1. Specialised Property

2. Introduction
Special characteristics of the property are central to the business’ ability to generate profit
‘Trading’ properties might be regarded as specialised because they are
purpose built
owner-occupied
have some monopoly value due to their
unique location
legal status (planning permission or license to trade)
Attributes of the property with regard to the business operating therein are more important than the flexibility of the property for change of use

3. Specialised Properties
Specialised trading properties are not usually held on a leasehold basis because of the significant investment in fixtures, fitting, furniture and equipment
Consequently there is not much rental evidence
Where let, leases tend to be longer and user clauses more restrictive
Improvements and fit-outs are often more expensive and more frequently undertaken than on standard commercial premises
check the handling of tenants’ improvements at rent review
Some small businesses might attract purchasers willing to pay a price that includes a non-pecuniary return

4. Why value specialised properties?
Loan security
Stock market listing
Mergers and acquisitions
Securitisation
Agency
Consultancy
Restricted Valuations:
Market Value
Market Value subject to special assumptions
180/90 days in which to complete a sale
Accounts or records of trade not available
Business open and licences/registration retained
Business closed and licences/registration lost or in jeopardy

5. Hotels Proposal for Travelodge on Slough Trading Estate:
22,000 sq ft equates to 70 bedrooms
Pay max of £3,800 per room
25 Year lease. No breaks.
Reviews every 5 years at RPI
6 months rent free
Yield 6.25%
£120 psf Build Cost (excluding fees, demo and planning)
Marginal returns and we needed to get to £4,300 per room and let a restaurant of 3,500 sq ft on the ground floor at £22.50 psf to hit profits of 20%+
That’s why I recommended we did the deal with 99p stores instead, which is now on site

6. Pubs Majority of trading potential conferred by licence
Therefore included in sale price (not separate)
Investment market firmly established
Large numbers of tenanted places on market with commercial leases
Likened (in the main) to secondary retail
Freehold managed houses (Plc as employer) - likened to good secondary / prime retail
Tied house profit derived from 3 sources:
Wholesale (beer, liquor, some food)
Retail (beer, liquor, some food)
Tied rent
Free house profit derived from 2 sources
Retail profit / discount (beer , liquor, food)
Machine income

7. Pub Valuation Methods
1. The Kennedy Method (Profits on beer supply + rent) x YP This was a Lands Tribunal method looking directly at wholesale profit and Tied Rental Income. It is still an interesting method to be applied to the New Pub Estate Companies, whose income streams are very similar. 2. Investment Method Rack-rented: rent payable under commercially acceptable lease x YP Reversionary: term and reversion approach 3. Profits Method Freehold: ANP (EBITDA) x YP (5-8) Leasehold: ANP (EBITDA) x YP (1-2) 4. Rental Comparison Comparable (perhaps secondary retail) rent per square foot, or % of turnover rent

8. Pub Valuation Example (1)
Valuation of the freehold interest in an attractive country freehouse of appeal to owner-occupier
Turnover:
Food £35,000
Liquor £40,000
Machines £ 3,000
£78,000
Net profit to 24% x 0.24
£18,720
Beer Discount 60 barrels x £20 £ 1,200
£19,920
x YP perp at 14% (based on comps)
Valuation £142,286

9. Pub Valuation Example (2)
Valuation of a town pub, recently let on a 15 year FRI lease with a beer tie of interest to a regional brewer / multiple operator
Rent calculation
Turnover Food £ 10,000
Liquor £120,000
£130,000
Rent 14% t/o x 0.14
£18,200
Wholesale profit
200 barrels - 45 barrels (guest):
= 155 barrels x £ £ 7,362
£25,832
x YP 15%
£172,212
Pubs often valued by reference to “barrelage” - enables valuer to estimate likely turnover and profit - a short cut comparison approach

10. Petrol Stations
Focusing on self-contained main road /motorway facilities (as opposed to “services”)
These facilities can be broadly classified as
Those with large "throughput" - worth Oil Companies acquiring
Those with lesser "throughput" -worth supplying
Outlets operated either through:
Direct Purchase of existing facilities - operated by "Majors“ (refiners/wholesalers)- Esso, Gulf, Shell, Gulf, etc.)
Direct Purchase of Site and Development - operated by Majors
Purchase and Leaseback - supplied by Majors as wholesaler and operated by dealer / retailer paying a "tied" or low rent
The market is dominated by the Majors who own and operate only where a "threshold" throughput can be achieved. Below a certain figure, Majors will become suppliers.
Therefore a valuer must be able to classify the facility (according to throughput) and understand the tenure arrangements
On the petrol sales, must determine source of income:
Wholesale profit only?
Wholesale profit and tied rental?
Rebate arrangement?

11. Petrol Station Investigations
Relevant factors
Facility
Age, depreciation, obsolescence
Visibility
Layout, forecourt size, pump arrangement, canopy
dealer management standards
pricing policy
type / grade of fuel sold (branding)
opening hours
Road
category of road: (M’way, arterial, secondary etc..)
diversions (temporary and permanent)
traffic volume
Speed limits - fast roads reduce “turn -in” especially where visibility and signage are poor
Crossing Factor (% offside traffic turn-ins)
Competition
from new stations (type of competition)
expansion or closure of existing stations and other facilities
Demographics
Local population size
car ownership percentages

12. Petrol Station Valuation
Estimate Throughput
Classify facility in terms of likely trading potential and trading structure
Examine factors currently influencing ability to trade
Average turn-in (DoT)
Busy Trunk road = 3 to 4%
Motorway = 12 to 15%
Average petrol purchase = 5 gallons / customer (DoT / Commercial)
Self-service and use of credit cards increase 25% (DoT / Commercial)
Example
Dual carriageway; 17,500 vehicles per day; stations on both sides over 120 mile 4 mile intervals = choice of 30 stations without crossing. Assume average turn-in to a particular station of 3.33%
17,500 vehicles / day x 3.5% turn-in: vehicles x 5 galls = 3,063 galls / day (approx 955,500 galls pa (6 days))
Where the facility is worth acquiring/operating, the valuer will capitalise throughput at a standard rate and capitalise remaining facilities (e.g. shop, car-wash)
Where worth supplying, then tied rent arrangement might operate

13. Golf Club Valuation

14. Golf club valuation by profits method
Variety of methods used - Profits most reliable indicator
Cost approach provides useful check
Never employ profits approach in isolation “stand back and look”
Imperative to classify facility to enable estimate of reasonable maintainable turnover
Classification (municipal, daily fee, resort, semi-private, private)
Check list (tees, fairways, greens, roughs, bunkers, practice facilities, watering systems, clubhouse facilities, parking, maintenance of buildings, fairways, greens, buildings & equipment)
Sources of income and expenditure (estimate where necessary)
Capitalisation rate? combination of mortgage and equity rates (effectively opportunity cost or weighted average cost of capital)
Limited alternative use

15. Golf club profits method valuation example
Assume net adjusted net profit after allowing for expenditure on ASF to replace tenant's capital and interest is £475,000 p.a.
Capitalisation rate comprises a mortgage and an equity element
For the mortgage element, assume
20 year term
Rate of 9%
Therefore, annuity £1 w.p. =
For the equity element, assume
Target return of 20%

16. Golf club profits method valuation example
Now need to weight the mortgage and equity elements
Assume 75% LTV
Mortgage (annuity) = x =
Equity return = x =
Weighted average cap rate = Say, 13.22%
Valuation = Net adjusted profit
cap rate
= £475,000
0.1322
= £3,593, Say, £3.6m

17. Valuation by sales comparison
Trading information can be difficult to obtain
Use comparison method as an alternative
Obtain number of rounds played per annum and level of green fees
From comparable(s) determine:
Price per round (PPR);
Capital Value
number of members x ave number of round per player
Green fee multiplier (GFM);
PPR / average green fee
Apply to subject property

18. Valuation by sales comparison
Analysis of comparable facilities has been performed for facilities of the appropriate class (say semi-private)
1500 average of 22 rounds per annum per member (market average)
Average green £15.00 per round
Comparable recently sold for £5m

19. Valuation by sales comparison
Analysis of comparable evidence:
PPR = £5m / 22 x 1500 = £ / round p.a.
GFM = £ / £15 = 10.10
Valuation of subject:
1,400 members with average green fees of £13.00 per round
PPR = £13.00 x GFM
= £13.00 x 10.10
= £ / round p.a.
Valuation = £ x 1,400 x 22
= £4,044,040
Say, £4m