This presentation by JLL provides an overview of real estate valuation for an MBA class. It introduces JLL and the presenters, then covers defining valuation and its purpose, common valuation methods like income capitalization and discounted cash flow, an example residual land valuation, valuation regulations in Saudi Arabia, and concludes with a Q&A.

1. Presentation to Al Faisal University
MBA Class on Valuation
MBA 590 Real Estate Analysis
Ross McLaughlin MRICS
Associate Director, JLL
AbdulRahman Al Jafar
Manager, JLL

2. Agenda
Introducing JLL
1
Example: Income Capitalisation & DCF
3
Example: Residual Land Valuation (RLV)
4
Valuation Practice and Regulation in KSA
5
5
Questions & Answers
6
Defining Valuation, its Purpose and Methods
2

3. Introducing JLL

4. Ross & AbdulRahman
Ross McLaughlin MRICS
Associate Director – Valuation Advisory MENA
+971 50887 6098
ross.mclaughlin@jll.com
Ross is an Associate Director within the firm’s Valuation Advisory team and has a broad understanding and experience of the MENA region’s real estate markets having lived and worked in Bahrain, Saudi Arabia and the UAE during the past seven years.
Ross’ recent valuation experience includes portfolio investment valuations, residual land valuations of large masterplanned schemes, comparable land valuations and development feasibility on mixed-use projects. He has undertaken valuations for a wide range of purposes including loan security, IPOs, corporate M&As and financial reporting.
Ross has worked on high-profile projects across KSA including Kingdom Tower, Riyadh Business Gate, Burj Rafal, Jabal Omar, Um Al Qura and Al Balad Al Ameen.
Ross’ notable clients include Al Balad Al Ameen, Umm Al Qura for Development & Construction Company, Al Muhaidib Group, Abdul Latif Jameel, Jadwa Investment and a number of local, regional and international banks including Al Rajhi Bank, Al Rajhi Capital, NCB Capital, Al Khabeer Capital, Samba Bank, Saudi Fransi Capital.
Ross holds a Masters of Science (MSc) in Real Estate from the University of Glasgow (UK) and is a member of the Royal Institution of Chartered Surveyors (RICS).
3
Abdulrahman Al Jafar
Manager – Advisory
+966 11 218 0303
abdulrahman.aljafar@jll.com
In his role with JLL, Abdulrahman's responsibilities include undertaking a wide variety of commercial valuation reports for developers, financers, corporate occupiers and institutional investors throughout the Middle East and North Africa.
Abdulrahman brings four years of real estate experience from MENA region and Saudi Arabia in particular where he has worked in the Transaction Real Estate Advisory Services in Ernst & Young (EY). Abdulrahman has provided strategic advisory on a significant number of feasibility and highest and best use studies in addition to valuation assignments for large and high-profile developments in the Middle East and North Africa.
Abdulrahman has worked with a range of clients including Capital Market Authority, Real Estate Development Fund, Human Resource Development Fund, Saudi Commission for Tourism and Antiquities, Fransi Capital, Jadwa Capital, Al Aqaria Company, Al Olaibi Group, Al Dakheel Company, Al Rashed Contracting Company, Bin Seadan Group, Ajlan and Bros, Al Rajhi Holding, NEO Holding, Dar Al Bayan Holding and other professional firms.
Abdulrahman holds a Bachelor degree in Finance and Economics with Honours from King Fahd University of Petroleum and Minerals (KFUPM) and is a member of International Association of Consultants, Valuators and Analysts (IACVA).

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$4B
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One Company. One Experience. Around the Globe.
4

6. Experience in Middle East & Africa (MEA)
Across the Middle East, North and Sub-Saharan Africa, Jones Lang LaSalle (JLL) is a leading player in the real estate market and hospitality services market. The firm has worked in 40 Middle Eastern and African countries and has advised clients on more than US$ 1 trillion worth of real estate, hospitality and infrastructure developments. JLL employs over 160 internationally qualified real estate and hospitality professionals of 30 nationalities with regional offices in Dubai, Abu Dhabi, Riyadh, Jeddah and Cairo. Combined with the neighbouring offices in Casablanca, Istanbul and Johannesburg, the firm employs more than 450 professionals and provides comprehensive services across the wider Middle East and African (MEA) region.
Dubai
Abu Dhabi
Riyadh
Jeddah
Cairo
Istanbul
Casablanca
Johannesburg
Mauritius
Seychelles
Maldives
Zanzibar
Malta
Djibouti
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7. Property &
Asset Management
Research
Retail
Agency
Middle-East & Africa Integrated Services
•Property Management Advisory Services
•Facilities Management
•Estate & Community Management
Advisory
VALUATION ADVISORY
•Project appraisal
•Residual land valuation
•Financing & loan security
•IPOs & Listings
•Balance sheet / Accounting
STRATEGIC CONSULTING
•Development & Asset Strategy
•Market & Feasibility Analysis
•Land Best Use Analysis
•Master Plan Development and Financial Advisory
LEASING
•Development Consultancy
•Leasing
•Brokerage
TENANT REPRESENTATION
•Office & Industrial Acquisition
•Lease Regear
•Lease Renewal
CONSULTING
•Strategic Advisory
•Development Consultancy
•Feasibility Study & HBU
LEASING
•Leasing & Brokerage
•Lease Regear / Renewals
•Retailer Mandates
Capital Markets
CORPORATE FINANCE ADVISORY
•Portfolio & Fund Advisory
•Capital Raising
•Value Recovery Services
INVESTMENT TRANSACTIONS
•Asset & Portfolio Acquisition
•Asset & Portfolio Disposal
•London Residential Sales
•Regular market commentaries
•One off thought leadership
•Tailored market research
•Insight on current & future market conditions
Project & Development Services
Hotels
OWNERS SERVICES
•Asset Management
•Operator Selection & Negotiations
•Value Recovery Services
CAPITAL MARKETS
•Asset & Portfolio Acquisition & Disposal
•Structured Transactions
•Investment Planning
ADVISORY
•Development & Strategic Advisory
•Market & Feasibility Studies
•Valuations / feasibility
•Project Management
•Development management
•Due diligence & project consultancy
•Cost Management
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London Residential
•Land & Development
•Consultancy & Advisory
•New Homes
•Property Management
•Residential Investment – Capital Markets

8. Introducing JLL: Saudi Arabia
7
•30 staff based in Riyadh and Jeddah.
•Full service capability including research, valuations, consulting, tenant representation, leasing and asset management supported by regional team headquartered in Dubai.
•10 years track record in KSA
•Advisor to Saudi Aramco, PPA, GOSI, Al Rajhi Bank, Samba Bank, NCB, JEC, Jabal Omar, Al Balad Al Ameen and Umm Al Qura.
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9. Defining Valuation, its Purpose and Methods

10. Defining Valuation, its Purpose and Methods
9
What is a valuation?
•Professional independent opinion of value
•Represents the figure that would appear in hypothetical contract of sale
•What would the property sell for in the open market? Regulation
•International Valuation Standards (IVS)
•Royal Institution of Chartered Surveyors (RICS)
•RICS Valuation – Professional Standards 2014 (“Red Book”)
•RICS Valuer Registration Scheme (VRS)

11. Defining Valuation, its Purpose and Methods
10
Basis of Value
•A statement of the fundamental measurement assumptions of a valuation
•Conceptual framework of the International Valuation Standards Council (IVSC), which is also adopted by the RICS:
•Market Value, Market Rent, Investment Value (Worth), Fair Value
•Market Value is the most commonly adopted basis for valuations: “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”

12. Defining Valuation, its Purpose and Methods
11
What is the Purpose of a valuation?
•They underpin all financial decisions
•Buying/Selling, Renting, Financing, IPOs, PPMs, Sukuk, Financial Reporting, M&As
•Demonstrate independence and to comply with Best Practice, e.g. IFRS
•Informed decision making
•Efficient and effective management of opportunities and exposure
•Risk management

13. Defining Valuation, its Purpose and Methods
12
Valuation Methodology
•Five methodologies within three approaches: Market Approach
•Comparable Method (Sales Approach) Income Approach
•Income Capitalisation/DCF
•Profits Method
•Residual Land Valuation (RLV) Cost Approach
•Depreciated Replacement Cost (DRC)

14. Defining Valuation, its Purpose and Methods
13
Fundamental Principle of Income Approach
•Converting future cashflows to present value
•Considers the income that a property will generate over its useful life and coverts to a single capital sum by capitalising at an appropriate discount rate/yield Income Approach Methodology
•Income Capitalisation All Risks Yield (ARY) is applied to the income stream. ARY is growth Implicit All risks and rewards of the property are reflected in the ARY
•Discounted Cashflow A discount rate is applied to a series of cashflows to calculate a Net Present Value (NPV). Growth modelled explicitly in cashflow

15. Example: Income Capitalisation and DCF

16. Example: Income Capitalisation and DCF
15
•Market Value is determined by Net Operating Income and multiplier (derived from All Risk Yield)
•All Risk Yield is derived from transactional evidence for similar properties in the market
Parameter
Inputs
Gross Income
(Rent, service charge, other income)
1,000,0000
- Operating Costs
250,000
= Net Income
750,000
Net Initial Yield
8%
x YP Perp
12.5
Capital Value
9,375,000
Growth is reflected implicitly in the All Risks Yield

17. Example: Income Capitalisation and DCF
16
•Market Value is determined by applying a market derived discount rate to a series of future cashflows
•Growth is modelled explicitly in the cashflow
CF Period
1
2
3
4
Growth
2%
2%
2%
2%
Gross Income
1,000,000
1,020,000
1,040,400
1,061,208
Operating Costs
250,000
255,000
260,100
265,302
Net Income
750,000
765,000
780,300
795,906
Terminal Value @ 8%
9,948,825
DR @ 9.55%
0.912807
0.833216
0.760565
0.694249
DCF
684,605
637,410
593,469
7,459,516
NPV
9,375,000

18. Example: Residual Land Valuation (RLV)

19. Example: Residual Land Valuation (RLV)
18
•Also known as the Development Method
•Used to value land and projects under construction
•Used where there is a potential to put the land to higher value use (masterplans)
•Maximum price that a hypothetical developer would pay for the land to achieve acceptable hurdle rates based on the most probable development option for the land

20. Example: Residual Land Valuation (RLV)
19
RLV Process There are 4 stages in the residual method:
•Highest and Best Use Establish the development or redevelopment/refurbishment potential within the market for that parcel of real estate in that location
•Calculate Gross Development Value The GDV is calculated using the comparative or income approach
•Deduct Development Costs (including profit) Assess all the development costs, including an amount for normal profit, allowing for risks and timing of the project, and for the finance costs and interest charges on the capital (money) needed to fund the whole of the scheme
•The costs are added together and deducted from GDV to arrive at a Residual Land Value (RLV)

21. Valuation Practice & Regulation in KSA

22. Valuation Practice & Regulation in KSA
21
•Historically an unregulated real estate market in KSA
•Increased regulation and sophistication as the market matures including:
•Taqeem (Accredited Valuers Law)
•Mortgage Law
•Off-plan sales/Land subdivision Law
•Capital Market Authority (CMA) Fund Valuations
•More stringent corporate auditing/compliance

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25. Highest Reputation for Ethics and Governance
World class corporate governance, transparency and corporate social responsibility: World’s Most Ethical Companies 2008-2014 – Ethisphere Institute Ethics Inside Certified 2009-2013 – Ethisphere Institute Global Outsourcing Award 2009-2013 – IAOP
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26. Best Property Consultancy - 2009, 2010 and 2011 – Bloomberg Arabian Property Awards
Best Real Estate Advisory & Consultancy Firm 2008, 2009, 2011 and 2013 (UAE) – Euromoney
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100 Best Corporate Citizens 2013– CRO (Corporate Responsibility Officer) magazine
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Development and Excellence Award 2008 – Urban Land Institute
Track Record of Achievement
25

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This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of
Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of
this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party
resulting from reliance on this publication.