Investment Flashcards
(29 cards)
Main drivers that impact a yield?
Age and Condition
Tenure
Development Potential
Covenant Strength
Location
Lease length/terms
Types of Yield
Initial Yield
Running Yield
Equivalent Yield
Net initial Yield
Reversionary Yield
Initial Yield what is it
Relationship between rental income and capital value
Running yield what is it
The yield at one moment in time
Equivalent yield what is it
Internal rate of return which is applied to a projected income flow. Weighted average if a term and reversion
Net initial yield
Gross yield less purchasers costs
Reverisonary yield
Relationship between rack rent and capital value
What is different a bout a reversionary investment
Unusually low yield so should be considered carefullt
When to deducted costs from Gross yield?
Not for statutory valuation as per Duke of buccleuch.
What costs do you deduct from gross yield
Stamp duty
Agency fee
Solicitors fee
Miscellaneous
Total costs are usually around 5.8% but depends on market evidence
What is a reversionary investment?
Passing rent is less than the marker rent therefore riskier than rack rented because value realises upon future marker rental value which can be uncertain
What can affect a value in a lease
Occupier
Rent and rent reviews pattern
Alienation
Alterations
Breaks
Incentives
Contracted out
Factors when considering an investment and selecting yield comparables
Unexpired term
Covenant strength
Lease terms
How the rent is set
Tenure
Quality
Location
Covenant strength how do you assess
Dun and bradstreet
Experian
Review accounts
Reuters for parent companies
Why adopt a softer yield on reversion
To reflect risks of not receiving the income
How would and investment be affected if leasehold not freehold
Depends on the length of the lease. Under 100 years is unattractive. Less than 70 years difficult to finance. Long lease of 999 years effective freehold
How would adopting a higher yield have affected this?
A higher yield reflects a riskier investment and therefore a lower value
Strengths and weaknesses of investments?
Strengths:
Long unexpired term no breaks
Let with 5 yearly rpi linked reviews
National tenant with strong covenant
Weaknesses:
Poor quality office accommodation
Location
What is Discounted Cash Flow?
An explicit valuation model that determines the value of an asset by examining future net income or projected cash flow and discounting it to arrive at estimated current value
What is capitalisation
Converting income into a capital value using a yield
What are the 4 formulae required for investment valuation?
Present value of £1
Amount of £1
Years purchase YP
YP in perpetuity
What is decapitalisation
Obtaining rental value from a capital value
What is growth implicit and growth explicit?
Implicit builds growth into the overall yield. Exploit model future cash flows and include assumptions on growth.
How to check the accuracy and changes in a valuation?
Adjusting variables and their impact on the valuation
