RE Market Sectors

Question 1

Name the main mkt sectors of RE.

Answer 1

commercial, industrial, residential retail, hotels/tourism, healthcare/retirement.
commercial office mkt - based in various major cities and CBDs, 2ndary mkts in various suburban localities e.g. parramatta, north sydney, macquarie park, kinds park in qld, east perth in wa) . **main factors to consider w.r.t. commercial re: building quality, inv risks, and val techniques.**

Question 2

How does the PCA (property council of Australia) grade building quality?

Answer 2

PCA provides a grading system for assessing quality: Premium, A, B, C and D grade) ; premium and A grade buildings are commonly grouped together as **Prime Grade buildings**.
possible for a building to have a high grade based on its prime location and condition but low environmental rating
* **govt lease is highly valued by building owners** -> hence **progressive upgrading** of existing buildings **on the basis of rigorous cost/benefit analysis.**

Question 3

why grade/rating is increasingly important?

Answer 3

1. pressure on building owners- there is a positive obligation on building owners to disclose environmental operational efficiency of building, as this affects outgoing costs which are generally recovered from the tenants; 2. pressure on tenants - govt depts and corps seek to maintain how the public perceive their support for the environment (so they ‘d only occupy buildings which have a minimum green-star rating)

Question 4

What are the 3 primary investment risk issues of property investment?

Answer 4

1. Physical - grades change over time -> building owners may have to spend more on finishes and services to maintain a garde and position in the RE mkt (majority of institutional owners usually only occupy premium to B buildings)
2. Legal - title can be freehold title v leasehold title - freehold as in endless term and the right to undertake any activity without the restrictions that leasehold may impose. but in most CBDs, many props are held under LT leasehold title.
   * tenancy covenants and leases - assessing quality issues arising from tenancy, watch out for ratchet clauses (prevent rents falling at mkt reviews), break clauses (that enable lessee to terminate leases early), expansion rights of tenants /first right of refusal over other floors in thebuilding, make-good obligations of the tenant at lease expiry which affect the level of future capex, demolition clauses which enable a break in the lease term for land owners seeking to redevelop their prop.
3. Market trends - * trends change over time too (often swing back to previous trends or requirements)
   * some known mkt trends:
   * oversupply in the CBD lead to rent falls and generous incentives driving tenants to move back into the CBD
   * move to office parks due (might have been driven by proximity to the available pool of skilled workers i.e. many would rather choose to work with a firm closer to home than putting up with the time and cost involved with commuting to and from a CBD office)
   * move towards higher employee density/lower work space ratios (more open plan offices with use of workstations)
   * buildings being open for longer hours and higher after-afters use, as tenants allow staff more flexible working hours.
   * greater interest in buildings that are more environmentally friendly, reducing energy consumption and cost by utilising more passive heating and cooling techniques.

Question 5

What are the 3 main investment risk issues associated with real estate investment?

Answer 5

1. Physical - grades change over time -> building owners may have to spend more on finishes and services to maintain a garde and position in the RE mkt (majority of institutional owners usually only occupy premium to B buildings)
2. Legal - title can be freehold title v leasehold title - freehold as in endless term and the right to undertake any activity without the restrictions that leasehold may impose. but in most CBDs, many props are held under LT leasehold title.
   * tenancy covenants and leases - assessing quality issues arising from tenancy, watch out for ratchet clauses (prevent rents falling at mkt reviews), break clauses (that enable lessee to terminate leases early), expansion rights of tenants /first right of refusal over other floors in thebuilding, make-good obligations of the tenant at lease expiry which affect the level of future capex, demolition clauses which enable a break in the lease term for land owners seeking to redevelop their prop.
3. Market trends - * trends change over time too (often swing back to previous trends or requirements)
   * some known mkt trends:
   * oversupply in the CBD lead to rent falls and generous incentives driving tenants to move back into the CBD
   * move to office parks due (might have been driven by proximity to the available pool of skilled workers i.e. many would rather choose to work with a firm closer to home than putting up with the time and cost involved with commuting to and from a CBD office)
   * move towards higher employee density/lower work space ratios (more open plan offices with use of workstations)
   * buildings being open for longer hours and higher after-afters use, as tenants allow staff more flexible working hours.
   * greater interest in buildings that are more environmentally friendly, reducing energy consumption and cost by utilising more passive heating and cooling techniques.

Question 6

What valuation methods are commonly used for real estate valuation?

Answer 6

• Cap of NI - adj for reversion, vacancy and immediate capex (12 mos following val date) This method is most appropriate for any property that produces a stable stream of future income. the income shall remain fairly consistent in perpetuity and risk to expected future income remains stable.
• DCF approach (works with inconsistent CF projections, a desired rate of return e.g. investor’s required rate of return from inv can help determine a suitable discount rate to then derive the NPV of all projected future cash flows. )
• Direct Comparison

Question 7

What are the general steps involved in Capitalisation of Net Income

Answer 7

• Step 1 - determine mkt rental
• Step 2 - calculate the effective rent
• Step 3 - analyse outgoings (benchmark series, knowledge of outgoing levels in other buildings, and judgment calls)
• Step 4 - selection of cap rate
• Step 5 - adjustments (ongoing vacancy, structural repair allowances, reversions if rents were not at mkr rate)

Question 8

What factors should be considered when selecting the cap rate for a valuation by Cap of N?

Answer 8

* potential for rental growth (higher this is , more willing investors will be to accept lower cap rate or yld)
* security of income from the building
* quality of improvements i.e. amount of capex required in the future
* location e.g. prime or off-prime location
* vacancy level now and lease expiry profile in the future
* use of the property and industry dynamics
* potential for alternative uses (redevelopment)
* term of possession or ownership -freehold or leasehold
* specialised improvements
but you will still need to compre a selected rate to recent sales of similar props to determine if the rate picked is appropriate.

Question 9

Give some examples of CAPEX.

Answer 9

basic recarpeting, painting and work on ceiling grids, lift lobbies upon lease expiry, or even lift replacement, air-conditioning upgrades, upgrading foyer or any structural problems over the entire CF period (again these are not ongoing operating costs, rather they are more one-off basis)

Question 10

Name the 7 key variables in DCF model.

Answer 10

1. current mkt rent
2. rental growth rate (aka mtk rent escalation)
3. outoings level and g rate,
4. leasing allowances upon lease expiry (allow for vacancy or down time, as we don’t know if tenant wants to renew or vacate upon lease expiry) - this vacancy will vary depending on the mkt sentiment but usually say 3-12 months plus agent fees should be enough leasing allowance. (usually expressed as a **% expected occupancy rate**) ; not uncommon to additionally allow for a rent-free period for new tenants subject to nego and mkt sentiment (usually 1 month for every yr of lease e.g. a 6 yr lease term with 6 mth rent-free period)
5. capex over term of CF e.g. $50,000 in yr 6 or 1% of gross monthly rent (where capex needs to be provisioned but you don’t know when that will be as yet, then use a sinking fund provision at periodic intervals)
6. terminal yld - hard to determine even for one year into the future, let alone 10 yrs, but factors below can be considered:
   * physical state odf the building at the terminal date (how much capex already spent?)
   * potential for views and natural light to be diminished by new development
   * location improving or deteriorating?
   * expectation of mkt conditions
   * expected tenancy profile at the end of yr 10 e.g. has a new lease just been isgned or is it about to expire in the yr following (presenting tenancy risk) ?
   selection of terminal yld should be consistent with these above factors
7. disc rate - must have regard to mkt-based sales evidence of similar props (ensure sales are consistently analysed )to have a meaninful comparison before selecting a suitable discount rate
   * a premium (usually 2-5%) is added to the prevailing risk-free rate (proxy used is the 10-yr bond rate) to reflect risks (credit risk, liquidity risk, ongoing asset and real estate risk factors)
   * disc rates are currently 8-10%
   * as disc rate varies from time to time, it is all the more reason why it’s important to undertake sensitivity analysis to examine how the diff terminal yld and disc rates selected impact CFs.

Question 11

What factors should be considered when investing in the residential RE sector?

Answer 11

• attractiveness as an investment - simplicity (straightforward nature of the inv), mkt performance (inv Rs) and tax advantages
• risk issues
• demographic factors - trend towards smaller households, lower international migration, higher immigration and an ageing population all imply a change in the demand for housing.
• valuation considerations -2 main approaches: comparison of sales and capitalisation of income (cap of NI rarely used as most residential re invs are speculative in nature)

Question 12

What factors should be considered when using negative gearing for a residential re investment?

Answer 12

inflation (which affect i cost of borrowing), tax and changes to CGT

Question 13

3 re that form the core of most institutional re holdings?

Answer 13

office, retail and industrial (less interesting, many large institutional investors chose to be underweight in industrial RE holding, although interest has increased in quasi-commercial props e.g. technology centres and distribution centres that provide competitive advantage - note in fact there has been changing nature in industrial re, where extensive distribution centres rather than manufacturing facilities have developed, and institutional weights to industrial RE increased in recent years too)

Note:traditionally, industrial re meant either factories or warehouse, but it has become increasingly sophisticated and is now divided into 5 sections:1. factory manufactoring plants 2. warehouse/distribution centre 3. industrial estates 4. business park 5. office parks

Question 14

Discuss industrial-specific valuation considerations.

Answer 14

primary val techniques are: cap of ni, DCF and direct comparison with sales.
::industrial re ylds have traditionally been 1-2% higher than retail re (industrial sales comparisons are often more sporadic and usually more geographically diverse); however ylds are now similar, again, due to changing nature of industrial re that improved the expectation of rental and capital growth in industrial re sector.::

* size of the investment (smaller assets have not been favoured as the management intense portfolio of small industrial re has not been worth the cost, hence smaller ones have been divested while larger industrial usually $25-$100m in size of inv are used to increase the average inv by institutional investors)
* ease of oversupply (relatively easier to source vacant land and build and knowdown existing industrial props, ::threat that mkt can be over-supplied with space quickly has the potential to constrain income and capital growth, and has always been a concern to industrial re investors::)
* risks associated with obsolescence (‘specialised premises’ e.g. data centres for telecom companies can be obsolete upon lease expiry due to its low suitability to alternative uses, hence **inv R on these kinds of props should reflect such inherent risk**)
* environmental risks (think about treatment of waste, health and safety hazzards etc. inherent in the property and in the operation of the site)
* marketability of the investment (building quality, security of tenure, quality of lease covenant, location and building design etc. all affect marketability)
* low correlation with equities markets (low as compared to REITs) - reason why it’s usually low: rents are generally locked in on LT leases, rents have to be paid regardless of if the biz is growing or shrinking (rent generally doens’t rise or fall with coy performance)

Question 15

What is GLAR what does it encompass?

Answer 15

Lettable area within a shopping centre is measured on a gross basis.

GLAR = gross lettable area retail. GLAR includes all floor area occupied by a tenant from the centre line of joint partitions and walls to the outside faces of external walls. No area deductions are made for amenities, tea rooms, plant or services which are within the tenancy area.

Question 16

describe turnover rent/percentage rent/overage rent?

Answer 16

common practice in the retail industry for leases to includea percentage rent provision - it allows the landlord to share in the profitability of a tenant’s business, once a certain sales hurdle i.e. breakpoint/threshold has been reached. e.g. 5% of every dollar of sales rev in excess of $2,000,000 (threshold) is payable as percentage rent to the landlord. such provision provides incentive for prop owner to focus on improving sales performance of the centre, allow tenants to obtain reasonable profit off a low base rent before being required to pay additional rental. understanding the percentage rent provisions (may be diff for each tenant) is critical in estimating the income potentials for tenants (esp. anchor tenants), and potential sales performance of the centre going forward
note setting the breakpoint - it can be either the ’natural’ breakpoint or a fixed/pre-agreed breakpoint

Question 17

Name the shopping centre categories as per PCA (property council of Australia)?

Answer 17

city centres, super regional centres, major regional centres, regional centres, sub-regional centres, neighbourhood centres, showroom-warehouse centres, themed centres, markets

Question 18

name **3 aspects of Market Analysis**

Answer 18

demographic trends (spending patterns and growth which affect retail demand and tenancy mix);

market trends;

competition (this analysis may reveal the threat of ‘category killers’ ).

overalll, mkt analysis **begins on a maro level** with collection of demographic data then progresses through analytically , **narrowing the data circle to property specific research.**

Question 19

When analysing demographic trends as part of market analysis, what aspects can we look into?

Answer 19

• performance potential of retail shopping centres (retail sales projections indicate rental growth potential, which impacts revenue projections, risk of the project and selection of an appropriate discount rate over a projected holding period)
• population- we are talking age distribution, ethnic background, gender and rate of growth etc. all these help identify lifestyle, spending and product trend implications; direct impact on region’s growth potential and retail character.
  * median age - age profile of a trade area provides valuable information for identifying the best mix of retailers in a shopping centre, w.r.t target mkts and income potential e.g. retirees have fixed incomesand typically spend little on consumer durables like refrigerators.
  * household sizes/number of households - growing number of households in any retail trade area is considered positive as it projects increasing demand for domestic goods and services.
  * average household/per capita income - wanna compare the reported figures with local and national norms to assess how affluent a trade area is, understand potential for additional retail spending.
  * total disposable income - trade area’s discretionary and disposable income which reflects its overall buying potential and resultant flow on to retail sales. (typically measured via total aggregate personal income less projected rent/mortgage repayments)
  * housing units - % of owner-occupied vs rented; **high % of home ownership** almost always signifies **more stability** and (dpending on interest rates and indebtedness) **overall higher income levels*
• employment statistics
• trade/catchment area analysis

Question 20

When analysing employment statistics as part of market analysis, what are we looking into?

Answer 20

indication of disposable income which obviously translates into avail dollars that can be spent on retails goods. **you wanna know what job sectors are represented by the major employers** (jobs in labour grow less rapidly than total employment, but **professional and service -related jobs are typically higher paying which means more disposable income and great potential for additional retail spending**)

Question 21

Discuss what trade/catchment area analysis is.

Answer 21

(there is primary trade areas, and 2ndary trade areas)- you wanna understand how geaographic features like bridges, hills, rivers and main roads affect accessibility/trade barriers, drive time, relative distance to other competing props eg. in a more isolated trade area, regional shopping centres may only draw from hundreds of kilometres away (not very competitive) but in most cases, the **radius of a shopping centre’s trade area** is under 10 km, some even shorter. **a specialised catchment study would study household expenditure patterns/income distribution to enable prop owners to match the right type ofd retail tenants with the expected patronage.**

Question 22

Discuss some of the more prevailing market trends in recent years?

Answer 22

• some pervasive trends in retailing has been: focus on improving the ‘shopping experience’ i.e. increase the appeal of shopping turning it into an enjoyable outing; there’s also advent of direct factory outlet-themed areas, category killers ,mega retailers (that dominate a particular category, thinkk about very large warehouse-style discount operations that epitomise convenience and value retaliling to draw shoppers even from fairly significant distances) complemented by extended trading hours in every state except WA.
• e-comm - increasing accessibility of online retailing (sector growth 12-14% over the last couple of yrs with seasonal adjustments) ; use of online distribution mediums for marketing and online mkting ependiture likely to continue trending (australia’s onling shopping expenditure expected to grow 24.4% yoy post 2019)

Question 23

::competition:: - you wanna inspect the potential and previously defined competition to ascertain your subject (centre’s) comparability. how do you inspect?

Answer 23

you review the locational and physical characteristics of the competing shopping centres: exposure/visibility, consumer base, appearance, tenant fitouts/ambience/shopping experience, price points, rental info, upside potential of the shopping cenre, surrounding development, lvl of trade (is it busy?) at inspection etc.
* how your centre compares to its competition directly impacts its ability to compete/attract/retain tenants and generate revs
* to determine mkt share (assess what % of retail spending your centre captures), determine total retail floor area in a region, then within the trade area. but we often lack specific data on this topic. **we can determine the total retail sales potential within the area and then assess what % of the mkt our centre can capture to estimate the financially feasible number of sqm’s in a particular area, determine where in the retail hierarchy our centre’s placed and understand how each of the competing centres have historically performed/currently perform/are expected to perform** all required when estimating our centre’s mkt val.

Question 24

What is gross rev derived from a commercial lease typically made up of?

Answer 24

gross rev usually = base(min) rents + percentage/turnover rents + storage rents + expense recoveries + income derived from parking charges, casual leasing of mall common area space etc.

Question 25

how is mkt rent determined (note that base rent is not necessarily always = mkt rent)?

Answer 25

depends on if it is centre court/corner locations/spaces adjacent to main anchor tenants (these generally command a prem, industry data (re: sales achieable in merchandise categories and hence rent level various tenants can afford to pay), current demand for a particular centre.

Question 26

What can we use as a basis for formulating assumptions about future rental growth

Answer 26

analysis of historical rent review results (analysis of tenancy schedule on a tenant-by-tenant basis), paired with sales info, provides a basis for formulating assumptions about future rental growth

Question 27

What is the most important factor that governs the success of a shopping centre?

Answer 27

retail sales = most important factor that governs the success of a shopping centre. historical sales (no less than 5 yrs, as less than that could have been skewed by variances in economic conditions) should be analysed to identify trends, plus base rents, to estimate future revs. a 5 yr record of historical sales is generally indicative of longer term performance of the shopping centre and its achievable potential

if no historical sales info is avail or even if it is, must pay close attention to current and projected economic conditions (stability of economy, govt budget policies, disposable income levels, anticipated inflation, etc. ) plus competing cetnres, pedestrian traffic/customer counts in the trade area and at a national level, as consumer confidence impacts retail spending patterns

Question 28

percentage rent provisions (for each tenant, esp. anchor tenants) must be analysed along with base rent in estimating income potential of the tenants and sales performance potential of the shopping centre. How do we set the breakpoint?

Answer 28

2 methods:

• method 1: natural breakpoint =breakpoint (established w.r.t. base rent and percentage / turnover rent (e.g. 5%), it’s natural in the sense it’s not fixed i.e. varies from yr to yr. ) to calculate the natural breakpoint, divide base rent by turnover %.
  this methodology is **most commonly used in leases involving specialty or smaller retailers.**
• method 2: fixed /pre-agreed sales level = breakpoint . this method is more commonly used in leases involving anchor tenants (or high-volumn/large space users who tend to be highly desirable tenants), because these tenants are in a stronger position to negotiate more favourable fixed turnover breakpoints as landlords generally desire to have anchor tenants in the shopping centre. has nothing to do with base rent. e.g. below ( note that the fixed breakpoint is higher than the otherwise natural breakpoint to make logical
  sense)

either way (whichever method is used), from the landlord’s perspective, the contractual rent is a more definitive and dependable form of income than turnover rent . why? 
 \* (because there is potential variation in turnover rent as sales rev fluctuates) , in other words, the percentage rent is considered riskier by the valuer 
 \* (also as there is no govtal requirement for retailers to report sales rev in a manner that can actually be verified, accuracy of sales figures that are reported to owners is questionable)

Question 29

What is concerned an optimal mix (between specialty and anchor tenants)? and why?

Answer 29

tenant mix - 63% (specialty) vs 35% (anchor) is optimal mix. because:
* rental escalation - generally, a higher % of specialty tenants facilitate quicker rental escalations via annual rental escalations, while leases for major tenants usually have longer terms ( which adds to security of bottom line but are less flexible in terms of rental escalations, limiting upside potential) .
* expense recovery - scarcity of anchor tenants in the australian mktplace gave them strong negotiating power to the effect they are required to contribute to expenses (involved in running the centre) as much as the specialty tenants. hence, if higher the % of anchor tenants in a centre, lower owner’s recovery of outgoings. this is not a problem to a developer if the developer is able to extend the centre by adding specialty shops.

Question 30

What is OCR? And why should it be considered?

Answer 30

**OCRs (occupancy cost ratio/rent-to-turnover ratio)** is another consideration in determining the current performance and future rental potential of a shopping centre. total occupancy costs(incl. base rent, turnover rent, expense reimbursements i.e. outgoings recoveries, mkting and promotion contributions) as a % of total sales rev of the tenant = OCR, and it reveals the financial ability (or lack thereof) of tenants to pay all related occupancy charges.
* OCR for each tenant and the weighted average OCR for the entire shopping centre should be tracked over the entire holding period, and compared to industry standards to determine if the centre is under ovr over-rented (you can figure out that upside potential in rents exists if centre is under rented i.e. tenants can actually afford higher rent)

Question 31

When choosing valuation methods, what would a prudent valuer typically choose?

Answer 31

usually use DCF analysis to compare re inv against alternative inv oppos ( consistency in the val method is to ensure valid comparison ; while sales evidence of comparable prop provides evidence of val, determining comparability of sale of one prop to another gets very difficult as the complexity of the propty increases)

prudent valuers would use both CAP of mkt NI and DCF analysis and then rely on the one that reflects the greatest amount and highest quality of info for a given prop.

Question 32

What are the important considerations when selecting the discount rate for deriving NPV?

Answer 32

it’s common to undertake an analysis of retail sales evidence whilst taking into consideration current and future mkt conditions, incl. risk-free ror on a 10yr govt bond.

Question 33

generally, as major re purchases are riskier than investing in bonds, the valuer adds to the 10yr bond rate a premium of _____?

Answer 33

4% (with a further 1-2% for smaller props depending on regional economic circumstances)

Question 34

selection of terminal yld or reversionary yld is influenced by 3 factors . What are these factors?

Answer 34

1. anticipated mkt conditions at the end of the cash flow, 2. physical condition (presentation and function of the asset is a key consideration) of the prop at the end of the holding period, 3. assessment of risks inherent in the legnth of CF employed.

Question 35

What type of investor/prop is CAP of NI most commonly used for?

Answer 35

Cap of NI is more commonly used by smaller investors, esp. for less complex, smaller and mid-sized props that have few tenancies, or where there is a good comparable evidence of sales to determine a cap rate. note that owner-occupiers often pay a prem to secure business premises which often result in low cap rates for these premises.

Question 36

In the hotel/tourism re sector, what property categories are there?

Answer 36

Hotel, motel, resort and serviced apartment.

Hotel - can operate under various management structures e.g. Ibis, Mercure, Sofitel, Holiday Inn, Crowne Plaza and Intercontinental branded and licensed hotels, typically ranging from 80-300 rooms

Motel - not licensed to operate in a public bar, but may be licensed to serve liquor with meals, typically located close to or on main highways, ranging from 10 to 80 rooms

Resort - located in holiday/destination locations and include not only a hotel element but also conference rooms, extensive food and beverage, leisure facilities i.e. golf course, tennis courts, swimming pools, resort spa etc

Serviced apartment - increasing in # and popularity in Aus, provides ST non-residential accommodation, self-contained units, often held in strata titled developments, note that post GFC, smaller investors have less appetite for this form of re inv than they did prior to GFC

Question 37

Why are hotel/tourism re props regarded as ‘**going concerns**’ ?

Answer 37

the trade of the business and the prop go hand in hand, and directly determines the val of the prop depending upon the ownership/operating structure.

Question 38

Discuss the 3 types of ownership structures in the hotel/tourism re sector.

Answer 38

* **owner operation** (most common form of operation for smaller props, direct control over business, may employ a salaried manager or own management coy to oversee the mgmt )
* **lease** - (common form of ownership and operating for passive prop investor with no owner-operation management skills and/or requires a more stable income , more common for motels and strata serviced apartments and generally not for larger hotels, lease term generally 5-25 yrs with options, base rental + potentially turnover rent)
* **contract mgmt** - common form of operational structure for larger hotels and resorts where mgmt is by professionals (often international hotel operators i.e. a management organisation will contract to provide mgmt services for fees based on the performance of the business) business risk borne by the prop owner tho. negotiating positons of prop owners and mgmt organisations depend vary with mkt conditions. mgr receives base fee (based on gross rev) and incentive fee (based on gross operating profit) and reimbursement (had they had to use their centralised systems and group mkting)

Question 39

Which valuation methods are commonly used in the hotel/tourism re sector?

Answer 39

3 main methods :
* direct comparison (on a rate per room basis, subjective adjustment made to each room’s sales price depending on time, location, size, building quality, facilities, investment risk, mgmt structure etc. ),
* cap of net operating profit - typical or stabilised year net income approach - you calculate net operating profit of a **typical trading year** (meaning that you even out anomalies due to poor or exceptional management and consider income achievable under reasonable average mgmt only), this income is then capitalised at a yld derived from comparable sales evidence. **hence the method is to val the prop not necessarily based on current operator’s performance, but upon what a purchaser might expect to achieve.**
* DCF - typically used for international-style hotels and resorts. a better guide when the income is volatile. (recall the components of a DCF analysis: 5-10 yr projection of future net operating profit from the prop, prop assumed to be sold at the end of the period, allowance for acquisition and disposal costs made at the start and end of the CF period, either NPV is calculated by using a disc rate, or return is calculated using the IRR method. )

again a pruden valuer would use more than one method in valuing a hotel/tourism prop: typically, **value per room and cap of ni are often combined in valuing motels**; on the other hand, **DCF with value per room as a cross reference check, when valuing hotels and resorts.**
also, financial liability (e.g. for leased equipments) and need for immediate capital injection should be considered in the valuation process.

Question 40

car parks ( public car parks are established inv grade asset, oversupply is prevented in CBD locations by restrictions on number of car parks that can be built there)

How is management of carparks structured?

Answer 40

management of car parks on behalf of owners and investors can be undertaken in 1 of 3 ways: lease agreement (p&l borne by lessee while the owner receives a stable rental income from the lessee/operator on agree terms, this arrangement provides certainty of income ), management agreement (owner appoints a car park operator and depend of his expertise to manage the car park on their behalf to maximise the income. manager receives a management fee while cash flow risk borne by the owner), in-house (owner) management (owner then gets to save on mgmt fee, but there is no certainty of income and no economies of scale that a professional car park operator might provide )