Research On The Valuation Of Equity Of Public Real Estate Companies

With the development of economics of China, the capital market of China isalso growing at a high speed. A great many real estate companies have gone publicfor the purpose of future development, including both big real estate companies andproject-oriented real estate companies. Project-oriented real estate company refers tosmall and medium real estate company. Compared to big real estate companies, thistype of companies have less projects and revenue, and they are less profitable.Valuation of equity of real estate companies is very important, because it is helpfulfor investors’(both institutional and individual) to make investment decision, and itis also helpful for the managers of these public companies to make strategies for thefuture development of these companies and to manage the companies based on thevaluation.In the process of valuation, we should not only follow the basic principle andsteps, but also pay great attention to the selection of valuation model. Only if weselect the appropriate model, then we can valuate equity of a company correctly.This paper focuses on the research on the valuation model of equity of public realestate companies. Firstly, this paper emphasize the value we will valuate is theintrinsic value of equity, and introduces the basic principle and steps in valuation.Secondly, this paper gives a description of public real estate companies in detail.Thirdly, by theoretical analysis this paper argues that many valuation model in thecurrent market condition, including relative valuation model and net asset valuemodel are not appropriate for public real estate companies. This paper argues thatfree cash flow model can reflect long-run true value of companies equity moreproperly. However, according to the characteristics of public real estate companies,this paper put public real estate companies into two categories, big real estate companies and project-oriented real estate companies. Furthermore, this paper putproject-oriented real estate companies into two categories: project-oriented realestate companies capable of outward expansion and the companies without thatcapability. Then this paper argues that free cash flow model is appropriate only forbig public real estate companies and the public project-oriented real estatecompanies capable of outward expansion.This paper studies two cases of Vanke Company and Yeland Company.According to the financial data published by these two companies, this papervaluates the equity of these two companies by using free cash flow model.Especially in the valuation of Yeland Company, given the characteristics of thiscompany, this paper uses the four-stage free cash flow model to valuate its equity.This paper empirically proves that free cash flow model is appropriate valuationmodel of equity for big public real estate companies and the public project-orientedreal estate companies capable of outward expansion.