The Valuation Multiple in management rights is a confluence of factors namely: 1.) Terms remaining in agreement. 2.) Geographic location 3.) Proportion of secure income (management fee) as opposed to variable (lease income) 4.) Size of Net income. 5.) Size of management fee income. Similar to a commercial asset, macroeconomic factors, such as interest rates, will affect multiples. That is a factor of discussion for later. Terms remaining in agreement: this variable has a large influence on the multiple. A big premium is paid for projects with the max term (25 years). Often it is very profitable for experienced investors to purchase projects with less than a 20 year term, and top up to 25 years after a year of operations. Geographic Location: Areas far north of Queensland such as Cairns will have much lower multiples 4-5 as opposed to projects centered around Brisbane CBD and surrounding areas plus Gold Coast. Factors such as lifestyle, convenience will affect multiples. Management fee income size / Net Income size: the larger the income equates to better efficiency. Larger projects optimize the use of manpower, usually equating into higher ROI. Management fee proportion of total income: there also maybe a premium to the multiple with regards to projects having a larger proportion of income derived from the stable/guaranteed component. I.e a project with 100% of its income derived from the management fee is basically guaranteed such cash flows for X terms. Comparing that to a project with 10% from management fee and 90% from leasing, in this project the investor is exposed to more risks with regards to occupancy rates, drop of letting etc.
Comments