Public REIT Conversion
Anyone have any resource suggestions or tips on building a model for consolidating a bunch of privately owned assets into a public REIT conversion?
Would appreciate any feedback, thanks.
Trending Content
| +48 | Being asked to stay behind and train my replacement | 14 | 3d | |
| +45 | New Comp Database - Google Form (Now with Data Validation) | 24 | 8h | |
| +30 | What does REPE actually do? | 12 | 1d | |
| +28 | Leave brokerage to be GP | 2 | 54m | |
| +24 | Seeking Career Guidance in Real Estate Development Post-Graduation | 3 | 11h | |
| +24 | Public Homebuilders | 9 | 1d | |
| +22 | REPE/Development GPA | 15 | 1d | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 3d | |
| +16 | UC Berkeley MRED vs Columbia MSRED? | 2 | 5d | |
| +15 | Hospitality Finance - Perks? | 3 | 6d |
Career Resources
What kind of model are you trying to build, exactly? An IPO model typically just has an implied valuation for the existing assets, and then sources and uses reflecting the issuance of new equity.
There are obviously many ways to value the existing assets, but generally you would just apply a market cap rate to the in-place NOI. The capitalized value of the real estate, plus any net tangible assets (other than cash equivalents that are applied to reduce net debt) represents the enterprise value. You'll generally have the IPO size (in dollars) as an input. For the most part, IPO proceeds should be used to pay down debt or kept as working capital, either of which will reduce your (pro forma) net debt. You will need to account for the underwriting spread and other transaction costs in the sources and uses.
The enterprise value less the pro forma net debt will equal your "fully distributed" equity value (equity value before accounting for the issuance discount the IPO market will theoretically demand). Normally an IPO discount is sized at or around 15%, which will reduce your fully-distributed equity value to get you equity value at IPO. Divide this number by your pro forma share count and you have the pro forma IPO share price.
Thanks for the response re-ib. I guess I am trying to build an IPO model (looked at the BIWS REIT operating model as a reference but I think it is too detailed), sorry if the questions seem juvenile (used to only valuing one-off or portfolio transactions). I've got a pro formaed income statement that drives an implied equity market cap using FFO and comp multiples but I guess I'm a little unsure how to model it going forward (e.g. issuance of new equity for new acquisitions) and implementing balance sheet considerations.
Are you suggesting providing soley a sources and uses without having to create a fully bloated balance sheet? I really appreciate all the insight.
Alright, it sounds like you are not trying to build an IPO model for a REIT offering, but rather something like a corporate operating model for a REIT. The role of the former is very simple: you're just trying to take a snapshot of value today, factor in the S&U of a potential equity offering, and determine a potential trading range.
The latter is much more complicated. There's no way to really explain on this forum how to build a firm's operating model. There are two major data feed tasks: one is feeding your model all the property cash flow information and building a system to roll it up into the income statement; the second is to feed in all the property-level debt (with all its unique payoff features, refinancing assumptions, cash flow sweeps, etc.). For the model to be really dynamic requires a lot of complexity.
You then will have to take that data and feed it into the relevant components of a three-statement model and make the thing tie. For a large REIT, this can be a real nightmare. You have to build in the REIT-level items, like a credit facility, corporate-level debt, equity issuance, etc. Finally, you will need to create a system for overriding all of the quarterly projections with actuals (so that you can dump the actual GAAP filings into the model and it will replace the projections you had for a given quarter after the quarter has passed).
If you're only doing the former (find a trading range based on snapshot of value) then no, you don't need the blown-out balance sheet, you just need to know what's on it so you can get to an accurate calculation for net debt post-IPO (of course, you need to analyze the debt pieces to know what can be paid down from the IPO proceeds, and possibly what debt may require a paydown if the IPO constitutes a change of control). If you're doing the latter, then you'll need a fully blown out balance sheet because that's the whole point of an operating model.
Really appreciate the response again re-ib. I think after more discussions with my boss, the model will be more like an IPO model and thus really the only hurdle I think I have left is getting the sources & uses to gel. As far as the components of the sources & uses, I'm trying to also show a sources and uses pro forma after the potential equity offering in terms of issuing shares to pay down debt or making new acquisitions to make the LTV more REIT friendly without trying to build a fully blown operating model. Any suggestions on resources you might know of to look at it as far as making sure my S&U line items consider all the neccessary considerations?
Once again, thanks for all the solid advice.
Public REIT's (Originally Posted: 07/01/2015)
Can someone please explain in detail how Public REIT's come up with their fees and expenses?
Omnis enim et cumque illo inventore. Sint sit delectus quis molestiae expedita est et. Delectus necessitatibus nihil possimus voluptates.
Perferendis et architecto ut fugiat repudiandae rem omnis. Dolore non sit quos expedita. Occaecati aperiam sit sed ea placeat voluptatum fugit. Dignissimos accusantium molestiae a expedita vitae modi. Itaque ex amet dicta et tenetur et error architecto. Optio id dolor labore repellendus excepturi. Modi aut ducimus suscipit sunt et ratione sapiente quo.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...