1、PRACTICE PROBLEMS 2012 CFA Institute. All rights reserved. The following information relates to Questions 112 Amanda Rodriguez is an alternative investments analyst for a US investment management firm, Delphinus Brothers. Delphinus Chief Investment Officer, Michael Tang, has informed Rodriguez that

2、he wants to reduce the amount invested in traditional asset classes and gain exposure to the real estate sector by acquiring commercial property in the United States. Rodriguez is to analyze potential commercial real estate investments for Delphinus Brothers. Selected data on three commercial real e

3、state properties is presented in Exhibit 1. Exhibit 1. Selected Property Data Property #1Property #2Property #3 Property Type Downtown Office Building Grocery-Anchored Retail Center Multi- Family Building LocationNew York, NYMiami, FLBoston, MA Occupancy90.00%93.00%95.00% Square Feet or Number of Un

4、its100,000 sf205,000 sf300 units Gross Potential Rent$4,750,000$1,800,000$3,100,000 Expense Reimbursement Revenue$333,333$426,248$0 Other Income (includes % Rent)$560,000$15,000$45,000 Potential Gross Income$5,643,333$2,241,248$3,145,000 Vacancy Loss($564,333)($156,887)($157,250) Effective Gross Inc

5、ome$5,079,000$2,084,361$2,987,750 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 77 READING 42 Property #1Property #2Property #3 Property Type Downtown Office Building Grocery-Anchored Retail Cen

6、ter Multi- Family Building Property Management Fees($203,160)($83,374)($119,510) Other Operating Expenses($2,100,000)($342,874)($1,175,000) Net Operating Income (NOI)$2,775,840$1,658,113$1,693,240 Rodriguez reviews the three properties with Tang, who indicates that he would like her to focus on Prop

7、erty #1 because of his prediction of robust job growth in New York City over the next ten years. To complete her analysis, Rodriquez assembles additional data on Property #1, which is presented in Exhibits 2, 3 and 4. As part of the review, Tang asks Rodriguez to evaluate financing alternatives to d

8、etermine if it would be better to use debt financing or to make an all cash purchase. Tang directs Rodriguez to inquire about terms with Richmond Life Insurance Company, a publicly traded company, which is an active lender on commercial real estate property. Rodriquez obtains the following informati

9、on from Richmond Life for a loan on Property #1: loan term of 5 years, interest rate of 5.75% interest-only, maximum loan to value of 75%, and minimum debt service coverage ratio of 1.5x. Exhibit 2. 6-Year Net Operating Income (NOI) and DCF Assumptions for Property #1 Year 1Year 2Year 3Year 4Year 5Y

10、ear 6 NOI$2,775,840$2,859,119$2,944,889$3,033,235$3,124,232$3,217,959 DCF Assumptions Investment Hold Period5 years Going-in Cap Rate5.25% Terminal Cap Rate6.00% Discount Rate7.25% Income/Value Growth RateConstant Exhibit 3. Sales Comparison Data for Property #1 VariableProperty 1Sales Comp ASales C

11、omp BSales Comp C Age (years)1051225 ConditionGoodExcellentGoodAverage LocationPrimeSecondarySecondaryPrime Sale price psf$415 psf$395 psf$400 psf 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 7

12、8 Conclusion 1 Conclusion 2 Adjustments Age (years)10%2%10% Condition10%0%10% Location15%15%0% Total Adjustments5%17%20% Exhibit 4. Other Selected Data for Property #1 Land Value$7,000,000 Replacement Cost$59,000,000 Total Depreciation$5,000,000 After reviewing her research materials, Rodriguez form

13、ulates the following two conclusions: Benefits of private equity real estate investments include owners ability to attain diversification benefits, to earn current income, and to achieve tax benefits. Risk factors of private equity real estate investments include business conditions, demographics, t

14、he cost of debt and equity capital, and financial leverage. 1. Which of the following is most likely accurate regarding Property #2 described in Exhibit 1? A. Operating expense risk is borne by the owner. B. The lease term for the largest tenant is greater than three years. C. There is a significant

15、 amount of percentage rent linked to sales levels. 2. Based upon Exhibits 2, 3 and 4, which of the following statements is most accurate regarding the valuation of Property #1? A. The cost approach valuation is $71,000,000. B. The adjusted price psf for Sales Comp B is $423 psf. C. The terminal valu

16、e at the end of year 5 in the income approach is $53,632,650. 3. Based on Exhibit 2, the growth rate of Property #1 is closest to: A. 0.75% B. 1.25%. C. 2.00%. 4. Based on Exhibit 2, the value of Property #1 utilizing the discounted cash flow method is closest to: 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版

17、商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 79 A. $48,650,100. B. $49,750,900. C. $55,150,300. 5. Based on Exhibit 2, relative to the estimated value of Property #1 under the discounted cash flow method, the estimated value of

18、Property #1 using the direct capitalization method is: A. equal. B. lower. C. higher. 6. Based upon Exhibits 1 and 3, the estimated value of Property #1 using the sales comparison approach (assigning equal weight to each comparable) is closest to: A. 40,050,000. B. 40,300,000. C. 44,500,000. 7. In t

19、he event that Delphinus purchases Property #2, the due diligence process would most likely require a review of: A. all tenant leases. B. tenant sales data. C. the grocery anchor lease. 8. Compared to an all-cash purchase, a mortgage on Property #1 through Richmond Life would most likely result in De

20、lphinus earning: A. a lower return on equity. B. a higher return on equity. C. the same return on equity. 9. Assuming an appraised value of $48,000,000, Richmond Life Insurance Companys maximum loan amount on Property #1 would be closest to: A. $32,000,000. B. $36,000,000. C. $45,000,000. 10. Rodrig

21、uezs Conclusion 1 is: A. correct. B. incorrect, because tax benefits do not apply to tax-exempt entities. C. incorrect, because private real estate is highly correlated to stocks. 11. Rodriguezs Conclusion 2 is: 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/

22、ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 80 A. correct. B. incorrect, because inflation is not a risk factor. C. incorrect, because the cost of equity capital is not a risk factor. 12. Richmond Life Insurance Companys potential investment would be most likely described as: A.

23、private real estate debt. B. private real estate equity. C. publicly traded real estate debt. The following information relates to Questions 1328 First Life Insurance Company, Ltd., a life insurance company located in the United Kingdom, maintains a stock and bond portfolio and also invests in all f

24、our quadrants of the real estate market; private equity, public equity, private debt, and public debt. Each of the four real estate quadrants has a manager assigned to it. First Life intends to increase its allocation to real estate. The Chief Investment Officer (CIO) has scheduled a meeting with th

25、e four real estate managers to discuss the allocation to real estate and to each real estate quadrant. Leslie Green, who manages the private equity quadrant, believes her quadrant offers the greatest potential and has identified three investment properties to consider for acquisition. Selected infor

26、mation for the three properties is presented in Exhibit 1. Exhibit 1. Selected Information on Potential Private Equity Real Estate Investments Property description Property ABC Single Tenant Office Shopping CenterWarehouse Size (square meters)3,0005,0009,000 Lease typeNetGrossNet Expected loan to va

27、lue ratio70%75%80% Total economic life50 years30 years50 years Remaining economic life30 years23 years20 years Rental income (at full occupancy)575,000610,000590,000 Other income27,000183,00029,500 Vacancy and collection loss061,00059,000 Property management fee21,50035,00022,000 Other operating exp

28、enses0234,0000 Discount rate11.5%9.25%11.25% Growth rate2.0%See Assumption 2 3.0% Terminal cap rate11.00% Market value of land1,500,0001,750,0004,000,000 Replacement costs 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R

29、15-42-print-1534833307. 81 Assumption 1 Assumption 2 Property description Property ABC Single Tenant Office Shopping CenterWarehouse Building costs8,725,0004,500,00012,500,000 Developers profit410,000210,000585,000 Deterioration curable and incurable 4,104,0001,329,0008,021,000 Obsolescence Function

30、al250,00050,000750,000 Locational500,000200,0001,000,000 Economic500,000100,0001,000,000 Comparable adjusted price per square meter Comparable Property 11,750950730 Comparable Property 21,8251,090680 Comparable Property 31,675875725 To prepare for the upcoming meeting, Green has asked her research a

31、nalyst, Ian Cook, for a valuation of each of these properties under the income, cost and sales comparison approaches using the information provided in Exhibit 1, and the following two assumptions: The holding period for each property is expected to be five years. Property B is expected to have the s

32、ame net operating income for the holding period due to existing leases, and a one-time 20% increase in year 6 due to lease rollovers. No further growth is assumed thereafter. In reviewing Exhibit 1, Green notes the disproportionate estimated obsolescence charges for Property C relative to the other

33、properties and asks Cook to verify the reasonableness of these estimates. Green also reminds Cook that they will need to conduct proper due diligence. In that regard, Green indicates that she is concerned whether a covered parking lot that was added to Property A encroaches (is partially located) on

34、 adjoining properties. Green would like for Cook to identify an expert and present documentation to address her concerns regarding the parking lot. In addition to discussing the new allocation, the CIO informs Green that she wants to discuss the appropriate real estate index for the private equity r

35、eal estate quadrant at the upcoming meeting. The CIO believes that the current index may result in over-allocating resources to the private equity real estate quadrant. 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-

36、42-print-1534833307. 82 13. The most effective justification that Green could present for directing the increased allocation to her quadrant would be that, relative to the other quadrants, her quadrant of real estate investments: A. provides greater liquidity. B. requires less professional managemen

37、t. C. enables greater decision-making control. 14. Relative to the expected correlation between First Lifes portfolio of public REIT holdings and its stock and bond portfolio, the expected correlation between First Lifes private equity real estate portfolio and its stock and bond portfolio is most l

38、ikely to be: A. lower. B. higher. C. the same. 15. Which of the properties in Exhibit 1 exposes the owner to the greatest risk related to operating expenses? A. Property A B. Property B C. Property C 16. Which property in Exhibit 1 is most likely to be affected by import and export activity? A. Prop

39、erty A B. Property B C. Property C 17. Which property in Exhibit 1 would most likely require the greatest amount of active management? A. Property A B. Property B C. Property C 18. Which property in Exhibit 1 is most likely to have a percentage lease? A. Property A B. Property B C. Property C 19. Th

40、e disproportionate charges for Property C noted by Green are least likely to explicitly factor into the estimate of property value using the: A. cost approach. B. income approach. C. sales comparison approach. 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/gg

41、sf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 83 20. Based upon Exhibit 1, which of the following statements regarding Property A is most accurate? A. The going-in capitalization rate is 13.5%. B. It appears the riskiest of the three properties. C. The net operating income in the fir

42、st year is 298,000. 21. Based upon Exhibit 1, the value of Property C using the direct capitalization method is closest to: A. 3,778,900. B. 4,786,700. C. 6,527,300. 22. Based upon Exhibit 1 and Assumptions 1 and 2, the value of Property B using the discounted cash flow method, assuming a five-year

43、holding period, is closest to: A. 4,708,700. B. 5,034,600. C. 5,050,900. 23. Which method under the income approach is least likely to provide a realistic valuation for Property B? A. Layer method B. Direct capitalization method C. Discounted cash flow method 24. Based upon Exhibit 1, the value of P

44、roperty A using the cost approach is closest to: A. 5,281,000. B. 6,531,000. C. 9,385,000. 25. Based upon Exhibit 1, the value of Property B using the sales comparison approach is closest to: A. 4,781,000. B. 4,858,000. C. 6,110,000. 26. Which due diligence item would be most useful in addressing Gr

45、eens concerns regarding Property A? A. Property survey B. Engineering inspection C. Environmental inspection 27. The real estate index currently being used by First Life to evaluate private equity real estate investments is most likely: 打印者:Xiaohang Zeng 。打印僅供個人、私人使用。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被

46、起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 84 A. an appraisal-based index. B. a transaction-based index. C. the NCREIF property index. 28. Based upon Exhibit 1, the property expected to be most highly leveraged is: A. Property A B. Property B C. Property

47、 C SOLUTIONS 1. B is correct. The lease term for the anchor tenant is typically longer than the usual 3 to 5 year term for smaller tenants. The data in Exhibit 1 suggest that the operating expenses are passed on to the tenant; the sum of Property Management Fees and Other Operating Expenses equal th

48、e Expense Reimbursement Revenue. Also, Other Income is only $15,000 suggesting that there is a minimal amount of percentage rent linked to sales thresholds. 2. C is correct. The terminal value using the income approach is $53,632,650 (= Year 6 NOI/terminal cap rate = $3,217,959 / 0.06). The value of

49、 the property using the cost approach is $61,000,000 (= Land Value + Building Replacement Cost Total Depreciation = $7,000,000 + $59,000,000 $5,000,000). The adjusted sales price per square foot for Sales Comp B is $462 psf (= $395 1.17). 3. C is correct. There is a constant growth rate in income an

50、d value; growth rate = discount rate (7.25%) going-in cap rate (5.25%) = 2.00%. 4. B is correct. The value of Property 1 using the discounted cash flow method is $49,750,931, or $49,750,900 rounded, calculated as follows: Discount periodDiscounted value* Year 1 NOI$2,775,8401$2,588,196 Year 2 NOI$2,

51、859,1192$2,485,637 Year 3 NOI$2,944,8893$2,387,135 Year 4 NOI$3,033,2354$2,292,540 Year 5 NOI$3,124,2325$2,201,693 Terminal Value*$53,632,6505$37,795,731 Property #1 DCF value$49,750,932 * Discount rate = 7.25% * The terminal value = Year 6 NOI/terminal cap rate = $3,217,959/0.06 = $53,632,650 5. C

52、is correct. The direct capitalization method estimate of value for Property #1 is $52,873,143 (= Year 1 NOI/Going-in Cap Rate = $2,775,840/0.0525), which is greater than the estimated DCF value of $49,750,932. Value of Property #1 under the discounted cash flow method: 打印者:Xiaohang Zeng 。打印僅供個人、私人使用

53、。未經(jīng)出版商的事先許可，不得復制或傳播此圖書的任何部分。違者將 被起訴。 2018/8/21http:/e.pub/ggsf9iy506a1b4wodmbt.vbk/OEBPS/CFA0232-R15-42-print-1534833307. 85 Discount periodDiscounted value* Year 1 NOI$2,775,8401$2,588,196 Year 2 NOI$2,859,1192$2,485,637 Year 3 NOI$2,944,8893$2,387,135 Year 4 NOI$3,033,2354$2,292,540 Year 5 NOI$3,1

54、24,2325$2,201,693 Terminal Value*$53,632,6505$37,795,731 Property #1 DCF value$49,750,932 * Discount rate = 7.25% * The terminal value = Year 6 NOI/terminal cap rate = $3,217,959/0.06 = $53,632,650 6. C is correct. The estimate of the value of Property #1 using the sales comparison approach is: Unad

55、justed psfAdjusted psf Sales Comp 1$415$394 (= $415 0.95) Sales Comp 2$395$462 (= $395 1.17) Sales Comp 3$400$480 (= $400 1.20) Average$403$445 Estimated Value of Property #1 = $44,500,000 (= $445 psf 100,000 sf) 7. C is correct. The due diligence process includes a review of leases for major tenant

56、s which would include the grocery anchor tenant. Typically, only major tenant leases will be reviewed in the due diligence process, and smaller tenant leases will likely not be reviewed. Also, the fact that Other Income is only $15,000 suggests that percentage rent linked to sales levels is minimal

57、and has not been underwritten in the valuation and acquisition process. 8. B is correct. Delphinus will expect to earn a higher return on equity with the use of a mortgage to finance a portion of the purchase. The quoted mortgage interest rate of 5.75% is less than the discount rate of 7.25%. 9. A i

58、s correct. The maximum amount of debt that an investor can obtain on commercial real estate is usually limited by either the ratio of the loan to the appraised value of the property (loan to value or LTV) or the debt service coverage ratio (DSCR) depending on which measure results in the lowest loan

59、 amount. The maximum LTV is 75% of the appraised value of $48,000,000 or $36,000,000. The loan amount based on the minimum DSCR would be $32,183,652 determined as follows: Maximum debt service = Year 1 NOI/DSCR = $2,775,840/1.5 = $1,850,560 Loan amount (interest only loan) = maximum debt service/mortgage rate = $1,850,560/0.0575 = $32,183,652 (rounded to $32,000,000). 10. A is correct