composition
  • horizontal layering
  • assumed that certain amount of rent (core) can be achieved over entire useful life of the property
17
Q

Decision Rule for adjustment of market all-risks yield

A
  • for lower current rent and longer lease term: 2%
  • for higher current rent and shorter lease term: 0.5%

Real Estate Valuation (8 decks)

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