Conduct analysis for a large pension fund that is evaluating whether or not to purchase the Standard Life Centre located at 121 King St W.
Financial Analysis
Step 1 - Prepare an estimate of property value using the information and assumptions given in Tables 1, 2 and 3 below. You may need to make other assumptions to complete your valuation.
Step 2 - Conduct research to construct a more accurate set of assumptions for the items listed in Table 3. Explain and justify your assumptions.
Step 3 - Re-compute the estimate of property value using the values in your new Table 3 and those in the existing Tables 1 and 2.
The financial analysis section should be approximately 5 pages long, consisting mainly of text about your assumptions, plus your new table 3 and your computations of property value.
Table 1 - Rent roll
|
Tenant
|
Size in square feet (sf)
|
Rate per sf per year
|
Lease expiry date
|
|
Office1
|
208,000
|
24
|
2016
|
|
Office2
|
104,000
|
27
|
2020
|
|
Office3
|
158,000
|
30
|
2024
|
|
Vacant Office
|
12,000
|
|
|
|
Retail1
|
10,000
|
40
|
2015
|
|
Retail2
|
10,000
|
60
|
2020
|
Table 2 - Projected expenses for the year 2013
|
Category of expense
|
Amount
|
|
Taxes
|
$4,500,000
|
|
Operating costs and insurance
|
$4,500,000
|
|
Cleaning
|
$980,000
|
|
Utilities
|
$2,560,000
|
All leases are triple net. (Note/hint: this is extremely important in your model.)
Table 3 - Assumptions
|
Growth in rental rates
|
2%
|
|
Rate of vacancy and collection loss
|
1%
|
|
Growth in expenses
|
2%
|
|
Length of holding period
|
10 years
|
|
Terminal cap rate at disposition
|
7%
|
|
Selling costs as % of price
|
2%
|
|
Discount rate
|
5.5%
|
|
Rental rate on renewal
|
Same as existing rate.
|