How to Maximise the Value of your Strata Portfolio
There are essentially two ways of increasing the value of your business - increase profits or increase asset valuation.
To increase profits you should consider the following:
- your office efficiency
- how internal cost controls are managed
- your staff retention record
- the overall pricing strategy used
- how charge-outs are maximised
- what staff training is offered
Increase Asset Valuation
To increase the traditional asset valuation you should consider:
- the number of lots currently under management
- the average lot size
- the current signed agreements the business has
- what the length of these agreements are
How do you value a strata portfolio?
Given the lack of any other reliable valuation method, the intrinsic value of the strata roll is often determined by a market multiple of the annual aggregated total of contractually based strata administration fees (often referred to as 'secretarial' fees). These Business Valuation Multiples are driven by market forces and can vary from state to state. Also the appropriate multiple can be subject to differing qualitative aspects including location, size, software systems, reputation and lot concentrations of the strata roll itself. Generally, smaller lot/fee portfolios, or those with material concentrations of revenue will sell at a multiple below the average.
There is also a propensity for larger strata management businesses to sell on a multiple of earnings (four to six times) rather than on a secretarial fee multiple.
Some strata managers may also operate an ‘all in’ fee model where the fee charged per Lots Under Management to each body corporate is materially higher, but the services provided under the contract include all of those ordinarily considered to be additional. This may have a tendency to reduce (slightly) the overall potential revenue pool but it adds more certainty to the income line of the strata manager and to the expense line of the body corporate.
While some purchase contracts contain clauses that explicitly state a sale price being determined on the basis of a multiple, other contacts are silent on factors determining price.