Prepare a 4 year discounted cash flow Tenant A has a two year remaining term, 62
ID: 2566564 • Letter: P
Question
Prepare a 4 year discounted cash flow
Tenant A has a two year remaining term, 62,000 square feet and current rent is $24/sqft/annum
Tenant B has a five year remaining term, 54,000 square feet and current rent is $26.50/sqft/annum
Tenant C has a three year remaining term, 34,500 square feet and currentrent is $25.75/sqft/annum
Current market rent is $32.25/sqft / annum and will grow 2.75% in year 2 and will remain constant at 3% thereafter. Assume each rents will renew at market and will escalate thereafter at market on an annual basis.
The occupancy cost of capital is 9%
The cap rate is 6.5%
Operating expenses are currently $2.40/sqft/annum and are expected to grow at a constant 3%
Property taxes are currently $4/sqft/annum and are expected to decrease in year two by 15% as a result of a property tax certiori process and then to increase at a constant 3%
Management fees are 5% of total income received
A roof replacement is expected in year 1 in the amount of $50,000
A lobby renovation project is expected in year 3 in the amount of $150,000
All tenants reimburse landlord for operating expenses and taxes noting the following exceptions.
Tenant C has an expense stop of $2 which is not expected to be offered in a renewal as it is a landlord market for rents as demand is high
Tenant A has no expense stop currently, however it is expected that due to their negotiating leverage upon renewal they will obtain an expense stop of $1/sqft
Vacancy credit is expected at 4%
Prepare a 4 year discounted cash flow
Tenant A has a two year remaining term, 62,000 square feet and current rent is $24/sqft/annum
Tenant B has a five year remaining term, 54,000 square feet and current rent is $26.50/sqft/annum
Tenant C has a three year remaining term, 34,500 square feet and currentrent is $25.75/sqft/annum
Current market rent is $32.25/sqft / annum and will grow 2.75% in year 2 and will remain constant at 3% thereafter. Assume each rents will renew at market and will escalate thereafter at market on an annual basis.
The occupancy cost of capital is 9%
The cap rate is 6.5%
Operating expenses are currently $2.40/sqft/annum and are expected to grow at a constant 3%
Property taxes are currently $4/sqft/annum and are expected to decrease in year two by 15% as a result of a property tax certiori process and then to increase at a constant 3%
Management fees are 5% of total income received
A roof replacement is expected in year 1 in the amount of $50,000
A lobby renovation project is expected in year 3 in the amount of $150,000
All tenants reimburse landlord for operating expenses and taxes noting the following exceptions.
Tenant C has an expense stop of $2 which is not expected to be offered in a renewal as it is a landlord market for rents as demand is high
Tenant A has no expense stop currently, however it is expected that due to their negotiating leverage upon renewal they will obtain an expense stop of $1/sqft
Vacancy credit is expected at 4%
Explanation / Answer
Year 1 2 3 4 Tenant A 14,88,000 14,88,000 21,16,121 21,79,604 Tenant B 14,31,000 14,31,000 14,31,000 14,31,000 Tenant C 8,88,375 8,88,375 8,88,375 12,12,844 Reimbursement of Exp 9,49,400 9,60,236 8,84,597 9,09,893 Total Collections 47,56,775 47,67,611 53,20,093 57,33,342 Expenses Operating Exp 3,61,200 3,72,036 3,83,197 3,94,693 Property Tax 6,02,000 6,02,000 6,02,000 6,02,000 Vacancy Credit 1,52,295 1,52,295 1,77,420 1,92,938 Roof Replacement 50,000 Lobby Renovation 1,50,000 Management Fees 1,79,564 1,82,064 2,00,374 2,27,186 Total Patment 13,45,059 13,08,395 15,12,991 14,16,816 Net Inflow 34,11,716 34,59,216 38,07,102 43,16,525 Discount Factor 9% 0.9174312 0.8416800 0.7721835 0.7084252 Discounted Cash Flow 31,30,015 29,11,553 29,39,781 30,57,935 Assume Lobby Rennovation & Roof replacement are revnue expenses & charged to P&L Account Last year 32.25 32.25 33.14 34.13 Increase 1.00 1.03 1.03 1.03 Current Year 32.25 33.14 34.13 35.15 Tenant A Area 62,000 62,000 62,000 62,000 Rate 24.00 24.00 34.13 35.15 Rent A 14,88,000 14,88,000 21,16,121 21,79,604 Tenant B Area 54,000 54,000 54,000 54,000 Rate 26.50 26.50 26.50 26.50 Rent B 14,31,000 14,31,000 14,31,000 14,31,000 Tenant C Area 34,500 34,500 34,500 34,500 Rate 25.75 25.75 25.75 35.15 Rent C 8,88,375 8,88,375 8,88,375 12,12,844 Operating Exp Total Area 1,50,500 1,50,500 1,50,500 1,50,500 Rate (Grow at 3%) 2.40 2.47 2.55 2.62 Operating Exp 3,61,200 3,72,036 3,83,197 3,94,693 Property Tax Total Area 1,50,500 1,50,500 1,50,500 1,50,500 Rate 4.00 4.00 4.00 4.00 Property Tax 6,02,000 6,02,000 6,02,000 6,02,000 Reimbursement of Taxes & Expenses by Tenant Operating Exp 3,61,200 3,72,036 3,83,197 3,94,693 Property Tax 6,02,000 6,02,000 6,02,000 6,02,000 Not Reimbursed Tenant C 0.4*34500 (13,800) (13,800) (13,800) TenantA 1.4*62000 (86,800) (86,800) Total 9,49,400 9,60,236 8,84,597 9,09,893 Management Fees Total Rent & Reimbursement 47,56,775 47,67,611 53,20,093 57,33,342 Total Revenue Exp 11,65,495 11,26,331 13,12,617 11,89,631 Total Income 35,91,280 36,41,280 40,07,476 45,43,711 Management Fees 5% 1,79,564 1,82,064 2,00,374 2,27,186 Loss Due to vacancy Credit 4% Total Rental Income 38,07,375 38,07,375 44,35,496 48,23,449 V.C at 4% 1,52,295 1,52,295 1,77,420 1,92,938