To fully understand the survival potential of a tenant,
analysis should cover two key areas: financials and markets.
Financial analysis is important because it provides a picture
of where a company has been and defines its ability to sell
products at a profit, generating positive cash flow and
adequately capitalize its business. Market analysis is important
because it is forward looking and focuses on the period
when a landlord’s dollars will be at risk. Financial
statements will not provide information about shifting market
dynamics, competitive environments, outmoded products, and
misguided strategic plans.
To gain the highest level of certainty about a tenant’s
future viability, all aspects of its financials and markets
should be analyzed. In the real world, however, budget and
time constraints don’t always make that feasible. Our
analytical options have been designed to enable you to pick
a mix of financial and market packages that balance the
depth of tenant scrutiny with a budget that fits the economics
of each particular situation.
Written reports present the results of our research in
simple, easy-to-understand formats. They vary widely in
the depth of their discussions and how specific their recommendations
and conclusions are. The basic rule of thumb is that the
more comprehensive the analysis and the more information
we have to draw on, then the more definite and precise we
are able to be with our judgments and opinions. The Alliance
Group provides a range of reports that can fit any of your
needs, from simple file back up for your decisions, to presentations
to investment committees.
Financial Trends Review
This option provides an in-depth review of a tenant’s
financials over a 3-4 year period, with the emphasis on
understanding long-term trends in all key financial areas
-- revenue growth, profit margins, overhead factors, cash
flow, balance sheet accounts, debt coverage ratios, overall
capitalization, etc. Our analysis often includes discussions
with management about areas of concern and issues that require
clarification.
The written report (see
sample) provides observations about obvious financial
strengths and weaknesses and presents discussions and opinions
about a tenant's financial condition. The report includes
a detailed spreadsheet that summarizes a company’s
key financial statistics and scrutinizes the trends over
a multiple year period. This trends analysis enables us
to discover areas of weakness (if they exist) that hint
at future problems for the company.
Estimated fee range:* $800 - $1,400
Peer Group Benchmarking
The goal of Benchmarking is to gain insights into industry
norms, and whether a tenant is winning or losing within
its competitive environment, by measuring its key financial
statistics against those of a select peer group. We scrutinize
and compare growth rates, profit margins, debt coverage
ratios, capitalization, etc., and develop a frame of reference
for judging the tenant’s financial results. These statistics
are often discussed with senior management and areas of
strength and weakness versus the competition are closely
examined.
If Peer Group Benchmarking is included in a financial analysis,
the written report (see sample)
includes a comparative table and discussion that compares
the target company’s financial trends versus those
for a number of key competitors. With that added level of
knowledge and perspective, we are able to offer more insightful
opinions about possible problems that might exist or are
developing.
Estimated fee range:* $400 - $700
Market Overview
The Market Overview presents information and statistics
on the tenant’s target market. We use our extensive
Wall Street and industry contacts to obtain and scrutinize
analyst reports, articles from business and trade journals,
and market research reports, as well as information from
Alliance’s industry files and internal database. We
also gather data from multiple on-line databases and the
Internet. Current trends within the tenant’s target
markets are examined and future growth opportunities are
defined.
The written report (see
sample) presents information and statistics about the
tenant’s target market, and provides a picture of growth
trends and the business opportunities that exists for well-managed
companies. Charts and graphs are used to present an overview
of historical trends within the market and analysts' expectations
of the future.
Estimated fee range:* $800 - $1,400
Tenant Credit Rating
Like Standard & Poors rates a company's debt, The Alliance
Group now offers a Tenant Credit Rating system that rates
the risks involved in a particular tenant transaction. The
ratings represent our opinion of the current creditworthiness
of a company with respect to a specific lease obligation
and are derived from an analysis of a company's key financial
and business fundamentals. Our overall Tenant Rating distills
the issue of tenant credit down to a single number (see
Guide below) and is designed to simplify the process of
making leasing/tenant decisions and determining the need
for credit enhancements.
A Tenant Rating Report (see
sample) includes data developed from three of our analytical
options -- Financial Trends Review, Peer Group Benchmarking
and a Market Overview -- as well as a number of additional
areas of scrutiny. There are eight financial and business
factors that are part of a company's Tenant Credit Rating,
with each category assigned an individual rating and those
eight numbers used to arrive at an overall Tenant Credit
Rating. The table below shows how that rating is used to
judge a company's suitability as a tenant, which allows
for clear decision-making.
| Tenant Credit Rating
Guide |
| Rating |
Outlook |
Level of Tenant Risk |
Need for Credit Enhancements |
| 1-2 |
Precarious |
Unacceptable |
Avoid as tenant |
| 3-4 |
Vulnerable |
High |
Protection needed |
| 5-6 |
Fair |
Areas of Concern |
Should be considered |
| 7-8 |
Good |
Favorable |
Unnecessary |
| 9-10 |
Excellent |
Low |
Unnecessary |
A key advantage is that, once an initial rating has been
established, inexpensive updates can be done periodically
in order to detect changes in the overall rating of a particular
tenant. Shifts into a higher risk category can be charted
and a course of action can be initiated.
With small emerging companies and markets, size and stage
of evolution take on a dominant level of importance in judging
a tenant's creditworthiness. The Alliance Group's rating
system focuses on the future and the duration of time that
a lease will be in place. While a company might have a strong
current capacity to meet its leasing obligations, a landlord
must consider how stable and predictable company fundamentals
will be over the life of a lease. Established companies
in established industries are much less affected by unfavorable
business and economic conditions and are less vulnerable
to changing markets, emerging competition, outmoded technologies
and other evolutionary changes that cannot be predicted.
As a result, the rating system gives extra weighting to
factors that relate to size and stage of development.
Estimated fee range:* $3,100 - $3,900
Comprehensive Tenant Analysis
The Tenant Analysis Report (see
sample) is our most rigorous and comprehensive written
report on a tenant’s future viability. The report is
the most effective way for you to present large tenant transactions
to investment committees, joint venture partners, lenders
and other key decision-makers. Clients also use this comprehensive
analysis to justify build-to-suit projects, sanction a building
acquisition or prepare a building for sale.
This report combines information from all of the analytical
packages, including our Tenant Credit Rating option, and
typically includes face-to-face interviews with key senior
executives at the company’s headquarters. The goal
of these meetings is to rigorously examine every aspect
of the tenant’s operation (executive, financial, marketing,
sales, production, technical, etc.), as well as determine
the skills of the executives heading those individual areas.
The face-to-face nature of management interviews enables
us to obtain the most in-depth and complete picture of the
tenant’s strengths and weaknesses.
A key value-added feature of this package is direct interviews
with key industry executives that enable us to develop the
most certain picture of a tenant’s viability as a competitor
within its markets. These interviews furnish first-hand
data directly from the marketplace that is not filtered
through management or friendly analysts. Instead of relying
on secondhand sources, Alliance is able to develop an independent
point-of-view about a tenant’s competitive strengths
and weaknesses.
Another important value-added is interviews with customers
that provide direct comparisons with competitors and determine
the tenant’s abilities versus the competition. Interviews
with suppliers and distributors provide perspective from
people who know the markets, the competitors and whether
a company has the ability to win within that environment.
Interviews with trade association executives and industry
analysts and consultants draw from sources that spend their
time scrutinizing the marketplace. Interviews with the tenant’s
senior management enable us to determine how their mind-set
might differ from the realities of the marketplace.
The report provides our most comprehensive presentation
and discussion of information gathered from our research
efforts and covers all aspects of a tenant’s financials,
markets and overall business operations. In-depth coverage
of financial issues provides the reader with a perspective
on the tenant’s past results and establishes its current
and future ability to pay its rent. In-depth coverage of
market-related issues provides a clear picture of the tenant’s
current position and viability in the marketplace, defines
the future opportunities within that market, and examines
the overall competitive environment. Finally, the report
utilizes The Alliance Group's Tenant Credit Rating System,
which can be used to accurately judge a company's suitability
as a tenant and offers our opinion on its potential to remain
a stable and dependable tenant over the life of its lease.
Estimated fee range:* $5,500 - $6,600
Note:*
The pricing on the reports is presented in estimated ranges
since analytical projects vary widely in the complexity
of financial documents, availability of market data, the
cooperation of management, and other project-specific issues.
The estimated fee schedules assume that a single company
or market is being examined. The scrutiny of technology-based
companies often requires specialized research efforts: markets
are frequently ill defined; the ability of management to
productize a technology must be judged; and complex technologies
need to be examined.
Expenses are in-addition to analytical fees.
All invoice payments are due on a net 30 day basis unless
alternative arrangements are made prior to the start of
a particular project.
