OAR 150-308-0250
Derivation of Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties

(1)

CAPITAL STRUCTURE. The capital structure of a company refers to the make-up of its financial structure, i.e., long-term debt and equity. For ad valorem appraisal purposes, the appropriate capital structure for a company is the typical capital structure for the industry group to which the property belongs based upon current market cost of debt and equity. If it can be shown that use of an industry capital structure would not reflect the market value of the property because of the unique nature of the property or its operation, the current owner’s capital structure may be used. The procedures to be followed in determining capital structure are as follows:

(a)

Select industry group, i.e., electric utility, airline, railroad, lumber, food processing, etc.

(b)

Determine if it is necessary to have industry sub groups. Sub groups are groupings of properties within an industry type that have similar characteristics and that are different from other sub groups within the industry type. Sub groups have similar qualities such as bond ratings, degree of risk if unrated, business activities and size.

(c)

For each group or sub group, a sufficient number of companies should be selected that have publicly traded securities and similar debt ratings (e.g., Moody’s Aa, A, Baa, etc.). The company or companies whose property is subject to appraisal may be included as part of the data set.

(d)

The appropriate capital structures shall be determined by a correlation of the capital structures of the companies in the selected group.

(e)

Capital structures for companies with nonrated debt must be estimated from the best data available, such as balance sheets, public utility commission-approved structures, sales data, lenders’ opinions, industry recommendations, or patterns established by companies with rated debt within the same industry.

(2)

BASIC DISCOUNT RATE. Basic discount rate, cost of capital, and capitalization rate are synonymous as used herein. The band-of-investment method is the preferred method for calculating basic discount rate. An example of this method, assuming a capital structure of 50 percent debt, 10 percent preferred stock, and 40 percent common equity, is shown below: [Table not included. See ED. NOTE.]

(a)

The band-of-investment capitalization rate can readily be converted to an after-tax rate. The after-tax interest rate is substituted for the current cost of debt in the band-of-investment procedure. This after-tax cost of debt is calculated by multiplying the current cost of debt by one minus the corporate tax rate. When the after-tax cost of capital is used, the tax expense of the prospective purchaser must be deducted from the income to be capitalized as though the property had no tax shelter from debt interest to avoid double counting the deduction for income taxes.

(b)

Cost of Debt. The cost of debt is the current market rate for new securities. The embedded rate on securities previously issued is not a proper measure. In order to determine the cost of debt the appraiser should:

(A)

Refer to the rates for seasoned bond issues from Moody’s Utility, Industrial, and Transportation weekly news reports or other rating services for at least two months immediately prior to the appraisal date. This should be done by bond rating (Aa, A, Baa, etc.) and industry type.

(B)

Obtain information on new bond issues by industry type and bond rating from Moody’s Bond Survey or other publications for at least two months immediately prior to the appraisal date.

(C)

Consider recommendations on debt rates submitted by industry.

(D)

Select rates for each industry group by bond rating after analyzing the data in the steps above.

(c)

Preferred Stock. The cost of preferred stock is determined from the current market rates, not the embedded rate.

(d)

Cost of Equity. The two preferred methods for determining the cost of equity capital are the Discounted Cash Flow (DCF) model and Capital Asset Pricing Model (CAPM). The appraiser should consider other models if circumstances and data justify their use.

(A)

The DCF model, stated mathematically, is as follows: [Table not included. See ED. NOTE.] Information on the estimated annual dividend for the next period (year) and the expected rate of growth can be obtained from such financial publications as Value Line. The current price for the common stock is the average price near the appraisal date. The DCF equity rate for the industry group is determined by correlating equity rates of return computed for the companies in the industry capital structure group.

(B)

The CAPM, stated mathematically, is as follows: [Table not included. See ED. NOTE.] Information on the risk free rate (Rf) can be obtained from the Federal Reserve Bulletin containing rates for U.S. Treasury notes or bonds as near the appraisal date as possible. Data for Beta (Bi) and the market rate (Rm) shall be obtained from a reliable source such as Value Line. A single number for risk premium (Rp) such as those published by Ibbotson Associates, Kidder Peabody, and others may be used. The CAPM equity rate for the industry group is determined by correlating equity rates of return computed for the companies in the industry capital structure group.

(3)

EFFECTIVE DATE: This rule first applies to property valuations as of January 1, 1990.
[ED. NOTE: To view attachments referenced in rule text, click here to view rule.]

Source: Rule 150-308-0250 — Derivation of Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-308-0250.

150–308–0010
Continuing Education Requirements for Registered Appraisers, Waiver of those Requirements, and Revocation of Registrations 150–308–0020
Revocation of Appraiser Registration 150–308–0030
Appraiser Trainee Program 150–308–0040
Standards for Imposition, Waiver, and Reduction of Penalty on Utilities and Designated Companies Assessed by the Department. Imposition of Penalty for Failure to File a Timely or Complete Return 150–308–0050
Continuing Education Requirements for Assessors 150–308–0060
Continuing Education Requirement for Appraisal Managers in County Assessment Offices 150–308–0070
Qualifications of Managerial Employees of the Assessor’s Office 150–308–0080
Taxable Personal Property Whose Temporary Situs Is in the State of Oregon 150–308–0090
Billboards as Real Property 150–308–0100
Determining Maximum Assessed Value when the Property Class is Changed 150–308–0110
Reduction of Maximum Assessed Value (MAV) for Property Destroyed or Damaged by Fire or Act of God 150–308–0120
Reduction of Maximum Assessed Value (MAV) When a Building is Demolished or Removed 150–308–0130
Definitions 150–308–0140
Computation of Changed Property Ratio for Centrally Assessed Property 150–308–0150
Net Capitalized Additions 150–308–0160
Minor Construction 150–308–0170
Establishing a Changed Property Ratio 150–308–0180
Definition of Affected 150–308–0190
Subdivided and Partitioned Property MAV 150–308–0200
Rezoned Property — Calculating Maximum Assessed Value (MAV) 150–308–0210
Omitted Property—Allocating Maximum Assessed Value (MAV) 150–308–0220
Exemption, Partial Exemption or Special Assessment Disqualification — Allocating MAV 150–308–0230
Calculation of Maximum Assessed Value (MAV) for Lot Line Adjustments 150–308–0240
Real Property Valuation for Tax Purposes 150–308–0245
Partial Exemptions and Special Assessments of Land 150–308–0250
Derivation of Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties 150–308–0260
Industrial Property Valuation for Tax Purposes 150–308–0270
Valuation of Contaminated Property 150–308–0280
Measuring Functional Obsolescence in Industrial Property 150–308–0290
Effective Tax Rate 150–308–0300
Valuation Review of State-appraised Industrial Property. 150–308–0310
Real Market Value and Property Classification as Part of Assessment Roll 150–308–0320
Property With Multiple Leases Assessed as One Parcel 150–308–0330
Contents of Assessment Roll for Condominiums 150–308–0340
Printout or Microfiche Required When Assessment and Tax Rolls do not Constitute a Written Record 150–308–0350
Filing Requirements for Certain Delayed Annexations by Cities 150–308–0355
Filing Requirements for Boundary Changes 150–308–0360
Appraisals of Real Property by Registered Appraisers 150–308–0370
Determining Taxable Value for Assessment Charges on Property Exempt from Taxation 150–308–0380
Appraisal of Real Property 150–308–0390
Agricultural Land Devoted to Agricultural Purposes 150–308–0400
Stipulation Procedures 150–308–0410
Cancellation of Personal Property Assessments 150–308–0420
Exemption of Watercraft Undergoing Repairs 150–308–0430
Valuation of New Construction 150–308–0440
Confidentiality — Returns of Taxable Property 150–308–0450
Industrial Property Returns — Incomplete Returns and Late Filing Penalties 150–308–0470
County Contractors Having Access to Confidential Records 150–308–0480
Confidentiality of Property Tax Information for Centrally Assessed Companies 150–308–0490
Appraisal and Valuation of Industrial Plants 150–308–0500
Confidentiality of Industrial Plant Information 150–308–0510
Definition of Destroyed or Damaged 150–308–0520
Valuation of Nonprofit Homes for the Elderly 150–308–0530
Defining “Communication Services” 150–308–0540
Assessment of Properties of Designated Utilities and Companies by Department of Revenue 150–308–0550
Property Used for Guide Service 150–308–0560
Confidentiality of Appraisals of Designated Utilities and Companies by Department of Revenue 150–308–0570
Computation of Changed Property Ratio for Centrally Assessed Property 150–308–0580
Allocation of Mobile Aircraft Property Value 150–308–0585
Procedure for Determining Oregon Property Value for Private Railroad Car Companies 150–308–0590
Allocation of Centrally Assessed Electric Company Property Value 150–308–0595
Allocation of Centrally Assessed Gas Distribution Company Property Value 150–308–0600
Allocation of Centrally Assessed Pipeline Company Property Value 150–308–0605
Allocation of Centrally Assessed Railroad Company Property Value 150–308–0610
Allocation of Centrally Assessed Communication Company Property Value 150–308–0615
Allocation of Centrally Assessed Water Transportation Company Property Value 150–308–0660
Unit Valuation of Centrally Assessed Properties 150–308–0670
Contents of the Utility Assessment Roll 150–308–0680
Contents of Department’s Journal 150–308–0690
Centrally Assessed Property — Appraisal Guidelines 150–308–0695
Removal of Certain Elected Exempt Property from Correlated System Real Market Value of Centrally Assessed Property 150–308–0700
Qualification of Property for Special Assessment as Government Restricted Multiunit Rental Housing 150–308–0710
Application and Election Process for Government Restricted Multiunit Rental Housing 150–308–0720
Special Assessment of Government Restricted Multiunit Rental Housing Property 150–308–0730
Special Assessment Disqualification Process 150–308–0740
Process for Voluntary Disqualification from Special Assessment Program and Subsequent Application 150–308–0750
Payment of Taxes on Manufactured Structure That Allows Change from Real Property to Personal Property Status 150–308–0760
Manufactured Structure Classified as Real or Personal Property 150–308–0770
Real and Personal Manufactured Dwellings to be Assessed in Like Manner 150–308–1010
Farm Use Definitions, Inactivity Due to Illness, and Description of Lands in Non-Exclusive Farm Use 150–308–1020
Disposal by donation to a local food bank or school 150–308–1030
Assessment of Farmlands Within Exclusive Farm Use (EFU) Zones 150–308–1040
Assessment of Farmlands Outside of Exclusive Farm Use (EFU) Zones 150–308–1050
Gross Income Requirement 150–308–1060
Wasteland 150–308–1070
Acquired Land as Part of Farming Unit 150–308–1080
Valuation of Certain Agricultural Land to Reflect Value for Farm Use Only 150–308–1090
Calculation of MSAV When SAV Soil Classification is Changed 150–308–1100
Disqualification of Exclusive Farm Use Farmland 150–308–1110
Disqualification of Non-Exclusive Farm Use (Non-EFU) Farmland 150–308–1120
Definition of Specially Assessed Homesites 150–308–1130
Application for Specially Assessed Homesite 150–308–1140
Qualified Specially Assessed Homesite Valuation 150–308–1150
Ratio Calculation for Open Space Lands 150–308–1500
Additional Tax Calculation and When to Impose Additional Tax 150–308–1510
No Additional Tax 150–308–1520
Deferred Additional Tax (ORS 308A.706) 150–308–1530
Disqualification Notification Procedures
Last Updated

Jun. 8, 2021

Rule 150-308-0250’s source at or​.us