Heikens, Saskia (2009) A model to assist the real estate investment decision making process at a large academic hospital. thesis, Other studies (UMCG).
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Abstract
Introduction Changes in the healthcare sector make hospitals more responsible for their investment decisions. There is a need to focus more on the investment decision making process and to determine the consequences of these investments. For this reason, this thesis discusses the ways in which a model is developed to assist the real estate decision making process regarding the investment opportunities at the UMCG. The goal of the thesis was to: Develop a model by which decisions, regarding investments in the real estate at the UMCG, can be made. From this goal, two central questions were derived. The first focuses on the method used in the model: What is the best way to analyse investment opportunities to serve as the foundation of the model and that fits with the UMCG and its surroundings? The second question focuses on the development and working of the model itself: In which way can a model be developed that assists the decision making process for real estate projects at the UMCG? Method Literature study, consultation of stakeholders and testing the model. The literature study focuses on the methods of investment decisions that exist within the academic community. Stakeholders were consulted to discuss the progress thus far, to list possible improvements and to obtain information. When the model was developed and applied to an old case, the future users of the model tested it to see if the model and the manual that supports the model were understandable and usable. Results The literature provided information for comparison of three different methods of analysing investment opportunities: the Discounted Cash Flow (DCF), Real Options Analysis (ROA) and Direct Capitalisation (DC). The DCF method was favoured, mainly because it is accurate and easily understandable. This last argument allows the model to be used by financial and non-financial persons. The Net Present Value (NPV) of all possible different alternatives was given as output and was compared to each other to determine the best alternative. This NPV lists the total present value of all the cash flows during the lifespan of a project. The Weighted Average cost of Capital (WACC) is the weighted average between the cost of debt and cost of equity and was used to determine the discount factor. Calculating this for the UMCG resulted in a WACC of 6,07%. The input consists out of the operational income and expenses, the initial investment income or expenses and the duration of the project. The output was given by the NPV and a sensitivity analysis to see what happens if the revenues rise of fall up to 5%. An important feature of the model was its flexibility so it can be used for real estate investments for any project within the UMCG. The model was applied to a current case where the psychiatric department for adults (UCP) and children (UCKJP) need new housing. Please note that the absolute values of the NPVs contain a large degree of uncertainty, because the allocating of the Academisch Component en Rijksbijdrage (AC&R) and the overhead expenses may not be fully accurate. Any improvements that are done to make these input parameters more reliable would greatly improve the accuracy of the NPV. This lack of accuracy on the NPV was not a great problem since the main function of the model is to compare different alternatives and the uncertain input was the same for each alternative. This means that the ranking of the alternatives remains the same regardless of the height of the AC&R and overhead expenses. Another limitation was that the model can only list options that are available now, not ones that may come available in the future. This limits the number of alternatives that can be listed. Further improvements on this matter can be made by expanding the model to include option or decision trees that can list all possible options. Conclusion The best way to analyse investment opportunities to serve as the foundation of the model and that fits with the UMCG and its surroundings is to use the DCF method in which the NPV is used as output. The WACC is used to determine the discount factor. By listing the requirements of the model, the input and output parameters became clear. Applying the model to a case and testing it by the future users showed that the model works as it should. Further improvements to the model can be made by finding a better peer group when calculating the WACC, using option trees to add flexibility and improving the allocation of certain centralized budgets.
| Item Type: | Thesis (Thesis) |
|---|---|
| Supervisor name: | Heida, drs. R.J. |
| Supervisor name: | Wouters, prof. dr. ir. M.J.F. and Joosten, dr. R.A.M.G. |
| Faculty: | Economics and Business |
| Keywords: | Besluitvormingsprocessen, Investeringen, Onroerend goed, Economie, Ziekenhuizen |
| Date Deposited: | 25 Jun 2020 10:49 |
| Last Modified: | 25 Jun 2020 10:49 |
| URI: | https://umcg.studenttheses.ub.rug.nl/id/eprint/1032 |
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