Golf Course Valuation

[Joel_Stewart]

I know this isn't related to architecture but I would be interested if anyone knows a common method for placing a valuation on a golf course.  I'll assume some type of cash flow method is involved but unsure if a model is consistent due to different revenue streams, ie,. green fees, carts, food, merchandise. Thanks.

[Dave_Miller]

Joel:

Have never valued a golf course and there may be a model that someone like Roger Hansen would know but my approach would be the same as coming up with a value for any business.

Asset values and altenate uses could be considered.  Although given the property tax situation in states alternate uses may not be feasible.

Cash flows from all sources should be evaluated.  Green fees, cart fees, merchandise, range, snack bar, dining room etc.  Generally these cash flows are assigned a multiple to determine a valuation.  

Some industries have standard multiples that make sense and some are just negotiated.

I do not know if there is a multiple of cash flow that would apply to the golf industry.

Again someone like Roger Hansen might know this.

Best
Dave

[SL_Solow]

The wild card in all golf course valuations is the land value for alternative uses and the strength of the housing market.  Sometimes he course has a greater economic value if converted to housing stock.  The appraisere call that highest and best use although many of us would disagree.

[Mike Hendren]

As a lender on income producing properties (I'll leave it up to you as to whether that would include golf courses), new golf courses are notorious for underperforming compared to feasibility studies.  Come to think of it, anybody in the business of providing such studies would quickly be out of the business if they repeatedly reported that such developments were not feasible!  The common wisdom is that the third owner usually makes money.  

Existing courses are valued based upon cash flow but I'm not hip to how.  Guessing, an investor would likely look for a cash on cash return in at least the high teens given the risk involved.  Given the stock market doldrums and the prevailing cheap cost of debt capital, a lower return might presently be acceptable. In the right location, it's a great way to bank land - almost as good as the nearly extinct drive-in movie theater.   Where's Joe Bob Briggs when you need him?

[Kevin_Reilly]

Cash flows are cash flows, so a golf course's valuation multiples shouldn't be that different than any other business.  Financial investors (guys who buy and then sell businesses) buy businesses at 4-6x cash flow, strategic investors (ie companies already in the business who are buying up smaller players) usually pay a little more, say 6-8x.  Of course people selling want 10-12+ multiples....

I wouldn't assign different multiples to the various sources of cash flow at the course.  The course should be looked at as one business, with its component cash flows summing to one number, upon which a multiple is applied.

In retail, operators look for cash-on-cash returns in the first year at >50%, and fully capitalized returns >20%.  These numbers are before overhead at the home office.  A business generating cash on cash returns in the high teens including all overhead is marginal, in my opinion.

The one difference between a golf course's cash flows and another business is the growth rate...I'd imagine that the revenue growth rate for a golf course is relatively low.  So that would lead me to pay a lower multiple for such a course compared to a business with better revenue growth prospects.

[Ken_Cotner]

Kevin,

4-8x pretax cash flow or ATX?

Ken

[Kevin_Reilly]

Pretax...it is ebitda.

[Jeff_Brauer]

Kevins post is about right, based on valuations I have seen.  I would say three (if buying) to seven (if selling) is typical ratio of selling price to total cash flow.

A buyer does need to examine whether any new ideas in marketing can increase revenues.  If a club has full membership rolls, there is really little room for increased revenue.  Ditto with a public course playing near max. capacity.  And if not playing to max. capacity, the buyer has to know why not.

[SBusch (Guest)]

For most buyers, price (and therefore, multiple) is based on a fomula which takes into account each buyer's desired equity returns, their particular borrowing costs, and their projected NOI.  Unlike apartments or office buildings, golf courses have large issues out of the control of the owner such as weather and management, which make NOI bounce around a bit.  For this reason, while multiples are good rules of thumb, they need to be taken with a grain of salt.

Historically, golf courses have generally traded in the 8-10x range depending, as Jeff pointed out, on the potential for growth.  They got a bit crazy in the late 90's when 11x and higher were the norm, but things appear to be back to normal, although many deals are still happening at the 10x+ range.

[Mike Vegis @ Kiawah]

All I know is that we spent in the neighborhood of $27 million for The Ocean Course in 1995.

[Larry Hirsh]

Mr. Stewart:

I value golf course properties for a living.  If you would like to call me to discuss, I would be happy to do so.

Larry Hirsh, President
Golf Property Analysts
717-920-5157

[Brad Klein]

Maybe we should sell Web-based ads. Larry is the best.

[Lou_Duran]

Larry:

Does a golf operation which generates negative operating income have negative value?  Is the value of such a golf course the alternative value of the land discounted for clean-up and marketing time?  Isn't the quality of the current and future cash flow the real key in valuation?  Assuming that stabilized investment grade commercial real estate sells in a range of 10 to 12x net operating income, how much of a risk premium would a golf course require?   Finally, in analyzing the income stream, how much faith do you place in feasibility studies completed to justify new construction?  How does an appraiser incorporate the rather erratic supply cycle of the industry in estimating future income?