Читать книгу Equity Value Enhancement - Sheeler Carl L. - Страница 16

In just the last decade, current theories (such as modern portfolio theory on a global stage) and methodologies about risk and value have undergone more scrutiny, and may be woefully inadequate to ensure that accurate, fully supportable valuations will consistently be produced. Let's look at a common scenario of asset and equity level risk:

A partnership owns an apartment building, so equity can be unitized into partner interests. This is done so owners hold equity in the partnership versus directly in the asset (the real property). This can be done for business reasons such as smoothing investment jitters by having a minimum holding period, asset protection, and tax avoidance.

So the first question that needs to be addressed is, what's the value of the asset? A real estate appraisal will provide a figure. Sharp business appraisers will want to know more before valuing the equity held in the LLC.

They'll want to know associated tax liability of capital gains (e.g., the building was purchased for $200K and is now appraised at $1MM). This will also provide guidance as to the annual capital appreciation and not simply the income generated. Both are needed to determine total return. Surprisingly, it is common for this information not to be requested. A solid analyst will want to know whether tenants are on month-to-month or multiyear leases, and if any potential liabilities exist (e.g., failing to transfer the title to the LLC) or the manager is older and possessed most of the investment savvy – all risks that can have a negative effect on the equity value. The analyst may also wish to consider the real estate appraiser's assumed debt to equity developed in the capitalization rate as the asset held may not be financed at all (debt free) or is paying an interest rate that is not at market.

So, the first lesson here is to understand the underlying asset level risks before making financial decisions based solely on a real estate's appraised value. The second lesson is that equity level risks that support investor concessions, referred to as premiums and discounts, are all too often oversimplified by the advisor who requested them as may the business appraiser providing the partnership interest equity valuation services.

The intellectual rigor would have to explore what is the level of direct ownership expectation risk/return of the asset. If the buy and hold is traditionally seven years, what portion of return is derived from growth/capital appreciation and what is from yield/income?

What are the asset class rate/risk norms for this holding period? If the asset is held in a wrapper like a corporation or partnership, how do bylaws and operating agreement provisions impact the equity ownership in addition to the operating risks?

So, an adjustment such as lack of control or lack of marketability discounts without a discussion of investor expectations (risk tolerance/aversion), asset class, pool of likely investors, and holding period is absent the intellectual rigor a skilled business valuator is supposed to consider to demonstrate the adjustment to the impaired equity value makes sense and is well supported.

We'll be spending considerable time in Chapters 7 and 8 on risks at the company level, so suffice to say, more robust reports that address legal, financial, and operational risks will examine client and advisory involvement that can both establish a benchmark value, but also are risk factors impacting the value at the asset, entity, and equity levels.

This would also require not only examining the company against itself, which is referred to as a trend analysis, but correctly utilizing industry comparative data to determine the level of operational performance. Such analysis is often based upon industry and company revenues and/or asset size.

This will be addressed in greater length in Chapter 9 for my appraisal brethren and those relying on and reviewing business appraisal reports.