Case Study - 'Real Estate Finance and Investment in a Global Context'
Task 1 - Investment Profile of Global Net Lease
As you have just joined Global Net Lease (GNL) as a Junior Investment Manager in the Investment Management Department, your supervisor asks you to make yourself familiar with the specific investment profile and investment criteria of GNL. Specifically, he asks you to analyze the aforementioned information on GNL and also to screen the publically available REIT-related filings, e.g. 10-K report, financial statement or investor relation presentation.
Please provide a summary (1-2 pages) of GNL's investment profile with regard to the following aspects:
- Geographic focus
- Asset type
- Occupancy situation
- (Remaining) lease terms (e.g. WALT)
- Risk and return criteria (e.g. NIY)
- Tenant credit quality
- Investment horizon and volume
- Level of leverage
- Hedging instruments.
Task 2 - REIT Regimes in a Global Perspective
REITs have become an increasingly popular vehicle for real estate ownership. In 2016, global market capitalization reached approximately US $1.7 trillion, whereby the US market accounts for almost 66% of global REIT market capitalization.
REITs globally take many forms, with significant differences in structure, strategy and operations. The regulation of a U.S. REIT can differ from the REIT regime in Europe or Asia. This country-specific regulation of REITs makes direct comparisons challenging.
In this context, your supervisor is interested in the differences between US and European REIT Regimes. Since Europe is presently facing severe uncertainty and volatility (e.g. UK BREXIT, French election of President Emmanuel Macron, Greek government-debt crisis, fear of terrorism), Germany is still seen as a 'safe haven' for real estate investments in a turbulent Europe. Henceforth, the European REIT analysis focuses exclusively on the German market.
Your supervisor assigns you with the task of providing a framework for assessing the differences between the REIT regimes in the United States (US) and Germany (GER), based upon the following questions:
- What are the main drivers for REITs to invest internationally?
- Are there any regulatory differences (e.g. restrictions on investors between the U.S. and GER?
- Which financial requirements have to be satisfied (e.g. share capital, leverage ratio, dividend distribution) to attain REIT status in GER compared to the US?
- Are there any strategically relevant differences in terms of Corporate Governance (e.g. internally vs. externally managed, private vs. public) in GER compared to the US?
Task 3 - Portfolio Investment Analysis
Global Net Lease's (GNL) decision to invest globally is already known to several German brokerage companies with an international reach. Therefore, the renowned, international real estate broker 'LLJ' has forwarded you a collection of investment opportunities in Germany that might fit Global Net Lease's investment profile. As a junior investment manager of Global Net Lease, you are asked to prepare an 'in-vestment proposal' for the investment committee of GNL. This includes a market and investment valuation based on the Discounted Cash Flow (DCF) approach.
The investment decision is based on the investment valuation of the selected investment opportunities, as well as on the investment profile of Global Net Lease. You have the freedom (and responsibility) to decide whether you want to 'cherry-pick' certain properties or whether you want to acquire the whole portfolio.
Please provide a concluding recommendation for action and substantiate your answers by reference to the preceding information and the completed analysis. Remember, that you are addressing the investment committee of GNL. You are ask by your supervisor to perform some market research and to make justified assumptions concerning the following parameters relevant to your market and investment valuation:
- Rent level
- Rental growth
- Net initial yields and / or cap rates of comparable transactions
Sub-Task: Market Valuation
In order to derive a purchase price indication, you are supposed to perform a market valuation (valuation date: 01/01/2018) for the selected properties using Excel.
Accordingly, the market value is 'the expected price at which the asset can be sold in the current property market'; it does not take into account the use of debt financing or the investor-specific tax situation. Performing a DCF Valuation (for a 10-year period), the market value equals the present value of the expected cash flows from the property.
Please measure the riskiness of the asset by choosing an appropriate discount rate.
Sub-Task: Investment Valuation
The investment committee of Global Net Lease (GNL) needs a concise investment proposal that is relevant to Global Net Lease's portfolio strategy and investment criteria.
Since an investment valuation is specific to a particular owner of the asset, it is your task to perform a multi-period DCF valuation using Excel, and which is specific to Global Net Lease's expected
- holding period
- use of leverage and
- tax situation (German land transfer tax only).
Do Task 3 - Portfolio Investment Analysis, Sub-Task: Market Valuation, and Sub-Task: Investment Valuation.
Assignment Files -
https://www.dropbox.com/s/oto202j411hlnir/Case%20Study%20-%20Assignment%20Files.rar?dl=0