We have valued hundreds of business properties in the UAE and the region, based on the local and international valuation standards.
For example, we have valued a private school, for a bank for the estimated market value of AED 190,000,000/= in Al Warqa.
The property is 10 years old. The construction quality appears to be average. The building is being refreshed with paint during the summer holidays 2017.
The building is reasonably maintained by internal staff. No other apparent or visible structural weakness in the building was noticed during the time of inspection, except some cracks on the external walls of the building.
We are not provided the information about the external facilities management contracts.
The property is a G+1 school development, with the following facilities extracted from the floor plans provided to us. The school has 65 classrooms, 1 Reception/ Lobby Area and 6 Offices for the admission, accounts, director, principal, Chief Operating Officer and Vice President, 1 conference room, 1 clinic, 2 store room, 1 staff toilets, 4 play area, 1 prayer hall, 2 swimming pools, 1 PMT room, 1 students development area, 1 rumpus room, 3 staff room, 1 multipurpose hall, 1 ICT room, 1 Islamic room, 1 library, 4 Art Rooms for music, dance, P.E. and audio visual rooms, 3 supervisor office, 5 laboratories for computer, biology, science and math, 8 boys and girls toilet and 4 stair cases.
There are 4 schools in the vicinity of the property. The property is also surrounded by majority of mid-end mid-rise residential buildings, some commercial buildings, super markets, banks, hotels, mosques, restaurants, groceries, petrol station, Emirates Post, hospitals and shops within 1 km radius.
The closest metro station of the red line to the property is Rashidiya, which is about 10 km away from the property. There are plenty of bus stops around the property at a walking distance to the property. Taxis are also readily available within the area.
The plot size is 100,000 square feet and we calculated 90,000 square feet approx. as per floor plans for the built up area.
Sources of Information and Documents Relied Upon
Floor Plans Building
Completion Certificate from Dubai Municipality
KHDA Educational Services Permit
2016 annual report
Deprecation from 2014 to 2023.
As the Property is a commercial business and is profit generating in nature, we have estimated its market value based on the Profit Approach. Further, we have used the Discounted Cash Flow (DCF) Methodology to account for the dynamic financial growth factors.
The fair maintainable operating profit is calculated taking all sustainable earnings and expenses, except the abnormal one-off costs, finance costs and depreciation.
For estimating the market value of the subject property, we have taken into account the following specific assumptions.
- The property is a fully operational business entity now and will remain so through the years to come.
- Considering the ‘Good’ rating extended by KHDA in 2016-2017 report, its current management is assumed to be a reasonably efficient operator (REO). We further assume that the same operating quality character (REO) will continue in the future. Otherwise, it may impact the student’s number, yearly tuition fee and other income and costs of the property.
- We have taken all financial cash flows from the school’s 2016 annual report audit, as the starting basis of cash flows, and have built 10 year projections on this basis.
- We have noticed that the number of students and total fee stated in the last KHDA Education Services Permit Report 2016-2107 are considerably lower than what are stated in the CMA spreadsheet provided by the Owner’s representative. We have taken and assumed the number of students at 1,736 in 2016 based on CMA spreadsheet provided by the Owner’s representative, assuming that they correspond to audited annual report, and are updated and correct.
- We also note that the number of students at 1,736 provided forms 99.2% of the total capacity of 1,750 in the school, which is high compared to the market average of similar schools. As per KHDA’ latest report, the national level occupancy in the schools is averaged at 88.6%. We assume that the provided occupancy data of the property is correct, and sustainable for few years based on the community living in UAE, the school being an affordable mid-fee school, KHDA’s good rating of the school, high current demand overall, and the upcoming 2020 expo event. Considering the upcoming supply of the schools however, we have assumed 95% occupancy after 2020.
- We learnt from the owner’s representatives that within the same premises structure, 10 more classrooms can and will be added, to provide a maximum capacity of 2,150 people. We have ignored this future development for the sake of this valuation, considering the facts that we are valuing the property as of the valuation date, and there are many factors of consideration that are not known/clear to us yet, like regulatory permissions, health and safety requirements, costs and timing of development., possible interruption to the operation of the school etc. However, we believe that the value of the property may increase with the development if and when achieved.
- We learnt from the owner’s representatives that the school has the permissions for 2 additional floors, increasing the students’ capacity to 3,200 students. We have ignored this future development for the sake of this valuation, considering the facts that we are valuing the property as of the valuation date, and there are many factors of consideration that are not known/clear to us yet, like regulatory permissions, health and safety requirements, costs and timing of development., possible interruption to the operation of the school etc. However, we believe that the value of the property may increase with the development if and when achieved.
- We have calculated the percentage of actual registration fee, admission fee, activity fee, transportation fee, and other revenues individually to the Tuition Fee in 2016, and applied the same formula for the coming 10 years. Same calculation is applied to project the staffing costs and other costs related cash flows.
- We have noticed and taken the fee discount figure from the School’s Audited Annual Report 2016, which calculates to be 5.1% of the total Tuition Fee. This discount is given only to staff and siblings, as per the Owners’ Representative. Therefore, we assume the level of Discount to be 5% of the expected Tuition Fee of the year across coming 10 years.
- Taking into account KHDA’s good rating of the school and high students occupancy, we have assumed a 2.4% increase in the tuition fee each year in the coming 10 years.
- Account Receivables represent the remaining quarter fee receivable between the financial year end (December) and academic year end (March). We have assumed no non-performance provisioning of the tuition fee or other income, as there no existing and expected delinquency in such payments, as confirmed by Owner’s Representative.
- Other revenue comes from workshops, curriculum and publications, books and stationery, uniforms revenue, Auditorium renting and other relatively small income factors, as per the explanation provided by Owner’s Representative.
- VAT is going to be applied w.e.f. 2018. We understand that schools are in general not subject to VAT. However, we have assumed that:
Staff Salaries and Employee Costs will have to increase by 5% in 2018 to help them manage additional VAT costs.
VAT of 5% will be applied on printing and stationery, repair and maintenance, postage and couriers, insurance and travelling expenses from 2018.
- We have assumed the following 3 areas of expenses based on our experience and market practice. These % are applied on total revenues.
Renovation and Replacement Reserve of 0.25% p.a.
Facilities Management Expenses like mechanical, electrical, plumbing, security etc. of 0.25% p.a., which is outsourced. The day to day maintenance of the building is done by in house technicians.
Other Expenses of 0.5% p.a., to manage irregular and unforeseen expenses.
- Considering the present market conditions, risk and returns for the similar properties in Dubai, and the property fundamentals, we have applied appropriate discount and yield rates to estimate the market value of the property.
- We are not provided with the built-up area of this larger and complicated to measure property. We have relied upon, used and measured the floor plans shared with us by the bank and/or the owner. Our measurements are approximation of the size of the built-up area. We assume no responsibility or liability for the 100% correctness of the built-up area used in this valuation. In order to have specialized and 100% accurate information about the built-up area of the subject property, we suggest the bank to utilize specialized quantity surveyors or construction consultants.
- As per AECOM Middle East Handbook 2016, the current cost of a low-rise average school is AED 447 per sqft. For the original construction date, i.e., 2007, we have assumed the construction costs of AED 250 per sqft.