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Valuing a minority interest in an entity with farm/ranch ownership and/or operations can be tricky. As analysts, we are bound to valuation theory, but economic reality must play a role as well. As valuation professionals know, an owner of a minority interest cannot force liquidation of assets, so that precludes us from strictly employing the asset approach. However, cash flows from farms and ranches are very low in relation to the underlying ground; as such, the value determined by employing the income approach is significantly lower than what a hypothetical buyer of such minority interest would likely pay. Therefore, we have a conundrum. The answer to such conundrum is the weighted approach! Join Ericka Heiser for this must-attend webinar to discover how this approach incorporates both valuation theory and economic reality.
Program Agenda
Define unique circumstances owning a minority interest of farm/ranch ownership
How the Partnership/Operating Agreement plays a role
Describe approaches used to value such interest
Discuss court cases to buttress the Weighted Approach
Outline how to incorporate the rate of return study of publicly-held real estate limited partnerships and REITS to calculate the appropriate capitalization rate
Discuss how to deal with discounts for lack of control and marketability
Determine what weighting is appropriate
Describe methods to test the reasonableness of the weighting and overall discount
Outline tips on report writing
Learning Objectives
Understand the unique circumstances of owning a minority interest in an entity that owns and operates a farm/ranch
Understand how components of entity’s partnership/operating agreement can affect how to weight the approaches, or if it is even appropriate
Discover how to weight valuation approaches to determine a value of a minority interest using both valuation theory and economic realities
Learn about applicable court cases and how they support such approach
Explore the rate of return study of publicly-held real estate limited partnerships and REITs to appropriately calculate the capitalization rate in farm/ranch valuations
Expand knowledge of discounts for lack of control and marketability as they pertain to farm/ranch entities
Understanding the Weighted Approach and the appropriate weighting
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