Chirayuthchai TraisaengsatheanStrategic Finance for Property Development
THEN

Property valuation using cap rate and exit cash proceeds

Calculate NOI from income and operating expenses, find the property value using the cap rate, then deduct selling costs and outstanding debt to see the cash received by equity holders

CalculatorStrategic Financial Management Handbook

Extracted from Real Estate Project Strategic Financial Management Handbook: A Practical Guide · Part 9: Exit Strategy and Value Realisation
Hypothetical example: a rental property or hotel held for exit, with potential gross income of THB 96 m/year, a 15% vacancy rate and operating expenses of 35% of revenue

THB
%
% of income after deducting vacancy
%
% of value, e.g. brokerage fees and advisers
% of value
THB
THB, used to calculate the multiple
Property value (NOI ÷ cap rate)–
  • NOI–
  • Net cash to equity holders–
  • Equity Multiple–
  • Gross Rent Multiplier–
From NOI to cash for equity holders (THB)
Sensitivity to cap rate
Cap RateValue (THB m)Net cash (THB m)

Results are calculations for learning purposes. The figures entered are hypothetical examples, not real project data.

Formula

NOI = effective income − operating expenses
Property value = NOI ÷ cap rate
Gross rent multiplier = value ÷ annual income

Notes

  • A 0.5% increase in the cap rate reduces value significantly. The sensitivity table helps show the risk in the exit
  • NOI must be a sustainable figure, excluding one-off income, and should be net of a repair reserve (FF&E reserve) for hotels
  • Tax on a sale depends on the exit structure, such as an asset sale, a share sale or a sale into a trust fund. Check with a tax adviser

Tools to use together