Valuation Case - Companies with real state
Fellow monkeys,
During another day of valuation, something crossed my desk. It was an M&A advisory for a small industry (
The firm had a real estate asset (an industrial shed) of expressive value (30MM) in the balance sheet. However, it does not pay rent for itself.
Besides the potencial tax savings with introducing the expenses with rent, what would the best option to value the company?
Pressuming a DCF valuation, the forecasts should:
a) Do not consider the expenses with rent. Value the company plus the real estate asset separately.
b) Introduce the expenses with rent, and the additional tax saving, and the real estate asset separately.
c) Value only the business without the rent expenses, and done.
I would be glad whether you could share experiencies involving real state assets in firms as well.
If the real estate is being sold with the business, just run your valuation as is without making any adjustments to EBITDA (for that part).
If the real estate is going to be sold separately, you should deduct rent expense from EBITDA as it provides a more accurate picture of pro forma cash flow.
The real estate is being sold with the business, at a market value.
However, if there is no adjustments to EBITDA (no rent expenses), the firm won't be overvalued?
It would be overvalued. Hence the need to adjust for rent expense. If you carve out valuable assets from the operating assets, you have just reduced the value of the remaining assets. It may not be 1/1, but there needs to be some deduction in value to account for the fact that the buyer now has to pay rent, whether to a third party or related party.
Provident omnis iste laborum voluptatem itaque reprehenderit. Beatae cum cupiditate dicta nesciunt corrupti quidem. Cumque aperiam sunt consequuntur autem. Minus distinctio quidem totam exercitationem ducimus et. Reprehenderit saepe similique aut et. Consequuntur est accusamus reprehenderit enim et repellat.
Repellat sit impedit eum quas sit consequatur quisquam. Quisquam voluptatem facilis modi minus perspiciatis earum deserunt. Fuga voluptatibus laborum debitis vitae.
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...