Financial Analysis of Real Estate Companies

Knowing and understanding the financial statements of a company

• Income statements
• Balance sheets
• Appendix (focus on fixed assets and amortising)
• Business nature, staff, buildings

Renting or buying

• Key elements to make a decision
• Interest rates
• Level of commercial rent
• Rent vs. loan

Evaluating the financial situation of a company according to its real estate objectives

• Identifying self-financing potential via net cash position and revenues generated by the sale of current real-estate holdings if necessary
• Various forms of access to external capital (capital increase, partners' current accounts)
• Bank loans (debt capacity, repayment capacity, medium and long term debt capacity)
• Leasing
• Bank criteria for real-estate loans
• Consequences of the current crisis :
• Stronger LTV and LTC requirements
• Covenants
• Higher margins
• Banks demand higher returns on investors' projects: change of ROE
• Private ownership or via special purpose vehicles and tax-efficient structures

Evaluating the financial strength of potential corporate tenants

• Is is profitability acceptable and sufficient to pay extra rent on new premises?
• Is its solvency sufficient and is it financially independent?
• Is it in a position to support its current debt?
• Is it a business which is liquid and durable?

Lease-back: asset and liability management techniques

• Impacts on accounting
• Advantages and risks for a healthy business
• Advantages and risks within a financial restructuring

• Practical workshop

• Evaluate the solvency and financial capacity of a corporate seeking to rent or purchase new premises
• Evaluate the solvency and financial capacity of a corporate willing to lease-back buildings