The seminars will run for 4 ½ days. Classes generally start at 0845 and end at 1800 daily. There will be two coffee breaks and a lunch in between. Review sessions, facilitated by the Module Coordinator, will be held throughout the course. There are two post-seminar workshops on (1) using excel for analysis of real estate investmen and asset enhancement initiatives on the last day, and (2) case study on a divestment deal by BlackRock.
Session 1: Setting the Stage & Real Estate Market Analysis
Real estate is the single largest component of wealth in our society. This session begins with an overview of the importance of real estate as an asset class. Then the relation between real estate values and risk and determinates of required rates of return for investment decisions will be discussed. Changes in the value of real estate can dramatically affect the wealth of businesses and their capacity to grow. Government policies affect real estate markets, and therefore values, in a host of ways. This session focuses on the analysis and forecasting of the primary economic drives of real estate rental rates and market values and the dynamic relationship among space (rental market, property markets, and capital markets).
Session 2: Real Estate Investment Analysis
This session starts with the development of a basic commercial real estate pro forma, the starting point for implementing a discounted cash flow analysis of real estate investment decisions. This is followed by discussions on how basic ratios and rules of thumb are typically used in the valuation/decision making process. The use of net present value and the internal rate of return in a decision making context will be thoroughly analyzed, followed by an expanded discussion of commercial real estate cash flow pro formas, risk analysis, and discount rates.
Session 3: Deal Sourcing, Negotiation & Deal Structuring
Real estate deals have become more challenging and sophisticated in terms of their size, scope and complexity. The first step in the investment process is finding the right potential investment. Nowadays, negotiating and structuring the right deal is as important. This session will cover practical aspects of the acquisition process, ranging from deal sourcing and negotiation to due diligence. It concludes with a case study of a REIT recapitalisation opportunity that utilised appropriate structures to minimise risk to the investor.
Session 4: Property Development: The Dynamics of Value Creation
Real estate development is a highly creative but complex process. At its best, the development process is synergistic, that is, the ultimate combination of resources has a greater value than the sum of its individual parts. This session provides an overview of the real estate development process;; the key players involved, their motivations as well as their value contributions; from site acquisition, to project management, and strategic marketing of the completed project.
Session 5: Managing a Large Development Project: Challenges & Lessons Learned
Real estate development projects are not only huge in size, but they expose the developers to huge cost, complexity and risk. Drawing on the experience of the Marina Bay Financial Centre (MBFC), this session highlights the key challenges and lessons learned from the perspective of a developer of a mega development project. It provides insights into interesting issues faced by the developer during the development process, from joint-venture structure, to land bid, design, project management, marketing, management and divestment.
Session 6: Value Aspects of Good Design
Design is a rational process and not an afterthought. In a competitive market scenario, design is one key aspect to provide a differentiating factor. Good design enhances the value of a project and the developers’ bottom line. Using specific cases of various development types, this session outlines the importance of rational design process from land bidding to translation of a development concept into tangible plans for the proposed development. The value aspects of good design will be emphasized in some development types such as integrated mixed-use development, retail centres and industrial development.
Session 7: Tax issues on Acquisitions and Ownership of Property
At each stage of the life cycle in the acquisition, ownership and disposal of properties, there is a range of tax issues that the investor is confronted with. In this session, some of these tax issues will be covered such as Additional Buyer’s Stamp Duty (ABSD) and income tax.
Session 8: Venturing into Overseas Property Markets
In the continuing pursuit for growth and expansion, Singapore firms and investors will inevitably have to consider venturing abroad. Cross-border investments however are challenging and not everyone who have ventured abroad has succeeded. This session focuses on case studies of a Singapore company who have ventured overseas, offering the perspectives of the investor. It will cover the firm’s motivation to go abroad, the major challenges faced in the takeovers, and implementation and reorganization strategies to ensure long-term success.
Session 9: Strategic Asset Management
Real Estate is a unique asset class in which superior investment returns can be achieved through strategic and proactive asset management. In today’s fast changing world, real estate asset managers play a critical role in unlocking and creating significant value through proactive & strategic asset management programs. The first session will provide an overview of strategic Asset Management from a top down perspective on key issues like strategic asset plan, yield maximisation and repositioning & asset enhancement, hold-sell analysis, redevelopment and innovative divestment strategies. The second session will be a case study on how an asset manager can think creatively to derive ‘out of the box’ solutions to restructure & to reposition a troubled asset in order to maximise returns to the Investor.
Session 10: Valuation of Hotels and Resorts
Value remains a cornerstone in the real estate investment world. In a sales transaction, one of the primary concerns of the vendor and the purchaser is value, the appropriate selling and buying price for the real estate interest. In finance, value of the real estate as a collateral is also key to the financial institutions. Likewise, value is a primary consideration to private, public and institutional investors, shareholders, stockbrokers and underwriters involved in the business of real estate. This session covers the valuation of hotels, resorts, and other hospitality related properties.
Session 11: A Proactive Real Estate Strategy: “Buy, Fix & Sell”
Blackstone is the largest real estate private equity firm in the world with $94 billion of assets under its management. It’s global real estate portfolio includes office, retail, hotel, industrial and residential properties. Blackstone’s three-prong real estate investment strategy is based on: (1) acquiring high quality, income-producing assets at discounts to replacement cost, (2) improving the properties through aggressive asset management and targeted value-add initiatives, and (3) selling the assets, once they are stabilized, to long term real estate holders and return capital to their investors. This session cover case studies of Blackstone’s “buy it, fix it, and sell it” strategy to real estate investment.
Session 12: Technical Workshop: “Constructing DCF Models for Real Estate Investment & Asset Enhancement Initiatives Using Excel”
Discounted cash flow (DCF) analysis has been widely used to evaluate the feasibility of real estate investments. This workshop will demonstrate the step-by-step process of constructing a DCF pro- forma for a typical real estate investment analysis to derive the proposed project's Profitability Index (PI), Net Present Value (NPV) and Internal Rate of Return (IRR). Two case studies, which include an acquisition case and an asset enhancement initiative (AEI) will be used in the illustration.
Session 13: Case Workshop: “BlackRock Intermark Divestment”
In October 2013, BlackRock acquired MGPA, a Singapore-based independently managed real estate investment firm. The acquisition expanded BlackRock’s real estate portfolio to an estimated AUM worth US$23.5 billion, offering investors access to the world’s top six markets which constitute 75 percent of the global investable commercial real estate stock. Shortly after the acquisition, BlackRock began the divestment of its Singapore and Malaysia assets. Within two years, the real estate assets in Singapore and Malaysia are put on the market. The case study will focus on two features revolving around BlackRock’s disposal of the Intermark in Malaysia. The first is examine the strategic motivation behind BlackRock’s acquisition of MGPA and the portfolio management strategy through the disposal of the Intermark. The second feature is to analyse what the potential acquisition of the Intermark would entail for the investment portfolio of prospective buyers.
(Subject to confirmation)
The main programme will run for 4 days. Classes generally starts at 0845 and end at 1800 daily. There are two post-seminar workshops on (1) Modelling Waterfall Cash Flow for Joint-Ventures and Debt Securitisation, and (2) A Tale of 2 REIT IPOs on the 5th day.
Session 1: Setting the Stage - Real Estate Finance
One major attraction of real estate as an investment is the use of debt to increase the expected equity rate of return. However, the risk of the equity position also increases. Thus, a major decision for the borrower involves the amount of debt and equity to use. In the first part, the concept of financial leverage is examined by considering how the level of financing affects the IRR of a real estate investment. A numerical exercise will be employed to illustrate how leverage can magnify equity returns.
Session 2: Real Estate Securitisation: A Primer
In the past, the essence of real estate development and investment was “finding the deal.” Nowadays, real estate transactions are increasingly driven by creative structuring and innovative financing. Tracing the evolution of the environment in which real estate financing decisions are made, and in particular, the integration of real estate and capital markets, the session provides a primer understanding on real estate securitization and its implications on the real estate industry and profession.
Session 3: Development & Project Financing
As a borrower, it is important to understand how a lender evaluates loan applications to ensure the greatest likelihood of success. From a banker’s perspective, development financing is about identifying project risks and mitigating [boxing in] them. As opposed to corporate financing, project financing is based upon the projected cash flows of the project rather than the balance sheet of it sponsor. Topics covered in this session include major considerations in real estate lending; project financing vs corporate financing; financing development projects & construction loans; loan underwritings; loan syndications and ‘club deals’.
Session 4: Financing for Real Estate Corporations
The growth for real estate companies – property developers, real estate investment trusts, private real estate funds – is intrinsically dependent on corporate finance strategies. The recent global financial crisis underscores the importance of capital structure and sources of financing. This session examines the strategic financial issues associated with maximizing firm value to shareholders, capital structure theories and empirical evidence pertaining to how various sources of capital – equity and debt – affect firm value. Case studies from US and Asia will be used extensively.
Session 5: Sale-Leaseback Financing
This session examines two alternative ways that property owners may finance their real estate holdings. The first section focuses on the mechanics of a sale & leaseback transaction as well as the factors affecting the own-versus-lease decisions, including the off-balance sheet impact on a corporation’s financial statement. The second section focuses on the disposition decisions, covering issues such as the decision to hold or sell a property, refinancing as an alternative to disposition and considerations for capital recycling.
Session 6: Structured Real Estate Finance
This session examines how structured finance and securitisation of real estate assets such as RMBS, CMBS, mezzanine debt and derivatives have helped to open up new sources of financing to property investors and owners. Relevant issues such as credit enhancements to the investor to reduce default risk to an acceptable level, creation of senior and subordinated tranches for different risk appetite, and rating of securities by independent credit rating firms will be examined. Case studies on Singapore rated RMBS and CMBS will be used to illustrate the process.
Session 7: Starting a REIT
Deciding if REIT is the right strategy for you? The real estate game has transformed significantly with the emergence of REITs. While the impact of REITs cannot be ignored, deciding on whether a REIT is an appropriate vehicle for a property owner is dependent on a number of factors, such as the quality of the portfolio of real estate assets and the motivation of the sponsors.
Session 8: Managing & Growing a REIT
Since REITs are required to disburse most if not all their earnings to the unitholders, they are financially constrained and have no choice but to rely on external debt or capital markets to finance their acquisitions. This session will focus on a prudent capital and financial management strategy to fuel growth while being exposed to an increasing volatile capital markets. Issues to be examined include finding the balance in maintaining acquisitions in a volatile market while minimizing the cost of capital and risks.
Session 9: Crowdfunding a Real Estate Project
A relatively new concept, crowdfunding is reshaping the way real estate investors find and buy real estate. This session starts with an overview of the state of development of crowdfunding across Asia Pacific. The second part of this session presents the potential of using the crowdfunding platform to fund a real estate development project; highlighting the benefits and pitfalls for the investors as well as the developer and the real estate market as a whole.
Session 10: Managing a Real Estate Private Equity Fund
Thinking about getting into the private equity real estate (PERE) business? Whilst operating expertise is a good start for a would-be fund manager, there are still plenty of differences between overseeing the construction of a property and running the day-to-day operations of a PERE fund. The session covers the practical aspects and critical issues related to starting and managing a private equity fund, such as fund raising, capital utilization, investor relations and exit strategies. The prospects as well as risks and challenges faced by private real estate equity funds investing in foreign markets will also be covered.
Session 11: IPO of a REIT with Foreign Properties
Many REITs listed in Singapore own overseas properties. Since the process of a REIT IPO can be grueling and time consuming, this session focuses on key considerations at every stage of the IPO process to ensure a successful listing of a REIT. Using relevant case studies, a variety of issues will be covered including special considerations required to structure and operate a REIT which own properties outside of Singapore.
Session 12: Partnerships, Joint-Ventures & Syndications
Property developers and investors may supplement their capital with that from other co-investors to invest through partnerships and joint-ventures. Syndication involves a group of investors pooling their capital to enhance the quality and quantity of their investments and to reduce their risks through diversification. This session will cover the principles and common terminologies related to real estate fund management, such as forms of capital syndication, the rationale behind real estate funds, and structuring considerations using real case examples
Excel Workshop: Modelling Waterfall Cash Flow for JVs and Debt Securitisation
This workshop first explains how to use Microsoft Excel to build the 3-Tier Waterfall model, which describes, “when will the original capital invested be returned, and when and in what proportion will the returns on that capital be distributed from the real estate transaction to each party in the Joint Venture Partnership structure.” The second part of the workshop introduces the Excel modeling for the Mortgage Backed Security Structuring, focusing on the standard agency Collateralized Mortgage Obligations (CMOs).
This workshop requires basic understandings of the Discounted Cash Flow Model and the fundamental operations of Microsoft Excel.
Case Workshop: A Tale of 2 REIT IPOs
This case workshop covers two REIT IPOs which involved the listing of real estate assets outside of Singapore, namely CapitaRetail China Trust and US Manulife REIT. Critical issues and practical considerations required to structure, list and operate a REIT with real estate assets in China and US, respectively, will be covered, including how a real estate conglomerate optimises its cost of capital through the adoption of a real estate fund management business model and the sale of its prime assets to a REIT; tax-efficient way of transferring of foreign properties to a REIT; cash flow enhancement techniques to achieve stable income and distribution.
(Subject to confirmation)
The main programme will run for 4 days. Classes generally starts at 0845 and end at 1800 daily. There will be two coffee breaks and a lunch in between. Review sessions, facilitated by the Module Coordinator, will be held throughout the course. There are two post-seminar tutorials on (1) Monte Carlo Simulation for Risk Management, and (2) Portfolio Allocation to Diversify Risk - A Numerical Exercise on the 5th day.
Session 1: Setting the Stage
Real estate is a large investment category, but it has received relatively limited direct investment from portfolio investors because of its lack of liquidity, the difficulty in valuing the investment, limited understanding of its risk character, and relatively high cost of management. Real estate securities provide an alternative route to investing in direct real estate without its associated problems. This session sets the stage for this module by providing a background on the measurement of real estate returns and risks. Using the balance sheet model, the cash flows of a real entity is then partitioned into debt and equity securities. The session concludes with a review on how the market for securities works efficiently in general.
Session 2: Fundamental Valuation of Real Estate Securities
Understanding valuation is critically important for the success of a stock selection strategy as well as its relevance to portfolio management and its interrelation with risk. This session will briefly review methods of estimating the “fair and true value” of listed real estate companies, which requires the integration of real estate and capital markets. The methods to be introduced include (a) Discounted cash-flow-method (absolute valuation); (b) Multiple method (relative valuation); and (c) NAV-based method (relative valuation). The session focuses on the illustration of the concepts and principles of the methods and the application of the methods to listed real estate companies in Singapore.
Session 3: Appraising Real Estate Equities
Investment decisions are only as good as the information they are based on and a critical analysis of a firm is central in projecting the degree of risk surrounding future economic events and in selecting the best investment option. Investors thus need to study the performance of equities, both against the appropriate sector as a whole and also against competitors within the sector. Using appropriate case studies, this session examines the practical challenges faced by equities analysts in analysing and valuing real estate equities and REIT stocks. The session also covers the fundamentals of business valuation and financial statement analysis from a practical perspective, using case studies on listed real estate companies and REITs to identify the various factors that impact on shareholder value.
Session 4: Analysing & Pricing Real Estate Debt Instruments
Focusing on the investment and financial analysis of real estate debt instruments, this session is divided into two parts. The first part provides an analytical framework that is underpinned by fixed income pricing. The objective is to equip participants with some basic financial engineering principles that underlie the securitization of real estate financial instruments. The instruments covered begin with mortgages as the key building blocks of real estate debt and move on to debt pools of mortgage-backed securities. The second session examines real estate debt capital markets in relation to real estate financing. It aims to provide participants with an appreciation of debt design, the creation of derivative debt investments collateralized by real estate and the determinants of debt pricing. It will also look at the institutions involved in the structuring process and their roles in financial innovation.
Session 5: An Entrepreneurial Approach to Risk Management
The general theme of an entrepreneurial approach to risk management is not avoid risk but rather to recognise it, assess it and manage it. It is imperative to understand that with every investments there are inherent associated risk that will prevent us from realising the anticipated value. Consequently, it is the good entrepreneur who understands this well, and takes necessary steps (mitigation and controls) to prevent controllable critical risk elements from affecting the probability of the realising the investment returns. It is after assessing the possibility for permanent loss against the investment price that a decision can then be taken to invest or not.
Session 6: Quantitative Risk Management Techniques
Risk management is the process of identifying and evaluating the trade-off between risk and expected return, and choosing the appropriate course of action. This session starts with a review of conventional methods of incorporating project riskiness within the net present value formula. They include risk description techniques such as sensitivity analysis, which is used to identify the critical factors that have the greatest impact on a project’s profitability and scenario analysis, which seeks to establish “worst” and “best” scenarios, so that the whole range of possible outcomes can be considered. This second part of the session introduces two interrelated tools of risk management, Monte Carlo Simulation and Value at Risk (VaR). The focus is on concepts rather than on implementations for senior level managers who need to evaluate the validity of such tools and the quality of outputs generated by these tools in a real estate context. The followings issues are addressed: What are Monte Carlo Simulation and VaR; why and how do we use them; caveats for senior level managers; demonstration of applications of Monte Carlo Simulation and VaR for real estate risk management.
Session 7: Seeking Alpha - The Search for Superior Return
Portfolio managers try to beat the market and improve their return prospects through careful selection of securities that have above-average expected return within the asset class as well as through tactical asset allocation through opportunistic shifts in asset class weightings. Focusing on their pursuit for superior returns (alpha), this session focuses on the stock selection and market-timing strategies of an institutional investor and portfolio manager. Topics to be covered include key aspects of a winning real estate stock; projecting performance and growth of listed real estate companies; quantity, pricing and timing issues related to buying and selling decisions.
Session 8: Real Estate Credit Risk – A Banker’s Perspective
This session covers issues related to the management of credit risks associated with commercial real estate loans. The learning objectives of the session are (1) to identify the risks involved in commercial real estate loans for investment & development properties, (2) understand how bankers hedge their risks through loan structures, covenants, monitoring, etc., and (3) ways real estate developers/investors can mitigate interest rate and foreign exchange risk related to cross-border investments and loans.
Session 9: Structuring & Pricing CMBS
This session provides an overview of commercial mortgage-backed security (CMBS) available in market globally. It focuses on different approaches to development and structuring of the CMBS product; its attractiveness to the investors, and their approach to assessing CMBS. With CMBS becoming a capital source, the session will cover the developments and innovation of the structured debt offerings available for better understanding and appreciation of the product.
Session 10: Modern Portfolio Theory
For firms planning to spread their activities, there are two important messages. First, it is not enough simply to spread your activities. Second, a good portfolio is not simply a collection of individually good investments. Portfolio theory provides both a theoretical justification for diversification and an analytical framework for assembling individual securities in such a way as to achieve proper diversification. This session provides a primer to understanding modern portfolio theory.
Session 11: The ETF Way to Global Real Estate Exposure
Exchange-traded funds (ETFs) are investment fund traded on stock exchanges and have gained popularity in recent years. A real estate ETF invests in REITs that attempt to replicate the performance of a specific real estate or REIT index. This session examines the mechanics and coverage of real estate ETFs, real estate benchmarks as well as the issue of tracking errors.
Session 12: Managing A Global Real Estate Portfolio
Diversification is a strategic device for dealing with risk and asset allocation can best be described as the blending together of major asset classes to obtain the highest long-run return at the lowest risk. Managers may also make opportunistic shifts in asset class weightings in order to improve return prospects over the longer-term objective. GIC is a sovereign wealth fund (SWF) established by the Government of Singapore in 1981 to manage Singapore’s foreign reserves. It takes a long-term approach to seek investments in cross-asset opportunities which provide sustainable returns over time. GICs’ globally diversified portfolio provides resilience and enables the SWF to take advantage of opportunities across many markets. In 2013, GIC implemented a new investment framework, which allocates capital to assets and investment strategies based on opportunity cost. Building on the premise that investors should diversify geographically, this session addresses the challenges of managing a global real estate portfolio. The principles underpinning the company’s evaluation of cross-border investment projects and risk management techniques for overseas projects will also be covered.
Session 13: The Future of Global Real Estate Investment: Driving Forces, Risks & Opportunities
Are there still good real estate investment opportunities in the Asia Pacific? Recent political events, particularly Brexit and the US presidential election results, have added more uncertainties for global real estate investors, who are already facing a myriad of challenges, such as impact of low (or even) negative interest rates, shifting demographic trends, and disruptive technologies on future real estate returns. These issues will be covered is a dialogue session with Dr Seek Ngee Huat, who is a pioneering global real estate investor and widely respected industry leader. He is Chairman of the Institute of Real Estate at the National University of Singapore (NUS), where he is also an adjunct Professor of Real Estate. Dr Seek is also Chairman of ULI Asia Pacific, Chairman of Global Logistics Properties Ltd, a senior advisor to Frasers Centrepoint Ltd., and a former president of GIC Real Estate.
Tutorial: Monte Carlo Simulation for Risk Management
The Monte Carlo Simulation can be used as the most comprehensive tool to incorporate uncertainty into the DCF model for real estate investment analysis. It allows for practical calculations of risk measures such as Value at Risk. The purpose of this tutorial is to go through important steps to implement the Monte Carlo Simulation with the DCF model using Oracle Crystal Ball, which is the leading spreadsheet-based application suite for simulation.
Tutorial: Portfolio Allocation to Diversify Risk – A Numerical Exercise
Portfolio theory provides both a theoretical justification for diversification and an analytical framework for assembling individual securities in such as way as to achieve proper diversification. The theory adds to the expression “don’t put all your eggs in one basket” by quantifying “how many eggs should we put in which baskets.” The purpose of this tutorial is to demonstrate how Excel can be used to solve some simple problems in the area of portfolio management such as asset allocation as well as the determination of alpha and beta of a real estate security.