Andrew Baum and David Hartzell, Global Property Investment, 2011 Performance measurement.

Andrew Baum and David Hartzell, Global Property Investment, 2011

Performance measurement


Agenda

• Benchmarks• Performance measurement

• single period return• IRR• TWRR

• The impact of expenditure• Timing and cash injections• Risk adjusted performance


Property performance measurement

• Why measure?• success or failure?• attribution and staff rewards• track records win business

• How to measure• objectives?• standards

• Technical issues• return measure?• risk?


Delivered return

• Single period returns• Income return

• income received over period/value at beginning of period• Capital return

• capital gain over period/value at beginning of period• Total return

• income return + capital return• Multi-period returns

• TWRR or IRR?


Total return: 1

• Income return = Y0-1/CV0

• Capital return is the change in value over the measurement period divided by the value at beginning of the period

• CR = [CV1 - CV0]/CV0

• Total return is the sum of income return and capital return• TR = [Y0-1 + CV1 - CV0]/CV0


Total return: 2

• CV0 = £100,000• CV1 = £105,000• Y0-1 = £10,000• TR = [Y0-1 + CV1 - CV0]/CV0

• TR = [£10,000 + £105,000 - £100,000]/£100,000• TR = £15,000/£100,000• TR = 15%• IR = 10%; CR = 5%


The optimal portfolio? UK, 1971-2010

Return (%) Risk (%) CV Equities 16.2 29.8 0.54Gilts 10.9 13.3 0.82Property 11.5 11.5 1.00

Source: IPD, PFR 2011Returns are geometric means, annual dataCV = coefficient of variation

Andrew Baum and David Hartzell, Global Property Investment, 2011 Performance measurement.

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