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The purpose of this paper is to comment upon the on-going debate about the preferred use of implicit models of valuation vs their explicit counterparts. The last few decades have seen changing complexities in UK leasing structures, and there is a suggestion that the implicit models are incapable of dealing with these complexities. This paper looks to address the issues and concerns with implicit models.

This education briefing is an overview of the pros and cons of both models and collates comments from industry to give an indication of the use of each model.

This paper analyses the appropriateness of implicit models of valuation and the areas in which they prove useful. Although the explicit models prove to be more useful in certain situations, the implicit models are also proved just as useful. The appropriate model needs to be used as appropriate to the property type.

Rather than seeing implicit and explicit models as “rivals”, they should be seen as two sides of the same coin. Both have advantages and disadvantages. The role of the valuer in practice is to choose the correct model for the valuation task in hand.

This is a review of existing models.

The purpose of this paper is to use fundamental models incorporating structural relationships within the firm in a terminal value model for the second stage of a two-stage valuation model utilized to estimate the value of a company.

The innovation is that growth options are identified within the structural relationships and a model capturing the value of the optionality is incorporated in the second stage of the two-stage valuation model.

Significant outcomes are that terminal value is shown to be a large portion of a company’s total value and the price behavior for initial public offerings produced by the model is consistent with the result of empirical studies.

This paper explicitly incorporates growth options in the second stage of a two-stage valuation model for the firm.

In the last 40 years, the UK valuation profession has relied heavily upon the “hardcore” or “layer” method for valuing reversionary properties (under‐ and/or over‐rented). This approach is not used elsewhere in the world and, prior to the rent freeze of the 1970s in the UK, it wasn't a principal method in the UK. However, valuers today, particularly in London, use this method exclusively despite it producing erroneous answers in certain cases (over‐rented; non‐normal cash flows). This paper seeks to address these issues.

This paper undertakes an indicative pilot study of valuation models used in the valuation of reversionary properties in the downturn of 2008‐2012. The study, whilst small, provided an insight into the techniques chosen by valuers to look at properties where the risk of falling rents, voids and prolonged vacancy is relatively high.

The paper looks at approaches, methods and techniques for property valuation. It identifies that the determination of the UK valuation profession to cling to familiar valuation models, no matter how inappropriate, may lead to mis‐valuations. Alternative, more appropriate, implicit and explicit models are suggested.

It is the opinion of this paper that the UK property market is now so different from the market that prevailed when the layer model was introduced that it no longer has a place in the valuers' armoury of methods to use. This paper looks at a number of case study examples and offers other (more appropriate) options for valuing reversionary interests. In particular, the findings from the study will be useful for valuers to be better able to identify the critical points in the expected cash flow and thus be better able to reflect the appropriate risk in the valuation figure provided.

Valuation is the process of estimating price. The methods used to determine value attempt to model the thought processes of the market and thus estimate price by reference to observed historic data. This information is utilised in the discounted cash flow (DCF) valuation model to determine the single point valuation figure. However, the valuation will be affected by uncertainties: uncertainty in the comparable data available; uncertainty in the current and future market conditions and uncertainty in the specific inputs for the subject property. These input uncertainties will translate into an uncertainty with the output figure, the estimate of price. This paper discusses ways in which uncertainty can be incorporated into the DCF model.

This paper looks at the way in which uncertainty can be incorporated into the explicit DCF model. This is done by recognising that the input variables are uncertain and will have a probability distribution pertaining to each of them. Thus by utilising a probability‐based valuation model (using Crystal Ball) it is possible to incorporate uncertainty into the analysis and address the shortcomings of the current model.

The outcome of introducing uncertainty in the inputs is to produce a range of different answers. The central tendency of this distribution is very close to the single point estimate of the static model, yet the user of the technique now benefits from an understanding of the upside and downside risk pertaining to this single point estimate.

This study contributes significantly to the practical application of probability‐based models to valuation. In particular, the findings from the study will be useful for clients to understand better the context in which a valuation figure is provided to them.

The aim of this Education Briefing is to comment upon the construction and role of the capitalisation rate in the valuation of property assets and how the implicit assumptions of growth are market derived and may be considered more robust than the use of growth explicit discounted cash flow (DCF) models where explicit growth assumptions can be questioned.

This Education Briefing will look at the role of analysing initial yields to derive market capitalisation rates, and it will look at component parts of the yield to isolate growth assumptions and compare property returns to the government bond market.

Looking at the Maltese market, the briefing shows that the valuer needs to be aware of the advantages and disadvantages of implicit and explicit valuation models.

The choice of valuation model is dependent upon the availability of suitable comparable information and the appropriateness of the model for the market in question. More transparent markets can benefit from the use of explicit models but where information is less available, such as the Maltese market, implicit models may be considered more robust at estimating market value.

This is an Education Briefing discussing the construction and applicability of implicit valuation models using a market capitalisation rate.

It is well recognised that the UK commercial property market has traditionally used nominal market benchmarks such as the all‐risk yield based on the assumption that rents are received annually in arrears. Obviously, the reality of the market is that rents are invariably received quarterly in advance and it has been suggested that valuers should move towards valuation techniques that reflect the actual timing of the cash flow. The Investment Property Forum issued a paper in September 1999 promulgating the use of quarterly in advance valuations. Parry’s Tables provides quarterly in advance formulae that reflect the reality of rental income and indicates that an annual effective yield should be used instead of a nominal yield to compensate for the subsequent compounding resulting from an income received quarterly. However, as will be shown, the effective yield formula provided by Parry’s does not reflect quarterly payments that are received in advance so compromising the accurate transition from annually in arrears to quarterly in advance formulae based valuations. Tables produced by the IPF have rectified this problem in part as they correctly work on the premise that capital values will not change as the profession changes to a quarterly approach. It is the yield which will be expressed differently. The use of an all risk yield technique for valuation is actually a comparative method. The way in which the yield is expressed is not the critical issue, it is the multiplier against the rent which will determine value. This paper provides the formula required to accurately transfer annually in arrears data into quarterly in advance data together with the formulae required for contemporary growth explicit discounted cash flows (DCF).

In March 1994 the Mallinson Working Party on commercial property valuations produced their report outlining a number of initiatives which the RICS should undertake to help improve the standing of the valuation survey within the business world. The recommendations related to the need to improve the technical element of the valuers’ skill by updating and extending the mathematical models; extending the access to and the use of data and revising the way in which they express their judgement. As information availability increases, the role of the valuer will need to change to provide the client with more analysis, interpretation and professional judgement. To be able to do this effectively, the profession will need to adopt new valuation techniques to utilize better the information available. Part I provides an exposition of the range of valuation techniques available.

There are three approaches to valuation: cost, market and income. As a subset to the income approach, the investment method looks at the pricing of assets that produce income over an investment holding period. The discounted cash flow (DCF) technique or model can be developed to look at the cash flows on a quarterly basis to reflect the actual receipt of the cash flows. This Education Briefing is a overview of the DCF quarterly model and the need to analyse comparables appropriately. The paper aims to discuss these issue.

The DCF quarterly model can be seen to produce estimates of market value.

As the use of DCF is developed and expanded, it is useful to be able to model the cash flows appropriately.

The old adage “value as you analyse” applies to DCF valuations. If valuing quarterly, then the analysis needs to be done on the same basis.

This briefing is an overview of the pricing of freehold rack rented properties in the UK.

The purpose of this research is to ascertain the extent to which the income capitalization approach reflects the pattern of emerging rental income in Enugu property market.

The survey research design was used in this study. Data from the field was gathered through a data collection pro forma administered to 40 valuers in Enugu metropolis in the manner of conducting interviews. This study used key valuation details of 54 sampled income generating properties valued by the respondent valuers between 2015 and 2022 using the income capitalization approach. The same sampled properties were then revalued by the researchers using annuity due assumption/formulas of the income capitalization approach. Descriptive and inferential statistics were used to analyze the data.

The study revealed that the income capitalization approach used by most valuers in Enugu does not reflect the property rental income pattern prevailing in Enugu property market where rents are paid in advance. The study further shows that the application of the income capitalization approach for valuation of annually in-advance property rental income cash flow results in a higher capital value of 3.49% in Enugu property market.

The limitations to this study are that past valuation done by valuers were used in the analysis instead of actual property sales and a relatively small number of sampled valuers and properties are used in the study The implication of the study is that ordinary annuity assumptions or formulas is inaccurate and not suitable for valuation of income generating property in an emerging market like Nigerian where timing of cash flow is annually in advance. Based on the result of this study it seems that ordinary annuity approach negate the principle of estimating value using income capitalization method by converting future cash flow from income generating property into an estimate of property value.

The study advocates the adoption of the use of annuity due formulas in the valuation of income generating properties in Nigeria as its practice standard to avoid undervaluation as this assumption is logical and provides more accurate value due to prevailing lease structure and rent payments patterns in the country. The implication of the study is that the use of ordinary annuity assumptions or formulas is inaccurate and not suitable for the valuation of income generating property in an emerging market like Nigerian where timing of cash flow is annually in advance.

This is one of the very few empirical studies carried out in Nigeria to ascertain the extent to which the income capitalization approach used by valuers reflects the rental income pattern that prevails in the Nigeria property market.

The purpose of this paper is to discuss the principal measures of performance used in property and other investment types. In particular, the briefing will explore the relationship of the expected IRR with the initial return, highlighting the role of growth in the investment dynamic.

This education briefing is an overview of investment growth models with worked examples.

The analysis of property growth models is akin to the Fisher and Gordon growth models used in other finance markets.

This comparison of the models can work for all forms of investment. Similarly, instead of looking at the overall return as the measure of comparison (expected vs required), it is possible to work backwards and deduce market expectations and compare these with the investors view on those variables.

This is a review of existing models.