Operating Income
1. Operating Income is derived from two sources, Rental Income from businesses operating in the warehouse complex and Interest Income of the project operating account (when in positive balance)
- Details in respect to Operating Interest Income are explained elsewhere in the assignment details.
- Rental Income is based on industry averages in the area. The annual lease for each store is set relatively low at the inception of the project to attract traders to the complex. Past experience, demographic trends, economic indicators etc are used to determine the expected level and growth of trading throughout the life of the project. These figures provide the initial expected rental revenue andthe expected annual growth of annual rental revenue.
Operating Expenses
1. Advertising is calculated as a percentage of Gross Rental Revenue.
2. Council Rates are calculated as a percentage of the value of the land used in the project. The amount paid for Rates is expected to increase by the inflation rate each year after the initial year of the investment.
3. Light & power (for security lighting and airconditions plant) is a fixed amount per annum projected to increase by the inflation rate each year after the initial year of the investment. Tenants pay for their own power usage.
4. Telephone costs for the administration office are determined from the following;
- A fixed rental of equipment over the life of the project.
- Calls are calculated as a percentage of the Gross Rental Revenue as it is considered that the level of telephone calls is closely related to the commercial activity of the warehouse complex.