Presentation Valuation Methodology in Russia Chris Dryden Regional Valuations Director.
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Transcript of Presentation Valuation Methodology in Russia Chris Dryden Regional Valuations Director.
Presentation
Valuation Methodology in Russia
Chris DrydenRegional Valuations Director
Investors’ Concerns
“a lack of trust in the integrity of the process”
“misleading statements”
“a lack of transparency”
Investors’ Concerns
Different methodologies
Assumptions that do not reflect the position at the date of valuation
Special assumptions that are not “realistic, relevant and valid”
Ownership and acquisition of rights
Planning
Future over supply
Valuation vs. Purchase Price
Off-site infrastructure and utility costs
Construction cost inflation
Valuation of minority interests
Emphasis on IPO reporting
I. Properties Held as Investments
II. Developments in the Course of Construction
III. Development Land
In all cases, we are assessing Market Value.
I. Property Held as Investment
Rent & Yield approach
Historically, values generated purely off initial yield
Rental growth, particularly for offices, has resulted in the need to appraise off equivalent yield
DCF valuation approach still prevalent in Russian market. Potential issue with forecasting of exit capitalization yield
Yield terminology
In all cases, Rents are Net Operating Income, expressed gross of costs.
Initial Yield
ReversionaryYield
= Estimated Rental Value (Market Rent) / Value or Price Paid;
Current Rent / Value or Price Paid;=
EquivalentYield
= Growth implicit IRR of a changing income stream over time;
Running Yield = AnnualRent / Value or Price Paid
Price, Value and Worth
Price: The price achieved in the sale / purchase of property(ies).
Value: An estimate of the price at which a transaction for an asset would take place in the market.
Worth: An estimate of the worth to an individual which takes account of his/her individual assessment of the property variables, and also the investor's own required return and other relevant factors. i.e. NOT a Valuation.
II. Valuation in the Course of Construction
In balance sheets, typically you will see Value expressed as price of land plus costs to date of valuation
Alternative Market Value is to calculate Gross development value and subtract outstanding costs, including cost of finance, plus element of Developer Profit
Developer Profit level will be influenced by construction and occupational risk as at date of Valuation
III. Development Land
Day One Residual or DCF?
A day one residual adopts assumptions that are fully supportable as at the date of valuation
Main Value Drivers:-
1.Rent/Sale price
2.Capitalization Rate
3.Construction costs (including infrastructure &utilities)
4.City Share
5.Developer Profit
6.Finance
III. Development Land
DCF:-
Main Value drivers as for Residual approach, but additionally:-
1. Rental/Sales Price Growth
2. Cost Growth
3. Discount Rate
4. Exit Capitalization Rate
Therefore, inherently additional risk in DCF. Robust due diligence is required prior to forecasting real growth.
Investors’ Concerns
“a lack of trust in the integrity of the process”
“misleading statements”
“a lack of transparency”
Investors’ Concerns
Different methodologies
Assumptions that do not reflect the position at the date of valuation
Special assumptions that are not “realistic, relevant and valid”
Ownership and acquisition of rights
Planning
Future over supply
Valuation vs. Purchase Price
Off-site infrastructure and utility costs
Construction cost inflation
Valuation of minority interests