OpCo / PropCo Valuation

In valuing real-estate intensive enterprises, it can be useful to value the business in parts. Often, there's a natural split between the revenue generating real estate assets (PropCo) and the operating business (OpCo). For example, when valuing hotels, you can distinguish between the PropCo, which handles revenue from room occupancy and other leasing agreements (possibly from the OpCo), and the OpCo, which generates revenue from entertainment, food and beverage, and other recreational activities.

Typically, you'll value the PropCo using a market-based cap rate and the property's stabilized net operating income. But for the OpCo, you'll use a discounted cash flow analysis. Be sure to remember that the costs of capital are different for the OpCo and PropCo, which will both be different from that of the combined company.

Then, once you've calculated the value of the parts, add them together.