PRMD30022 Investment Appraisal & Valuation Coursework 1 Assessment Brief | NTU

PRMD30022 Property Management and Development Subject Group – QA2 Assessment Brief

Module, Deadline and Feedback Details

Assessment and Module Learning Outcomes    

The table below gives details of the module learning outcomes that will be assessed by this coursework.

Coursework Task and Additional Guidance

The Background

You are an Investment Analyst working for a prominent UK Real Estate Investment Trust (REIT). Your firm is actively seeking to expand its portfolio by acquiring high-quality commercial assets that align with its strategic objectives. Your director has identified 91 Goswell Road, a freehold multi-let office located in Clerkenwell/Farringdon, London as a potential acquisition target:

PLEASE REFER TO THE PROPERTY INFORMATION PACK FOR DETAILED ACCOMODATION AND TENANCY SCHEDULES.

Supplementary Property Information

The following schedule sets out mandatory baseline inputs for annual operating costs for subject property and must be used in conjunction with the data in the property information pack. Assume these costs are non-recoverable from tenants and model these in your DCF.

Important note: The provided details have been adapted for this coursework and should be considered correct for this purpose.

In addition, the following capital expenditure items are scheduled to be undertaken:

• Year 3 – Lift refurbishment £15,000
• Year 5 – Roof replacement £50,000

Acquisition Details

• Acquisition Date: 31 December 2025.
• Transaction costs at acquisition 6.8% of purchase price (SDLT, legal, agency fees)
• Financing: 60% LTV, 25-year constant-payment mortgage at 6.0% fixed rate; 1.25% arrangement fee. Assume the fee is deducted from the gross loan amount at acquisition.
• Your REIT has a target rate of return for this type of asset in the region of 8-10% and a planned holding period of 10 years.

The Task

Your primary task is to conduct a comprehensive analysis that combines both a valuation of the asset's worth to the client and an appraisal of the deal's financial viability at the vendor's asking price. You must produce both a formal report and a detailed financial model that advises the REIT's investment committee on the financial viability of the proposed acquisition.

The Property Information Pack states that "Offers are invited in excess of £12,500,000". Your analysis must therefore follow two-stage process:

1.Determine the Investment Value (IV): Use your 10-year DCF model to calculate your own independent assessment of the property's Investment Value for the REIT. This figure represents the absolute maximum price the REIT should be willing to pay based on your justified assumptions and their target return.

2.Appraise the Deal at the Asking Price: Using £12,500,000 as the acquisition price, you must calculate the key performance metrics (e.g. NPV and IRR) to test the financial viability of the investment at this specific price point.

Your report must be professionally prepared. Therefore, you should have regard to the ethical and professional principles within the RICS Valuation – Global Standards (the 'Red Book') and the best- practice guidance in the RICS publication, Discounted Cash Flow (DCF) Valuations (Practice Information, 2023). Your work should demonstrate a clear understanding of the principles set out in this document, particularly concerning the justification of your DCF inputs.

Your analysis must be based on a detailed, dynamic and fully functional 10-year Discounted Cash Flow (DCF) model built in Microsoft Excel. The core of your work is to advise on the property's Investment Value to the REIT and provide a reasoned "buy" or "no buy" recommendation based on your analysis.

Assumptions & Mandatory Scenario Analysis

1.General Assumption Guidance:

You are an investment analyst and are expected to make your own tenable assumptions for key inputs where information is not provided (e.g., rental growth rates, inflation, exit yield, void periods). All assumptions must be explicitly stated and robustly justified by reference to your market research.

2.Mandatory Scenario:

Beyond your independent assumptions, adhere to the following scenario: Securys Limited (occupying the fourth floor) will vacate at contractual lease expiry on 28 May 2029.
Assume a 12-month void, letting commission at 2% of the market rent for the first 5 years,
£3/ft² Tenant Improvement (TI) at lease start, and 6 months rent-free as incentive to attract a new tenant for the said unit.

Client Requirements & Report Structure

Your report must be a professional document suitable for an investment committee. It should be structured as follows and should not exceed the 3,000-word limit for the main body, excluding tables and figures.
0.Front Cover and Contents Page:

1.Executive Summary:

-Your key findings, including a concise overview of the opportunity, the results of your financial analysis (NPV, IRR) and a clear and definitive investment recommendation.

2.Property & Market Analysis:

-Property Overview: Location, physical characteristics, tenancy schedule analysis.
-Commentary on tenant profiles, lease events, voids and tenant incentives.
-Market Research: A concise analysis of local, regional, and national market trends relevant to the property sector. Justify the data and sources used (e.g., CoStar, EG Radius, ONS). This section must inform the assumptions used in your DCF model.
-Commentary on current market conditions and investor sentiment supported by transactional evidence.
-All quantitative inputs (yields, rents, growth, incentives, inflation) MUST be evidenced from verifiable sources (e.g., CoStar/EG Radius/ONS/BoE). AI outputs are not acceptable as sources of market data.

3.Investment Valuation, Appraisal & Risk Analysis:

-Rationale and Basis of the Appraisal:
o Valuation Approach: Justify the use of the Discounted Cash Flow (DCF) method as the primary method for this investment valuation and investment.
o Basis of Valuation: Briefly explain the conceptual difference between Market Value (MV) and the Investment Value (IV) you are calculating for the REIT. Clarify which of these underpins your and advice to the REIT.
-Justification of Assumptions: Clearly state and justify all key inputs for your DCF model. This is a critical section of the report and must include your rationale for:
o Rental growth projections.
o Void periods and re-letting assumptions and costs.
o Operating expenditure (recoverable and non-recoverable).
o Exit Yield (with supporting comparable evidence).
o Discount Rate.

- Financing Structure & Impact: Detail the proposed financing structure and its impact on the investment (for the purpose of this assessment, you are to assume a 60% LTV, 25-year loan at a 6% fixed rate).
-Valuation and Performance Analysis:

• Investment Value (IV) Calculation: Use your DCF model to calculate your own independent assessment of the property's Investment Value for the REIT.
• Deal Appraisal at Asking Price: Present and interpret the key return metrics from your model. You must analyse and report both unlevered (property-level) and levered (investor-level) cash flows, including:
  o Net Present Value (NPV).
  o Internal Rate of Return (IRR).
  o Commentary on any other relevant metrics (e.g., Equity Multiple, Cash-on- Cash Return).

-Risk Analysis: Conduct a sensitivity analysis to test how changes in your key assumptions (e.g., a +/- 0.5% change in exit yield or a +/- 1% change in rental growth) impact the NPV and IRR. Provide commentary on the key risks associated with the investment.

4.Conclusion & Recommendation:

-Summarise the findings of your appraisal.
-Provide reasoned financial advice and a final recommendation to the REIT, clearly linking back to your analysis and the firm's investment objectives.

5.Reference and Appendices:

-All sources must be properly referenced in the NTU Harvard style.
-Supporting market evidence (e.g., comparable transaction details) and any other relevant information (all appended documents should be relevant to the task).

The above is an indicative layout and page allocation. The main body of your report should not exceed 3,000 words in total. Your appendices do not count towards this page limit.

It is imperative that you keep to the requirements set out by your client and that you do not exceed the valuation reporting length guidelines. You will need to use your professional judgement, the appropriate techniques and present information accurately and succinctly in your report to communicate the necessary information.

Submission Requirements

You must submit two separate files to the Dropbox:

-Your full report in Microsoft Word or PDF format.
-Your complete, dynamic 10-year proforma cash flow model in its original Microsoft Excel format (i.e., all formulae visible and functional; hard-coded values should be

avoided unless required by scenario). The Excel model must be organised and show all calculations.

Additional Guidance

• All financial modelling, data analysis, and written content must be the student’s own work, per university academic integrity policies.
• Students are expected to undertake substantial independent work with respect to this assignment. Students are expected to commence their coursework early to apply the teaching delivered in the sessions.
• Students should make the most of formative feedback opportunities detailed within the calendar in the module handbook:
• Students are encouraged to present their draft Excel models for formative feedback during the seminar sessions in Weeks 7 to 11. This could be the Excel Spreadsheet or a Microsoft Word document containing all of the snipped images of the websites checked, proposed layout, or material and information that the students have relied upon to compile their valuation reports.
• You have been provided with a comprehensive Property Information Pack that you are required to review in full and have regard to in your report. It is essential for this assignment that you review all this information carefully to ensure that you can complete the task.
• Students must consider the Grade-Based Assessment Criteria appended to this coursework brief, as it contains further information on what is required and how this coursework will be graded.
• Students are reminded that while we are looking for a professional valuation report, the coursework is still fundamentally an Academic piece of coursework and students should use the NTU Harvard Referencing system for their coursework and include a References List as suggested. This applies to all data sources (market reports, transaction data, industry press, etc.), not just academic literature.
• Please note that you should NOT enter the property or approach the property owner, tenant or any external party for further information. Only information that is in the public domain and provided should be used. The assessment brief and property information pack provided may contain fictitious scenarios purely designed for this assessment.

Submission Instructions

Your coursework must be submitted electronically with the main report in Microsoft Word/PDF format and the Discounted Cash Flow Model in Microsoft Excel

• Your work must be submitted to the Module Dropbox, which is located in the module learning room on NOW; it should be uploaded no later than the coursework submission date and time given on the QA2 Assessment Brief.
• Only one final Submission is allowed. Once submitted, you cannot revise your final submission; you have only one opportunity to submit the final version. Failure to submit your work to the Dropbox by the submission deadline will delay assessment of your work and may result in your work being deemed a late submission and thereby subject to a late submission penalty.

 PRMD30022 Assessment Criteria    

The following assessment criteria will apply to this coursework. You should ensure that the work that you submit appropriately addresses and corresponds with these criteria.