Operating Business DCF for a Real Estate Developer — Where Do I Start?

Task: 

Building an Operating Business DCF for a Real Estate Development and Holding Company

Background:

I have been tasked with valuing a large real estate development and holding group on an operating business basis. We initially completed a NAV across all entities the group owns, but my manager said we need to value the group. The group owns a variety of assets listed below: 

  • Income Producing Properties 
  • Hotels  
  • Land Held for Development 
  • Unsold Units 
  • Development Projects - we have the completed development costs, cost to complete, and debt outstanding for each project

The group is made up of approximately 50 corporations, each holding different properties and asset types. There are no consolidated financial statements across the group.

Questions:

  1. Is the correct approach to build a DCF by aggregating revenue and expenses across all entities and projecting forward as a single consolidated business? Is this the only way to do it properly, or are there alternative approaches?
  2. For assets that generate no current income, such as land held for development and development projects, how do you handle these in an operating business DCF? Do you project the future development cash flows and discount them back, or are these valued separately outside the DCF?

I am relatively new to real estate valuation and would really appreciate any input or guidance from those who have done this before. Happy to provide more detail if helpful.

2 Comments
 

Dude I'd redact a ton of this info / ask some close mentors, if what you're saying is true this narrows down the potential operator a ton.

 
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