Rate of Return Study

Historical Rates of Return

Rate of Return Study

The Partnership Profiles Rate of Return Study is a comprehensive 15-page report detailing historical return rates for real estate entities such as publicly-held limited partnerships and REITs. This tool is useful in calculating discount rates under the Income Approach.

Detailed Description

The report offers detailed return rate information for limited partnerships and REITs, covering distributing and non-distributing entities with varying debt levels. It also includes calculations for real estate risk premiums using the latest available data. The report provides empirical data needed to estimate the required rate of return for non-controlling interests in real estate-holding entities.

Key Features

Historical rate of return data for real estate partnerships and REITs
Includes risk premium calculations using up-to-date data
Supports valuation of non-controlling interests under the Income Approach

Publisher: Partnership Profiles.

Detailed Description

This 15-page study provides detailed information about historical rates of return for real estate entities such as publicly held limited partnerships and REITs. The report not only provides the detailed information, it also explains the basis for the calculations. The information provided in this report is useful when calculating a discount rate using the Income Approach to value FLPs that hold real estate. The rates of return for limited partnerships and non-listed REITs include expected returns for distributing, non-distributing, high debt and no debt partnerships. The calculation of the real estate risk premium using the most current data is also included.

This report provides empirical rate of return data needed for valuing a non-controlling interest in an entity owning real estate under the Income Approach. Also, this report provides real estate risk premium data that is essential for developing a required rate of return under this valuation approach.

Empirical rate of return data is provided for real estate limited partnerships and REITs.

This study is updated annual and is provided in PDF format by email.

Data Source

Source

Primary Data Sources

The Rate of Return Study derives its data from:

Publicly Registered, Non-Traded Real Estate Limited Partnerships (RELPs): These entities are registered with the Securities and Exchange Commission (SEC) but are not listed on public exchanges.
Non-Traded Real Estate Investment Trusts (REITs): Similar to RELPs, these REITs are registered but not publicly traded, providing a relevant comparison for private real estate entities.
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The study analyzes transactional data from these entities, focusing on metrics such as net asset value (NAV), cash distributions, and debt levels. By examining the relationship between market prices and NAV, the study identifies discounts that reflect the lack of control and marketability inherent in minority interests.

Methodology

The Rate of Return Study employs a build-up approach to determine appropriate discount rates:

Risk-Free Rate: Based on U.S. Treasury securities.
Real Estate Risk Premium: Derived from the historical returns of the analyzed RELPs and REITs, adjusted for factors such as leverage and distribution policies.
Entity-Specific Risk Premium: Accounts for unique risks associated with the subject entity, including asset quality, management, and market conditions.

This methodology results in a discount rate that reflects the expected return required by investors in similar non-controlling, illiquid real estate investments.

Available from: Partnership Profiles.

Rate of Return Study

Rate of Return Study

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