Long Term Financing Decision
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Long Term Financing Decision

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Finding a source of finance that fits the business strategy

Finding a source of finance that fits the business strategy

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  • financial risks (how much we want to raise, debt servicing capacity) (Graphs)See DBRS report P10 for business risks

Long Term Financing Decision Long Term Financing Decision Presentation Transcript

  • Bourland CompaniesPramod JindalWei MaIan SinHarsh SoporyChris Yardy October 25, 2012
  • Agenda• Executive Summary• Company and Industry Analysis• Objectives and Key Issues• Binding Constraints and Feasible Alternatives• Decision Criteria• Evaluation of Alternatives• Recommendations 2
  • Executive Summary • Bourland Companies is a conservative family-owned Current Situation real estate company • Loans on its two properties are due for refinancing Objective • Refinance each property with the best debt instrument • Are the properties worth keeping? Key Issues • Which financing option best fits the strategy? • How much debt to raise and what are the risks? • Do the asset and liabilities match? Decision Criteria • Which alternative is the most economic? • Refinance Southshore with a securitized loan of $4.6MRecommendation • Refinance Bedrock with the Goliath mortgage of $4.3M • Net cash injection of $300k into the business 3
  • Bourland Companies Acquires Southshore andFounded Growth & Michael Michael Bedrock on 3-yr Annby Glen diversification joins takes over miniperm joins Refinancing due Mid 80’s 1987 1991 1992 1993 1995 Glen rejoins as non- executive Chairman Conservativeness • Low debt Survived recession without • Diversification losing properties • Banking Relationship Conservative family-owned and run business 4
  • The objective is to refinance the properties with themost appropriate debt instrumentKey issues to consider:• Are the properties worth keeping?• What is the best financing option that fits the corporate strategy?• How much debt should we raise and what are the risks?• Can Glen retire to Florida?• Should we maintain our relationship with Bank of Boston? 5
  • The real estate industry in New England is attractiveThreat of New Entrants: Supplier Power:Increased capital from Supplier Supplier power is lowsecuritization expected to Power because of high availabilitylower barrier to entry for of credit LOWdevelopers or acquirers Threat of New Rivalry Entrants LOW HIGH Industry is attractive Rivalry: Low currently but expected to increaseBuyer Power: Moderate Buyer Substitutes: Generally Substitutesbut expected to grow Power hard to substitute officesbecause of increased LOW and malls MODERATEsupply for offices 6
  • Company Analysis NOI Projection 1550Customers 1450 1350• Retail customers value location 1250 1150 Bedrock NOI ($K) 1050• Office customers are price sensitive 950 850Competitors 750 Southshore 650• Alternatives available in close 550 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 proximity of Bedrock but experiencing management problems NOI Margin Projection 100% Southshore BedrockCapability 80%• Owns top-tier properties in strategic 60% locations 40%• Deep expertise in real estate 20% 0% management 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Bourland has a sustainable competitive advantage with its top-tier properties 7
  • It makes sense to keep the properties $ 000s Southshore Bedrock DCF Valuation 7,670 10,129 Valuation based on 7,492 8,958 cap rate Capitalization Rate 9.0% 9.5% Equity IRR 10.4% 11.6% Assumes 35% tax rate and 3.5% terminal growth rate See Appendix D, E 8
  • Binding Constraints & Feasible AlternativesThe financing alternative needs to satisfy the following constraints:• Debt covenants required by the debt instrument• Risk tolerance of the companyFeasible Alternatives Miniperm Goliath Mortgage Securitization Amortization 20 yrs 15 yrs 25 yrs Recourse? Yes No No Term Length 3 yrs 15 yrs 10 yrsSee Appendix C Which is the best financial option that satisfies the binding constraints? 9
  • Decision Criteria 1 • Asset Liability Matching • Which alternative is cheaper? Are there 2 significant differences? 3 • Is there any interest rate risk? 4 • Is there any counterparty risk? • Which option minimizes the equity 5 injection? 10
  • Miniperm Pros Assumptions• Lowest cost to setup assuming Pre-Tax Marginal Cost of Debt 10% no interest rate cap Tax Rate 35%• Lowest NPV if loan can be Interest Rate 10% rolled over at the same rate• Leverage relationship with Bank Amortization 20 years of Boston Rollover Period 3 years Cons NPV of Financing Flows*• Short-term nature does not $000s Southshore Bedrock match long-term assets Loan Amount 4,588 4,315• High interest rate risk Miniperm 4,632 4,359• High counterparty risk Goliath Mortgage 4,659 4,485 Securitization 4,728 4,603 * without interest rate cap, see Appendix C Miniperm does not fit the asset liability matching strategy and has high counterparty and interest rate risk 11
  • Goliath Mortgage Pros Assumptions• Low counterparty risk Pre-Tax Marginal Cost of Debt 10%• Long-term nature of the loan Tax Rate 35% matches the long-term assets Interest Rate (adjusted 20-yr) 9.7% / 9.95%• Attractive NPV for Bedrock• Establish new lender Amortization (normalized) 20 years relationship Rollover Period N/A Cons NPV of Financing Flows• Moderate interest rate risk $000s Southshore Bedrock (overall) Loan Amount 4,588 4,315• Switching costs of going with a Miniperm 4,632 4,359 new partner Goliath Mortgage 4,659 4,485 Securitization 4,728 4,603 See Appendix C The Goliath mortgage is an attractive option for refinancing 12
  • Securitization Pros Assumptions• No interest rate risk matches Pre-Tax Marginal Cost of Debt 10% the conservative culture Tax Rate 35%• No counterparty risk Interest Rate (adjusted 20-yr) 10.17%/10.77%• Long-term nature of the loan matches the long-term assets Amortization (normalized) 20 years• Maintains banking relationship Rollover Period N/A Cons NPV of Financing Flows• Highest cost option $000s Southshore Bedrock• Opportunity costs of lower Loan Amount 4,588 4,315 interest rate Miniperm 4,632 4,359• Higher debt service coverage Goliath Mortgage 4,659 4,485 ratio requirement Securitization 4,728 4,603 See Appendix C Securitization also provides an attractive low-risk refinancing option 13
  • Southshore: Interest Rate Risk Analysis 4900 9.7% 4800 Goliath Mortgage Goliath Mortgage 4700 = Securitization:NPV of Financing Flow ($K) 9.8% 4600 4500 10 b.p. 4400 Securitization 4300 4200 4100 9.5% 10.0% Interest Rate 10.5% 11.0% Cushion for Goliath mortgage to become more expensive than securitization is only 10 b.p., implying that securitization is worthwhile for Southshore 14
  • Bedrock: Interest Rate Risk Analysis 4900 9.95% Goliath Mortgage 4800 4700NPV of Financing Flow ($K) 53 b.p. 4600 Securitization Goliath Mortgage 4500 = Securitization: 10.48% 4400 4300 9.5% 10.0% 10.5% 11.0% 11.5% Interest Rate Cushion for Goliath mortgage to become more expensive than securitization is 53 b.p., which is a reasonable safety margin given the flat yield curve 15
  • The optimal debt amount for Southshore is $4.6M, permitting a recapitalization dividend of $0.6M 900 Southshore - Securitization Southshore NOI - Best 850 Optimal Loan $4.6M NOI - Base 800 Current Loan $3.9M NOI - Worst 750 Recap Dividend $0.6M DSCR * Payment (net of fees) Amount ($K) 700 (Full Amt) 650 Vacancy DSCR * Payment 600 (Optimal Amt) Best Case 3.0% DSCR * Payment 550 (Current Amt) Base Case 5.0% 500 Worst Case 10.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004See Appendix D A $4.6M securitized loan allows Bourland to meet its debt covenants even in the worst case of 10% vacancy 16
  • The optimal debt amount for Bedrock is $4.3M, requiring an equity injection of $0.9M Bedrock - Mortgage Bedrock 1450 Optimal Loan $4.3M 1350 NOI - Best Current Loan $5.0M 1250 NOI - Base Equity Injection $0.9M 1150 (incl. fees) Amount ($K) NOI - Worst 1050 Vacancy DSCR * 950 Best Case 2.0% Payment (Full Amt) 850 Base Case 0.8-6.3% DSCR * DSCR * Worst Case 10.0% 750 Payment Payment (Current Amt) (Optimal Amt) 650 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004See Appendix E A $4.3M Goliath mortgage allows Bourland to meet its debt covenants even in the worst case of 10% vacancy 17
  • Securitization is the best option for Southshore Miniperm Goliath Securitization RankAsset Liability Fit    #1NPV of Financing 4,632 4,659 4,728 #2($ 000s)Interest Rate Risk High High None #3Counterparty Risk High None None #4Equity Injection n.a. (296)* (591)* #5($ 000s)*Special dividend based on optimal loan amount, net of fees 18
  • Goliath mortgage is the best option for Bedrock Miniperm Goliath Securitization RankAsset Liability Fit    #1NPV of Financing 4,359 4,485 4,603 #2($ 000s)Interest Rate Risk High Low None #3Counterparty Risk High None None #4Equity Injection n.a. 868* 866* #5($ 000s)Based on optimal loan amount 19
  • Results of Refinancing Sources & Uses of Capital ($ thousands) Sources Uses Southshore Southshore Securitized Loan 4,588 Miniperm Loan 3,900 Equity 1,100 Financing Fees 97 Recap Dividend 591 Equity 1,100 5,688 5,688 Bedrock Bedrock Mortgage 4,315 Bullet Loan 5,000 Equity 2,000 Financing Fees 183 Cash Injection 868 Equity 2,000 7,183 7,183 TOTAL 12,871 TOTAL 12,871 Bourland Companies Net Cash Injection 277 20
  • Recommendations• Proceed with refinancing both properties: • Finance Southshore with securitized loan of $4.6M • Finance Bedrock with the Goliath mortgage of $4.3M• For now, Glen should stick around until increases in NOI facilitates additional dividends or opportunities for refinancing• Bourland should be careful with the amount of debt raised as the incentives for Bank of Boston has changed with securitization – incentivized to lend as much as possible 21
  • Q&A
  • Appendices
  • Appendix AMacroeconomy
  • Macroeconomy • Savings and Loans Crisis results in 1986-1989 oversupply of developed real estate 1990-1991 • Recession • Federal Reserve cuts interest rate 1992 to 6% to stimulate growth • Federal Reserve raises interest 1994 rates 5 times due to inflation fears 1995 • ‘Soft Landing’ expected for economy Real Estate bust yielded bargains; Economy doing well again 25
  • Big changes in Fed Prime Rate in response toEconomic Conditions (1985-1995) 13 12 11 Interest Rate (%) 10 9 8 7 6 5 Jul-83 Nov-84 Mar-86 Aug-87 Dec-88 May-90 Sep-91 Jan-93 Jun-94 Oct-95 Mar-97 26
  • Appendix BEconomic Assumptions
  • 1995 Yield Curve is FlatYield Curve Data 1995 Yield Curve20-yr yield 7.85% 9.0%25-yr 7.80% 8.0%30-yr 7.75%10-yr 7.66% 7.0%15-yr 7.76% 6.0%Switch from 15-20 0.10% Interest RateSwitch from 25-20 -0.05% 5.0% 4.0% 3.0%Scenarios 1 Southshore Bedrock 2.0%Base Case 5.00% 3.40% 1.0%Best Scenario 3.00% 2.00%Worst Scenario 10.00% 10.00%Selected 5.00% 3.40% 1M 3M 6M 1YR 2YR 3YR 5YR 7YR 10YR 20YR 30YR 28
  • Appendix CLoan Options and NPV Evaluations
  • Worksheet for Loan Options Southshore Bedrock Miniperm Insurance Co. Securitization Miniperm Insurance Co. SecuritizationProjected Rate 10% 9.60% 10.12% 10% 9.85% 10.72%Adjusted Rate (based on 20 yr Amortization) 10% 9.70% 10.17% 10% 9.95% 10.77%Loan Term 3 15 10 3 15 10Amortization 20 15 25 20 15 25Adjusted Amortization 20 20 20 20 20 20Renewal rate 0.25% 0 0 0.25% 0 0Debt Constant (Principal and interest) 11.75% 12.84% 11.12% 11.75% 13.04% 11.63%Stabilized NOI $674,298 $674,298 $674,298 $851,056 $851,056 $851,056Required Debt Coverage (DSCR) 1.2 1.25 1.25 1.25 1.25 1.4Maximum Annual Constant Debt Service $561,915 $539,438 $539,438 $680,845 $680,845 $607,897Maximum Loan Using Debt Coverage Test $4,782,255 $4,201,234 $4,851,672 $5,794,424 $5,221,202 $5,226,975Capitalization Rate for Retail Properties 9.00% 9.00% 9.00% 9.50% 9.50% 9.50%Value Based on Cap Rate $7,492,200 $7,492,200 $7,492,200 $8,958,484 $8,958,484 $8,958,484Required Loan to Value Coverage (LTV) 75% 75% 75% 75% 75% 65%Maximum Loan Using Loan to Value Test $5,619,150 $5,619,150 $5,619,150 $6,718,863 $6,718,863 $5,823,015Upfront Fees 0.25% + $5k legal 1% + 2.5% 2% 0.25% + $5k legal 1% + 2.5% 2%Recourse or Non-Recourse R NR NR R NR NR No prepayment in No prepayment in years 1-3, 5% fee years 1-3, 5% fee in year 4 and less in year 4 and less 0.5% for each 0.5% for eachPrepayment Penalty None year thereafter N/A None year thereafter N/A 2.2% fee to cap 2.2% fee to capOther Consideration rate <11% N/A N/A rate <11% N/A N/A 15-yr treasury + 10-yr treasury + 15-yr treasury + 10-yr treasury +Interest Rate Structure Prime + 1% 1.75% 2.4% Prime + 1% 2% 2.4% - Fixed / Variable? Variable Variable Fixed Variable Variable FixedUpfront Fee AnalysisLoan Amount $4,782,255 $4,201,234 $4,851,672 $5,794,424 $5,221,202 $5,226,975Upfront Fees $11,956 $147,043 $97,033 $14,486 $182,742 $104,539Legal Fees $5,000 $5,000 Mandatory Fees $16,956 $147,043 $97,033 $19,486 $182,742 $104,539Other (Interest Rate Cap) $105,210 $127,477 Total Fees $122,165 $147,043 $97,033 $146,963 $182,742 $104,539 30
  • NPV of Financing Flow (Miniperm) - SouthshoreAmount Borrowed $4,587,840Interest 10.00%Amortization 20Annual Debt Constant $538,886Market Value $7,492,200 1995Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,587,840 $4,587,840 $4,507,738 $4,419,626 $4,322,703 $4,216,087 $4,098,810 $3,969,805 $3,827,899 $3,671,803 $3,500,097Annual Debt Service $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886Interest Payment $458,784 $450,774 $441,963 $432,270 $421,609 $409,881 $396,980 $382,790 $367,180 $350,010Principal Payment $80,102 $88,112 $96,923 $106,616 $117,277 $129,005 $141,906 $156,096 $171,706 $188,876Ending Principal $4,587,840 $4,507,738 $4,419,626 $4,322,703 $4,216,087 $4,098,810 $3,969,805 $3,827,899 $3,671,803 $3,500,097 $3,311,221Renewal fee – – $10,807 – – $9,925 – – $8,750 –Tax shield on interest $160,574 $157,771 $154,687 $151,295 $147,563 $143,458 $138,943 $133,976 $128,513 $122,503After tax Financing Flow $378,312 $381,115 $395,006 $387,591 $391,323 $405,352 $399,943 $404,910 $419,123 $416,383PV of After tax Financing Flow $355,222 $336,014 $327,005 $301,284 $285,619 $277,802 $257,366 $244,659 $237,791 $221,818 11 12 13 14 15 16 17 18 19 20 $3,311,221 $3,103,457 $2,874,917 $2,623,523 $2,346,989 $2,042,802 $1,708,196 $1,340,130 $935,257 $489,896 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $538,886 $331,122 $310,346 $287,492 $262,352 $234,699 $204,280 $170,820 $134,013 $93,526 $48,990 $207,764 $228,540 $251,394 $276,534 $304,187 $334,606 $368,066 $404,873 $445,360 $489,896 $3,103,457 $2,874,917 $2,623,523 $2,346,989 $2,042,802 $1,708,196 $1,340,130 $935,257 $489,896 $0 – $7,187 – – $5,107 – – $2,338 – – $115,893 $108,621 $100,622 $91,823 $82,145 $71,498 $59,787 $46,905 $32,734 $17,146 $422,993 $437,452 $438,264 $447,063 $461,848 $467,388 $479,099 $494,320 $506,152 $521,740 $211,586 $205,464 $193,282 $185,129 $179,579 $170,641 $164,241 $159,116 $152,981 $148,068Setup cost $16,956NPV of total Financing Flow $4,631,622 31
  • NPV of Financing Flow (Goliath) - SouthshoreAmount Borrowed $4,587,840Interest 9.70%Amortization 20Annual Debt Constant $527,711 *Market Value $7,492,200 1995Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,587,840 $4,587,840 $4,504,920 $4,413,961 $4,314,183 $4,204,732 $4,084,670 $3,952,967 $3,808,496 $3,650,019 $3,476,177Annual Debt Service $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711Interest Payment $444,791 $436,752 $427,934 $418,260 $407,649 $396,009 $383,240 $369,234 $353,869 $337,015Principal Payment $82,920 $90,959 $99,778 $109,451 $120,062 $131,702 $144,471 $158,477 $173,842 $190,696Ending Principal $4,587,840 $4,504,920 $4,413,961 $4,314,183 $4,204,732 $4,084,670 $3,952,967 $3,808,496 $3,650,019 $3,476,177 $3,285,481Renewal fee – – – – – – – – – –Tax shield on interest $155,677 $152,863 $149,777 $146,391 $142,677 $138,603 $134,134 $129,232 $123,854 $117,955After tax Financing Flow $372,034 $374,848 $377,934 $381,320 $385,034 $389,108 $393,577 $398,479 $403,857 $409,756PV of After tax Financing Flow $349,328 $330,488 $312,873 $296,409 $281,029 $266,669 $253,269 $240,774 $229,130 $218,288 11 12 13 14 15 16 17 18 19 20 $3,285,481 $3,076,298 $2,846,833 $2,595,123 $2,319,009 $2,016,125 $1,683,878 $1,319,418 $919,625 $481,071 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $527,711 $318,527 $298,247 $276,000 $251,597 $224,828 $195,463 $163,252 $127,918 $89,158 $46,640 $209,184 $229,464 $251,711 $276,114 $302,883 $332,248 $364,459 $399,794 $438,554 $481,071 $3,076,298 $2,846,833 $2,595,123 $2,319,009 $2,016,125 $1,683,878 $1,319,418 $919,625 $481,071 ($0) – – – – – – – – – – $111,485 $104,386 $96,600 $88,059 $78,690 $68,412 $57,138 $44,771 $31,205 $16,324 $416,227 $423,325 $431,111 $439,652 $449,021 $459,299 $470,573 $482,940 $496,506 $511,387 $208,202 $198,828 $190,127 $182,060 $174,591 $167,688 $161,318 $155,453 $150,066 $145,130Setup cost $147,043NPV of total Financing Flow $4,658,763 *Note that Annual Debt service is based on an adjusted interest rate and amortization 32
  • NPV of Financing Flow (Securitization) - SouthshoreAmount Borrowed $4,587,840Interest 10.17%Amortization 20Annual Debt Constant $545,152*Market Value $7,492,200 1995Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,587,840 $4,587,840 $4,509,271 $4,422,712 $4,327,349 $4,222,289 $4,106,543 $3,979,026 $3,838,541 $3,683,768 $3,513,255Annual Debt Service $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152Interest Payment $466,583 $458,593 $449,790 $440,091 $429,407 $417,635 $404,667 $390,380 $374,639 $357,298Principal Payment $78,569 $86,559 $95,362 $105,061 $115,746 $127,517 $140,485 $154,773 $170,513 $187,854Ending Principal $4,587,840 $4,509,271 $4,422,712 $4,327,349 $4,222,289 $4,106,543 $3,979,026 $3,838,541 $3,683,768 $3,513,255 $3,325,401Renewal fee – – – – – – – – – –Tax shield on interest $163,304 $160,508 $157,426 $154,032 $150,292 $146,172 $141,633 $136,633 $131,124 $125,054After tax Financing Flow $381,848 $384,645 $387,726 $391,120 $394,860 $398,980 $403,519 $408,519 $414,029 $420,098PV of After tax Financing Flow $358,543 $339,126 $320,978 $304,027 $288,201 $273,435 $259,667 $246,840 $234,900 $223,797 11 12 13 14 15 16 17 18 19 20 $3,325,401 $3,118,442 $2,890,435 $2,639,240 $2,362,499 $2,057,612 $1,721,719 $1,351,666 $943,978 $494,828 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $545,152 $338,193 $317,146 $293,957 $268,411 $240,266 $209,259 $175,099 $137,464 $96,003 $50,324 $206,959 $228,007 $251,195 $276,742 $304,886 $335,893 $370,053 $407,688 $449,150 $494,828 $3,118,442 $2,890,435 $2,639,240 $2,362,499 $2,057,612 $1,721,719 $1,351,666 $943,978 $494,828 ($0) – – – – – – – – – – $118,368 $111,001 $102,885 $93,944 $84,093 $73,241 $61,285 $48,113 $33,601 $17,613 $426,785 $434,151 $442,267 $451,209 $461,059 $471,912 $483,868 $497,040 $511,551 $527,539 $213,483 $203,913 $195,047 $186,846 $179,272 $172,293 $165,876 $159,992 $154,613 $149,714Setup cost $97,033NPV of total Financing Flow $4,727,596*Note that Annual Debt service is based on an adjusted interest rate and amortization 33
  • NPV of Financing Flow (Miniperm) - BedrockAmount Borrowed $4,314,755Interest 10.00%Amortization 20Annual Debt Constant $506,810Market Value $8,958,484Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,314,755 $4,314,755 $4,239,421 $4,156,554 $4,065,400 $3,965,130 $3,854,834 $3,733,507 $3,600,049 $3,453,244 $3,291,759Annual Debt Service $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810Interest Payment $431,476 $423,942 $415,655 $406,540 $396,513 $385,483 $373,351 $360,005 $345,324 $329,176Principal Payment $75,334 $82,867 $91,154 $100,270 $110,297 $121,326 $133,459 $146,805 $161,485 $177,634Ending Principal $4,314,755 $4,239,421 $4,156,554 $4,065,400 $3,965,130 $3,854,834 $3,733,507 $3,600,049 $3,453,244 $3,291,759 $3,114,125Renewal fee – – $10,163 – – $9,334 – – $8,229 –Tax shield on interest $151,016 $148,380 $145,479 $142,289 $138,780 $134,919 $130,673 $126,002 $120,864 $115,212After tax financing cashflow $355,793 $358,430 $371,494 $364,521 $368,030 $381,224 $376,137 $380,808 $394,175 $391,598PV of After tax financing cashflow $334,078 $316,013 $307,541 $283,350 $268,618 $261,266 $242,046 $230,096 $223,637 $208,614 11 12 13 14 15 16 17 18 19 20 $3,114,125 $2,918,728 $2,703,791 $2,467,361 $2,207,288 $1,921,207 $1,606,518 $1,260,360 $879,587 $460,736 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $506,810 $311,413 $291,873 $270,379 $246,736 $220,729 $192,121 $160,652 $126,036 $87,959 $46,074 $195,397 $214,937 $236,430 $260,073 $286,081 $314,689 $346,158 $380,774 $418,851 $460,736 $2,918,728 $2,703,791 $2,467,361 $2,207,288 $1,921,207 $1,606,518 $1,260,360 $879,587 $460,736 $0 – $6,759 – – $4,803 – – $2,199 – – $108,994 $102,155 $94,633 $86,358 $77,255 $67,242 $56,228 $44,113 $30,786 $16,126 $397,815 $411,414 $412,177 $420,452 $434,357 $439,567 $450,581 $464,896 $476,024 $490,684 $198,992 $193,234 $181,777 $174,109 $168,890 $160,484 $154,465 $149,645 $143,875 $139,255Setup cost $19,486NPV of total Financing Flow $4,359,471 34
  • NPV of Financing Flow (Goliath) - BedrockAmount Borrowed $4,314,755Interest 9.95%Amortization 20Annual Debt Constant $504,908 *Market Value $8,958,484Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,314,755 $4,314,755 $4,238,949 $4,155,605 $4,063,971 $3,963,225 $3,852,459 $3,730,678 $3,596,786 $3,449,578 $3,287,730Annual Debt Service $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908Interest Payment $429,102 $421,564 $413,275 $404,162 $394,143 $383,127 $371,016 $357,700 $343,061 $326,965Principal Payment $75,806 $83,345 $91,633 $100,746 $110,766 $121,781 $133,892 $147,208 $161,848 $177,944Ending Principal $4,314,755 $4,238,949 $4,155,605 $4,063,971 $3,963,225 $3,852,459 $3,730,678 $3,596,786 $3,449,578 $3,287,730 $3,109,787Renewal fee – – – – – – – – – –Tax shield on interest $150,186 $147,547 $144,646 $141,457 $137,950 $134,094 $129,856 $125,195 $120,071 $114,438After tax financing cashflow $354,722 $357,361 $360,262 $363,452 $366,958 $370,814 $375,053 $379,713 $384,837 $390,471PV of After tax financing cashflow $333,073 $315,071 $298,243 $282,519 $267,836 $254,131 $241,349 $229,435 $218,339 $208,014 11 12 13 14 15 16 17 18 19 20 $3,109,787 $2,914,147 $2,699,050 $2,462,562 $2,202,556 $1,916,692 $1,602,399 $1,256,849 $876,934 $459,237 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $504,908 $309,268 $289,812 $268,421 $244,902 $219,044 $190,615 $159,359 $124,994 $87,211 $45,671 $195,640 $215,096 $236,488 $260,006 $285,864 $314,293 $345,550 $379,915 $417,697 $459,237 $2,914,147 $2,699,050 $2,462,562 $2,202,556 $1,916,692 $1,602,399 $1,256,849 $876,934 $459,237 ($0) – – – – – – – – – – $108,244 $101,434 $93,947 $85,716 $76,665 $66,715 $55,775 $43,748 $30,524 $15,985 $396,664 $403,474 $410,961 $419,193 $428,243 $438,193 $449,133 $461,161 $474,384 $488,923 $198,416 $189,505 $181,241 $173,588 $166,512 $159,982 $153,968 $148,443 $143,380 $138,755Setup cost $182,742NPV of total Financing Flow $4,484,540*Note that Annual Debt service is based on an adjusted interest rate and amortization 35
  • NPV of Financing Flow (Securitization) - BedrockAmount Borrowed $4,314,755Interest 10.77%Amortization 20Annual Debt Constant $533,700 *Market Value $8,958,484Year 0 1 2 3 4 5 6 7 8 9 10Beginning Principal $4,314,755 $4,314,755 $4,245,755 $4,169,322 $4,084,658 $3,990,876 $3,886,994 $3,771,923 $3,644,459 $3,503,267 $3,346,869Annual Debt Service $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700Interest Payment $464,699 $457,268 $449,036 $439,918 $429,817 $418,629 $406,236 $392,508 $377,302 $360,458Principal Payment $69,001 $76,432 $84,664 $93,782 $103,883 $115,071 $127,464 $141,192 $156,398 $173,242Ending Principal $4,314,755 $4,245,755 $4,169,322 $4,084,658 $3,990,876 $3,886,994 $3,771,923 $3,644,459 $3,503,267 $3,346,869 $3,173,627Renewal fee – – – – – – – – – –Tax shield on interest $162,645 $160,044 $157,163 $153,971 $150,436 $146,520 $142,183 $137,378 $132,056 $126,160After tax financing cashflow $371,055 $373,656 $376,537 $379,729 $383,264 $387,180 $391,517 $396,322 $401,644 $407,540PV of After tax financing cashflow $348,409 $329,437 $311,716 $295,172 $279,737 $265,347 $251,944 $239,470 $227,874 $217,107 11 12 13 14 15 16 17 18 19 20 $3,173,627 $2,981,727 $2,769,159 $2,533,698 $2,272,877 $1,983,966 $1,663,939 $1,309,445 $916,773 $481,809 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $533,700 $341,800 $321,132 $298,238 $272,879 $244,789 $213,673 $179,206 $141,027 $98,736 $51,891 $191,900 $212,568 $235,461 $260,821 $288,911 $320,027 $354,494 $392,673 $434,964 $481,809 $2,981,727 $2,769,159 $2,533,698 $2,272,877 $1,983,966 $1,663,939 $1,309,445 $916,773 $481,809 $0 – – – – – – – – – – $119,630 $112,396 $104,383 $95,508 $85,676 $74,786 $62,722 $49,360 $34,558 $18,162 $414,070 $421,304 $429,316 $438,192 $448,024 $458,914 $470,978 $484,340 $499,142 $515,538 $207,123 $197,879 $189,336 $181,455 $174,204 $167,547 $161,457 $155,904 $150,863 $146,308Setup cost $104,539NPV of total Financing Flow $4,602,830*Note that Annual Debt service is based on an adjusted interest rate and amortization 36
  • Miniperm vs. Capped Miniperm (Southshore)4900 NPV Financing Flow ($K) Goliath Mortgage 10% 11%4800 Miniperm4700 Capped Miniperm46004500 Securitization4400430042004100 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% Interest Rate 37
  • Miniperm vs. Capped Miniperm (Bedrock) 4900 10% 11% 4800 Goliath Mortgage Capped Miniperm 4700 MinipermNPV of Financing Flow ($K) 4600 Securitization 4500 4400 4300 4200 9.5% 10.0% 10.5% 11.0% 11.5% Interest Rate 38
  • Appendix DFinancial Analysis (Southshore)
  • Southshore 10-yr Projection – Base Case Sq. Ft. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004TJ MAXX 29,615 Rate 11.63 11.63 11.63 11.63 11.63 12.63 12.63 12.63 12.63 12.63 Income 344,422.45 344,422.45 344,422.45 344,422.45 344,422.45 374,037.45 374,037.45 374,037.45 374,037.45 374,037.45PAPA GINOS 3,600 Rate 12.94 14.25 14.25 14.75 14.75 15.25 15.50 15.50 16.00 16.25 Income 46,584.00 51,300.00 51,300.00 53,100.00 53,100.00 54,900.00 27,900.00 56,700.00 57,600.00 58,500.00BOSTON CHICKEN 4,200 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 20.50 Income 67,200.00 69,300.00 71,400.00 73,500.00 75,600.00 77,700.00 79,800.00 81,900.00 84,000.00 86,100.00KINKOS COPYING 8,450 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 15.50 16.00 16.50 Income 135,200.00 139,425.00 143,650.00 147,875.00 152,100.00 156,325.00 160,550.00 65,488.00 135,200.00 139,425.00THE BIG PARTY 10,713 Rate 15.00 15.00 15.50 16.00 16.00 17.50 18.00 18.50 19.00 19.50 Income 160,695.00 160,695.00 166,051.50 171,408.00 171,408.00 187,477.50 192,834.00 198,190.50 203,547.00 208,903.50Vacant Space 5,099 Rate 14.00 14.25 14.50 14.75 15.00 15.25 15.50 15.75 16.00 16.25 Income 17,846.00 72,660.75 73,935.50 75,210.25 76,485.00 77,759.75 79,034.50 80,309.25 81,584.00 82,858.75Total Rental Income 61,677 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825Gross Income 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825 Vacancy Allow 5% 38,597 41,890 42,538 43,276 43,656 46,410 45,708 42,831 46,798 47,491Total Income 733,350 795,913 808,221 822,240 829,460 881,790 868,448 813,794 889,170 902,333Expense CAM/RE Tax on Vacant Space $2.5 ( 10,186) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) Management Fee 5% ( 36,668) ( 39,796) ( 40,411) ( 41,112) ( 41,473) ( 44,089) ( 43,422) ( 40,690) ( 44,459) ( 45,117) Structural Reserve $0.2 ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199)Total Expense 59,053 59,619 60,234 60,935 61,296 63,912 63,245 60,513 64,282 64,940NOI 674,298 736,294 747,987 761,305 768,164 817,877 805,203 753,281 824,889 837,394 40
  • Southshore 10-yr Projection – Best Case Sq. Ft. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004TJ MAXX 29,615 Rate 11.63 11.63 11.63 11.63 11.63 12.63 12.63 12.63 12.63 12.63 Income 344,422.45 344,422.45 344,422.45 344,422.45 344,422.45 374,037.45 374,037.45 374,037.45 374,037.45 374,037.45PAPA GINOS 3,600 Rate 12.94 14.25 14.25 14.75 14.75 15.25 15.50 15.50 16.00 16.25 Income 46,584.00 51,300.00 51,300.00 53,100.00 53,100.00 54,900.00 27,900.00 56,700.00 57,600.00 58,500.00BOSTON CHICKEN 4,200 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 20.50 Income 67,200.00 69,300.00 71,400.00 73,500.00 75,600.00 77,700.00 79,800.00 81,900.00 84,000.00 86,100.00KINKOS COPYING 8,450 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 15.50 16.00 16.50 Income 135,200.00 139,425.00 143,650.00 147,875.00 152,100.00 156,325.00 160,550.00 65,488.00 135,200.00 139,425.00THE BIG PARTY 10,713 Rate 15.00 15.00 15.50 16.00 16.00 17.50 18.00 18.50 19.00 19.50 Income 160,695.00 160,695.00 166,051.50 171,408.00 171,408.00 187,477.50 192,834.00 198,190.50 203,547.00 208,903.50Vacant Space 5,099 Rate 14.00 14.25 14.50 14.75 15.00 15.25 15.50 15.75 16.00 16.25 Income 17,846.00 72,660.75 73,935.50 75,210.25 76,485.00 77,759.75 79,034.50 80,309.25 81,584.00 82,858.75Total Rental Income 61,677 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825Gross Income 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825 Vacancy Allow 3% 23,158 25,134 25,523 25,965 26,193 27,846 27,425 25,699 28,079 28,495Total Income 748,789 812,669 825,237 839,550 846,922 900,354 886,731 830,926 907,889 921,330Expense CAM/RE Tax on Vacant Space $2.5 ( 10,186) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) Management Fee 5% ( 37,439) ( 40,633) ( 41,262) ( 41,978) ( 42,346) ( 45,018) ( 44,337) ( 41,546) ( 45,394) ( 46,066) Structural Reserve $0.2 ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199)Total Expense 59,824 60,456 61,085 61,801 62,169 64,841 64,160 61,369 65,217 65,889NOI 688,965 752,213 764,152 777,750 784,753 835,513 822,572 769,557 842,672 855,440 41
  • Southshore 10-yr Projection – Worst Case Sq. Ft. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004TJ MAXX 29,615 Rate 11.63 11.63 11.63 11.63 11.63 12.63 12.63 12.63 12.63 12.63 Income 344,422.45 344,422.45 344,422.45 344,422.45 344,422.45 374,037.45 374,037.45 374,037.45 374,037.45 374,037.45PAPA GINOS 3,600 Rate 12.94 14.25 14.25 14.75 14.75 15.25 15.50 15.50 16.00 16.25 Income 46,584.00 51,300.00 51,300.00 53,100.00 53,100.00 54,900.00 27,900.00 56,700.00 57,600.00 58,500.00BOSTON CHICKEN 4,200 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 20.50 Income 67,200.00 69,300.00 71,400.00 73,500.00 75,600.00 77,700.00 79,800.00 81,900.00 84,000.00 86,100.00KINKOS COPYING 8,450 Rate 16.00 16.50 17.00 17.50 18.00 18.50 19.00 15.50 16.00 16.50 Income 135,200.00 139,425.00 143,650.00 147,875.00 152,100.00 156,325.00 160,550.00 65,488.00 135,200.00 139,425.00THE BIG PARTY 10,713 Rate 15.00 15.00 15.50 16.00 16.00 17.50 18.00 18.50 19.00 19.50 Income 160,695.00 160,695.00 166,051.50 171,408.00 171,408.00 187,477.50 192,834.00 198,190.50 203,547.00 208,903.50Vacant Space 5,099 Rate 14.00 14.25 14.50 14.75 15.00 15.25 15.50 15.75 16.00 16.25 Income 17,846.00 72,660.75 73,935.50 75,210.25 76,485.00 77,759.75 79,034.50 80,309.25 81,584.00 82,858.75Total Rental Income 61,677 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825Gross Income 771,947 837,803 850,759 865,516 873,115 928,200 914,156 856,625 935,968 949,825 Vacancy Allow 10% 77,195 83,780 85,076 86,552 87,312 92,820 91,416 85,663 93,597 94,982Total Income 694,753 754,023 765,684 778,964 785,804 835,380 822,740 770,963 842,372 854,842Expense CAM/RE Tax on Vacant Space $2.5 ( 10,186) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) ( 7,624) Management Fee 5% ( 34,738) ( 37,701) ( 38,284) ( 38,948) ( 39,290) ( 41,769) ( 41,137) ( 38,548) ( 42,119) ( 42,742) Structural Reserve $0.2 ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199) ( 12,199)Total Expense 57,123 57,524 58,107 58,771 59,113 61,592 60,960 58,371 61,942 62,565NOI 637,630 696,499 707,576 720,193 726,691 773,788 761,780 712,592 780,430 792,277 42
  • Debt Schedule for Southshore MinipermBeginning Principal 4,587,840 4,587,840 4,507,738 4,419,626 4,322,703 4,216,087 4,098,810 3,969,805 3,827,899 3,671,803 3,500,097Interest Payment 458,784 450,774 441,963 432,270 421,609 409,881 396,980 382,790 367,180 350,010Principal Payment 80,102 88,112 96,923 106,616 117,277 129,005 141,906 156,096 171,706 188,876Interest Payment and Loan Amortization 538,886 538,886 538,886 538,886 538,886 538,886 538,886 538,886 538,886 538,886Ending Principal 4,587,840 4,507,738 4,419,626 4,322,703 4,216,087 4,098,810 3,969,805 3,827,899 3,671,803 3,500,097 3,311,221Other overhead cost 16,956 0 0 0 0 0 0 0 0 0Total Debt Service 555,842 538,886 538,886 538,886 538,886 538,886 538,886 538,886 538,886 538,886 Goliath MortgageBeginning Principal 4,587,840 4,587,840 4,438,799 4,275,450 4,096,419 3,900,202 3,685,147 3,449,448 3,191,121 2,907,995 2,597,688Interest Payment 440,433 426,125 410,443 393,256 374,419 353,774 331,147 306,348 279,167 249,378Principal Payment 149,041 163,349 179,031 196,218 215,054 235,700 258,327 283,126 310,306 340,096Interest Payment and Loan Amortization 589,474 589,474 589,474 589,474 589,474 589,474 589,474 589,474 589,474 589,474Ending Principal 4,587,840 4,438,799 4,275,450 4,096,419 3,900,202 3,685,147 3,449,448 3,191,121 2,907,995 2,597,688 2,257,593Other overhead cost 147,043 0 0 0 0 0 0 0 0 0Total Debt Service 736,517 589,474 589,474 589,474 589,474 589,474 589,474 589,474 589,474 589,474 SecuritizationBeginning Principal 4,587,840 4,587,840 4,542,026 4,491,575 4,436,018 4,374,839 4,307,469 4,233,280 4,151,584 4,061,621 3,962,553Interest Payment 464,289 459,653 454,547 448,925 442,734 435,916 428,408 420,140 411,036 401,010Principal Payment 45,815 50,451 55,557 61,179 67,370 74,188 81,696 89,964 99,068 109,094Interest Payment and Loan Amortization 510,104 510,104 510,104 510,104 510,104 510,104 510,104 510,104 510,104 510,104Ending Principal 4,587,840 4,542,026 4,491,575 4,436,018 4,374,839 4,307,469 4,233,280 4,151,584 4,061,621 3,962,553 3,853,459Other overhead cost 97,033 0 0 0 0 0 0 0 0 0Total Debt Service 607,137 510,104 510,104 510,104 510,104 510,104 510,104 510,104 510,104 510,104 43
  • Southshore ValuationEBT 127,642 292,560 309,604 328,825 342,019 399,597 394,164 349,417 431,636 454,430Taxes 44,675 102,396 108,362 115,089 119,707 139,859 137,957 122,296 151,073 159,051Net Income (FCFE - all items are cash available to owners except Principal) 82,967 190,164 201,243 213,736 222,312 259,738 256,206 227,121 280,563 295,380PV of FCFE 75,147 156,007 149,535 143,849 135,519 143,410 128,127 102,877 115,106 109,763Terminal ValueEquity IRR 10.4% <- Goal seek to make NPV 0 1,645,019NPV 0Valuation of Southshore 9.2% 1.6% 1.8% 0.9% 6.5% -1.5% -6.4% 9.5% 1.5%FCFF 447,827 488,938 496,699 505,537 510,089 543,083 534,672 500,212 547,737 556,036PV of FCFF 410,850 411,530 383,543 358,135 331,523 323,823 292,484 251,040 252,193 234,876Terminal Value 4,419,934Sum of PVFCFFs 7,669,931Precedent (Cap Rate) Value 7,492,200Discount Rate 9.0%Ratios for SouthshoreBreak Even Ratio (BER) 0.89 0.70 0.69 0.68 0.68 0.64 0.65 0.69 0.63 0.63NOI Margin 92% 93% 93% 93% 93% 93% 93% 93% 93% 93%Loan-To-Value (LTV) 60% 55% 54% 53% 53% 49% 50% 54% 49% 48%Debt Service Coverage Ratio (DSCR) 1.35 1.47 1.50 1.52 1.54 1.64 1.61 1.51 1.65 1.68 44
  • Sensitivity Analysis on DSCR (Miniperm) - Southshore Vacancy Rate 1.25 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 1.47 1.46 1.44 1.43 1.41 1.40 1.38 1.36 8.25% 1.45 1.43 1.42 1.40 1.39 1.37 1.35 1.34 8.50% 1.42 1.41 1.39 1.38 1.36 1.35 1.33 1.32 8.75% 1.40 1.38 1.37 1.35 1.34 1.32 1.31 1.29 9.00% 1.37 1.36 1.34 1.33 1.31 1.30 1.28 1.27 9.25% 1.35 1.33 1.32 1.30 1.29 1.28 1.26 1.25 9.50% 1.32 1.31 1.30 1.28 1.27 1.25 1.24 1.22 9.75% 1.30 1.29 1.27 1.26 1.25 1.23 1.22 1.20 10.00% 1.28 1.26 1.25 1.24 1.22 1.21 1.20 1.18 10.25% 1.26 1.24 1.23 1.22 1.20 1.19 1.18 1.16 10.50% 1.24 1.22 1.21 1.20 1.18 1.17 1.16 1.14 10.75% 1.22 1.20 1.19 1.18 1.16 1.15 1.14 1.13 11.00% 1.20 1.18 1.17 1.16 1.14 1.13 1.12 1.11 11.25% 1.18 1.16 1.15 1.14 1.13 1.11 1.10 1.09 11.50% 1.16 1.15 1.13 1.12 1.11 1.10 1.08 1.07 11.75% 1.14 1.13 1.12 1.10 1.09 1.08 1.07 1.05 12.00% 1.12 1.11 1.10 1.09 1.07 1.06 1.05 1.04 45
  • Sensitivity Analysis on DSCR (Goliath) - Southshore Vacancy Rate 1.14 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 1.29 1.27 1.26 1.24 1.23 1.22 1.20 1.19 8.25% 1.27 1.25 1.24 1.23 1.21 1.20 1.19 1.17 8.50% 1.25 1.23 1.22 1.21 1.19 1.18 1.17 1.15 8.75% 1.23 1.22 1.20 1.19 1.18 1.16 1.15 1.14 9.00% 1.21 1.20 1.18 1.17 1.16 1.15 1.13 1.12 9.25% 1.19 1.18 1.17 1.15 1.14 1.13 1.12 1.10 9.50% 1.18 1.16 1.15 1.14 1.13 1.11 1.10 1.09 9.75% 1.16 1.15 1.13 1.12 1.11 1.10 1.08 1.07 10.00% 1.14 1.13 1.12 1.11 1.09 1.08 1.07 1.06 10.25% 1.13 1.11 1.10 1.09 1.08 1.07 1.05 1.04 10.50% 1.11 1.10 1.09 1.07 1.06 1.05 1.04 1.03 10.75% 1.09 1.08 1.07 1.06 1.05 1.04 1.03 1.01 11.00% 1.08 1.07 1.06 1.05 1.03 1.02 1.01 1.00 11.25% 1.07 1.05 1.04 1.03 1.02 1.01 1.00 0.99 11.50% 1.05 1.04 1.03 1.02 1.01 0.99 0.98 0.97 11.75% 1.04 1.03 1.01 1.00 0.99 0.98 0.97 0.96 12.00% 1.02 1.01 1.00 0.99 0.98 0.97 0.96 0.95 46
  • Sensitivity Analysis on DSCR (Securitization) - Southshore Vacancy Rate 1.32 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 1.60 1.59 1.57 1.55 1.53 1.52 1.50 1.48 8.25% 1.57 1.55 1.54 1.52 1.50 1.49 1.47 1.45 8.50% 1.54 1.52 1.50 1.49 1.47 1.46 1.44 1.42 8.75% 1.51 1.49 1.47 1.46 1.44 1.43 1.41 1.39 9.00% 1.48 1.46 1.44 1.43 1.41 1.40 1.38 1.37 9.25% 1.45 1.43 1.41 1.40 1.38 1.37 1.35 1.34 9.50% 1.42 1.40 1.39 1.37 1.36 1.34 1.33 1.31 9.75% 1.39 1.37 1.36 1.35 1.33 1.32 1.30 1.29 10.00% 1.36 1.35 1.33 1.32 1.31 1.29 1.28 1.26 10.25% 1.34 1.32 1.31 1.29 1.28 1.27 1.25 1.24 10.50% 1.31 1.30 1.28 1.27 1.26 1.24 1.23 1.21 10.75% 1.29 1.27 1.26 1.25 1.23 1.22 1.21 1.19 11.00% 1.26 1.25 1.24 1.22 1.21 1.20 1.18 1.17 11.25% 1.24 1.23 1.22 1.20 1.19 1.18 1.16 1.15 11.50% 1.22 1.21 1.19 1.18 1.17 1.16 1.14 1.13 11.75% 1.20 1.19 1.17 1.16 1.15 1.13 1.12 1.11 12.00% 1.18 1.17 1.15 1.14 1.13 1.12 1.10 1.09 47
  • Appendix EFinancial Analysis (Bedrock)
  • Bedrock 10-yr Projection – Base Case 1992 1993 1994 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Income Rent Revenue 2,215,360 2,202,572 2,254,590 2,362,788 2,457,013 2,510,631 2,655,280 2,819,365 3,029,661 3,126,268 Absorption and Turnover Vacancy ( 146,479) ( 40,223) ( 150,623) ( 79,209) ( 99,174) ( 18,201) ( 150,947) ( 169,772) ( 85,031) ( 156,701) Base Rental Revenue 1,994,779 1,847,903 1,885,746 1,334,370 2,068,881 2,162,349 2,103,967 2,283,579 2,357,839 2,492,430 2,504,333 2,649,593 2,944,630 2,969,567 Expense Reimbursement 86,506 88,306 74,252 71,184 69,921 101,135 105,579 86,601 104,907 137,182 139,748 130,582 109,556 134,037 Other (Miscellaneous Revenue) 17,862 23,285 59,120 56,565 10,000 7,973 43,146 6,749 7,019 6,022 5,314 5,527 5,748 5,978 Total Income 2,099,147 1,959,494 2,019,118 1,462,119 2,148,802 2,271,457 2,252,692 2,376,929 2,469,765 2,635,634 2,649,395 2,785,702 3,059,934 3,109,582Implied Vacancy Rate 3.4% 5.3% 0.8% 3.9% 3.2% 6.3% 1.7% 1.4% 4.4% 2.8%Vacancy Scenario Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Final Vacancy 3.4% 5.3% 0.8% 3.9% 3.2% 6.3% 1.7% 1.4% 4.4% 2.8%General Vacancy ( 73,059) ( 121,036) ( 17,345) ( 92,247) ( 80,161) ( 167,326) ( 46,354) ( 40,175) ( 134,714) ( 87,464)Effective Gross Revenue 2,099,147 1,959,494 2,019,118 1,462,119 2,075,743 2,150,421 2,235,347 2,284,682 2,389,604 2,468,308 2,603,041 2,745,527 2,925,220 3,022,118Expense Maintenance & Repair 57,937 57,867 75,920 47,344 Custodial 184,117 178,646 206,730 115,331 Utilities 390,856 406,514 414,906 346,201 Landscaping/Snow Removal 47,943 74,719 70,914 64,230 Taxes 243,268 243,557 253,257 190,578 Administrative* 180,575 170,003 183,211 134,287 Reimbursable Expenses 1,163,622 1,217,741 1,259,176 1,312,735 1,365,082 1,424,320 1,474,288 1,153,822 1,605,185 1,664,839 Nonreimbursable Expenses 60,375 62,714 65,211 67,418 70,254 72,918 76,141 79,600 83,479 86,620 Owner Maint. & Repair 21,221 22,435 26,750 15,136 Total Expense 1,125,917 1,153,741 1,231,688 913,107 1,223,997 1,280,455 1,324,387 1,380,153 1,435,336 1,497,238 1,550,429 1,233,422 1,688,664 1,751,459NOI 973,230 805,753 787,430 549,012 851,746 869,966 910,960 904,529 954,268 971,070 1,052,612 1,512,105 1,236,556 1,270,659 49
  • Bedrock 10-yr Projection – Best Case 1992 1993 1994 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Income Rent Revenue 2,215,360 2,202,572 2,254,590 2,362,788 2,457,013 2,510,631 2,655,280 2,819,365 3,029,661 3,126,268 Absorption and Turnover Vacancy ( 146,479) ( 40,223) ( 150,623) ( 79,209) ( 99,174) ( 18,201) ( 150,947) ( 169,772) ( 85,031) ( 156,701) Base Rental Revenue 1,994,779 1,847,903 1,885,746 1,334,370 2,068,881 2,162,349 2,103,967 2,283,579 2,357,839 2,492,430 2,504,333 2,649,593 2,944,630 2,969,567 Expense Reimbursement 86,506 88,306 74,252 71,184 69,921 101,135 105,579 86,601 104,907 137,182 139,748 130,582 109,556 134,037 Other (Miscellaneous Revenue) 17,862 23,285 59,120 56,565 10,000 7,973 43,146 6,749 7,019 6,022 5,314 5,527 5,748 5,978 Total Income 2,099,147 1,959,494 2,019,118 1,462,119 2,148,802 2,271,457 2,252,692 2,376,929 2,469,765 2,635,634 2,649,395 2,785,702 3,059,934 3,109,582Implied Vacancy Rate 3.4% 5.3% 0.8% 3.9% 3.2% 6.3% 1.7% 1.4% 4.4% 2.8%Vacancy Scenario Adjustment -1.4% -3.3% 1.2% -1.9% -1.2% -4.3% 0.3% 0.6% -2.4% -0.8%Final Vacancy 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%General Vacancy ( 42,976) ( 45,429) ( 45,054) ( 47,539) ( 49,395) ( 52,713) ( 52,988) ( 55,714) ( 61,199) ( 62,192)Effective Gross Revenue 2,099,147 1,959,494 2,019,118 1,462,119 2,105,826 2,226,028 2,207,638 2,329,390 2,420,370 2,582,921 2,596,407 2,729,988 2,998,735 3,047,390Expense Maintenance & Repair 57,937 57,867 75,920 47,344 Custodial 184,117 178,646 206,730 115,331 Utilities 390,856 406,514 414,906 346,201 Landscaping/Snow Removal 47,943 74,719 70,914 64,230 Taxes 243,268 243,557 253,257 190,578 Administrative* 180,575 170,003 183,211 134,287 Reimbursable Expenses 1,163,622 1,217,741 1,259,176 1,312,735 1,365,082 1,424,320 1,474,288 1,153,822 1,605,185 1,664,839 Nonreimbursable Expenses 60,375 62,714 65,211 67,418 70,254 72,918 76,141 79,600 83,479 86,620 Owner Maint. & Repair 21,221 22,435 26,750 15,136 Total Expense 1,125,917 1,153,741 1,231,688 913,107 1,223,997 1,280,455 1,324,387 1,380,153 1,435,336 1,497,238 1,550,429 1,233,422 1,688,664 1,751,459NOI 973,230 805,753 787,430 549,012 881,829 945,573 883,251 949,237 985,034 1,085,683 1,045,978 1,496,566 1,310,071 1,295,931 50
  • Bedrock 10-yr Projection – Worst Case 1992 1993 1994 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Income Rent Revenue 2,215,360 2,202,572 2,254,590 2,362,788 2,457,013 2,510,631 2,655,280 2,819,365 3,029,661 3,126,268 Absorption and Turnover Vacancy ( 146,479) ( 40,223) ( 150,623) ( 79,209) ( 99,174) ( 18,201) ( 150,947) ( 169,772) ( 85,031) ( 156,701) Base Rental Revenue 1,994,779 1,847,903 1,885,746 1,334,370 2,068,881 2,162,349 2,103,967 2,283,579 2,357,839 2,492,430 2,504,333 2,649,593 2,944,630 2,969,567 Expense Reimbursement 86,506 88,306 74,252 71,184 69,921 101,135 105,579 86,601 104,907 137,182 139,748 130,582 109,556 134,037 Other (Miscellaneous Revenue) 17,862 23,285 59,120 56,565 10,000 7,973 43,146 6,749 7,019 6,022 5,314 5,527 5,748 5,978 Total Income 2,099,147 1,959,494 2,019,118 1,462,119 2,148,802 2,271,457 2,252,692 2,376,929 2,469,765 2,635,634 2,649,395 2,785,702 3,059,934 3,109,582Implied Vacancy Rate 3.4% 5.3% 0.8% 3.9% 3.2% 6.3% 1.7% 1.4% 4.4% 2.8%Vacancy Scenario Adjustment 6.6% 4.7% 9.2% 6.1% 6.8% 3.7% 8.3% 8.6% 5.6% 7.2%Final Vacancy 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%General Vacancy ( 214,880) ( 227,146) ( 225,269) ( 237,693) ( 246,977) ( 263,563) ( 264,940) ( 278,570) ( 305,993) ( 310,958)Effective Gross Revenue 2,099,147 1,959,494 2,019,118 1,462,119 1,933,922 2,044,311 2,027,423 2,139,236 2,222,789 2,372,071 2,384,456 2,507,132 2,753,941 2,798,624Expense Maintenance & Repair 57,937 57,867 75,920 47,344 Custodial 184,117 178,646 206,730 115,331 Utilities 390,856 406,514 414,906 346,201 Landscaping/Snow Removal 47,943 74,719 70,914 64,230 Taxes 243,268 243,557 253,257 190,578 Administrative* 180,575 170,003 183,211 134,287 Reimbursable Expenses 1,163,622 1,217,741 1,259,176 1,312,735 1,365,082 1,424,320 1,474,288 1,153,822 1,605,185 1,664,839 Nonreimbursable Expenses 60,375 62,714 65,211 67,418 70,254 72,918 76,141 79,600 83,479 86,620 Owner Maint. & Repair 21,221 22,435 26,750 15,136 Total Expense 1,125,917 1,153,741 1,231,688 913,107 1,223,997 1,280,455 1,324,387 1,380,153 1,435,336 1,497,238 1,550,429 1,233,422 1,688,664 1,751,459NOI 973,230 805,753 787,430 549,012 709,925 763,856 703,036 759,083 787,453 874,833 834,027 1,273,710 1,065,277 1,047,165 51
  • Debt Schedule for Bedrock MinipermBeginning Principal # 4,314,755 4,239,421 4,156,554 4,065,400 3,965,130 3,854,834 3,733,507 3,600,049 3,453,244 3,291,759Interest Payment 431,476 423,942 415,655 406,540 396,513 385,483 373,351 360,005 345,324 329,176Principal Repayment 75,334 82,867 91,154 100,270 110,297 121,326 133,459 146,805 161,485 177,634Interest Payment and Loan Amortization 506,810 506,810 506,810 506,810 506,810 506,810 506,810 506,810 506,810 506,810Ending Principal # 4,239,421 4,156,554 4,065,400 3,965,130 3,854,834 3,733,507 3,600,049 3,453,244 3,291,759 3,114,125Other overhead cost 19,486 0 0 0 0 0 0 0 0 0Total Debt Service 526,296 506,810 506,810 506,810 506,810 506,810 506,810 506,810 506,810 506,810 Goliath MortgageBeginning Principal # 4,314,755 4,177,330 4,026,368 3,860,537 3,678,371 3,478,262 3,258,442 3,016,970 2,751,713 2,460,329Interest Payment 425,003 411,467 396,597 380,263 362,320 342,609 320,957 297,172 271,044 242,342Principal Repayment 137,425 150,962 165,831 182,166 200,109 219,820 241,472 265,257 291,385 320,086Interest Payment and Loan Amortization 562,429 562,429 562,429 562,429 562,429 562,429 562,429 562,429 562,429 562,429Ending Principal # 4,177,330 4,026,368 3,860,537 3,678,371 3,478,262 3,258,442 3,016,970 2,751,713 2,460,329 2,140,242Other overhead cost 182,742 0 0 0 0 0 0 0 0 0Total Debt Service 745,171 562,429 562,429 562,429 562,429 562,429 562,429 562,429 562,429 562,429 SecuritizationBeginning Principal # 4,314,755 4,275,404 4,231,834 4,183,594 4,130,182 4,071,044 4,005,567 3,933,071 3,852,803 3,763,930Interest Payment 462,542 458,323 453,653 448,481 442,756 436,416 429,397 421,625 413,020 403,493Principal Repayment 39,351 43,570 48,240 53,412 59,138 65,477 72,496 80,268 88,873 98,400Interest Payment and Loan Amortization 501,893 501,893 501,893 501,893 501,893 501,893 501,893 501,893 501,893 501,893Ending Principal # 4,275,404 4,231,834 4,183,594 4,130,182 4,071,044 4,005,567 3,933,071 3,852,803 3,763,930 3,665,531Other overhead cost 104,539 0 0 0 0 0 0 0 0 0Total Debt Service 606,433 501,893 501,893 501,893 501,893 501,893 501,893 501,893 501,893 501,893 52
  • Bedrock ValuationEBT 314,748 487,250 429,599 500,756 542,278 649,267 616,581 1,074,941 897,051 892,438Taxes 110,162 170,537 150,359 175,265 189,797 227,244 215,803 376,229 313,968 312,353Net Income (FCFE - all items are cash available to owners except Principal) 204,586 316,712 279,239 325,492 352,481 422,024 400,778 698,711 583,083 580,085PV of FCFE 183,354 254,386 201,011 209,989 203,802 218,687 186,125 290,813 217,500 193,926Terminal Value 2,484,136Equity IRR 11.6% <- Goal seek to make NPV 0NPV 0Valuation of BedrockFCFF 573,189 614,622 574,113 617,004 640,272 705,694 679,886 972,768 851,546 842,355PV of FCFF 523,460 512,602 437,276 429,172 406,718 409,385 360,195 470,648 376,254 339,902Terminal Value 5,863,315Sum of PVFCFFs 10,128,928Precedent (Cap Rate) Value 8,958,484Discount Rate 9.5%Ratios for BedrockBreak Even Ratio (BER) 0.87 0.80 0.83 0.81 0.80 0.77 0.79 0.64 0.73 0.74NOI Margin 42% 42% 40% 41% 41% 42% 40% 55% 44% 43%Loan-To-Value (LTV) 46% 43% 46% 43% 42% 38% 39% 27% 31% 32%Debt Service Coverage Ratio (DSCR) 1.76 1.88 1.76 1.89 1.96 2.16 2.08 2.98 2.61 2.58 53
  • Sensitivity Analysis on DSCR (Miniperm) - Bedrock Vacancy Rate 1.68 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 1.96 1.91 1.86 1.81 1.76 1.71 1.66 1.62 8.25% 1.92 1.87 1.83 1.78 1.73 1.68 1.63 1.59 8.50% 1.89 1.84 1.79 1.75 1.70 1.65 1.60 1.56 8.75% 1.85 1.81 1.76 1.71 1.67 1.62 1.58 1.53 9.00% 1.82 1.77 1.73 1.68 1.64 1.59 1.55 1.50 9.25% 1.79 1.74 1.70 1.65 1.61 1.56 1.52 1.48 9.50% 1.76 1.71 1.67 1.63 1.58 1.54 1.49 1.45 9.75% 1.73 1.68 1.64 1.60 1.55 1.51 1.47 1.43 10.00% 1.70 1.66 1.61 1.57 1.53 1.49 1.44 1.40 10.25% 1.67 1.63 1.59 1.54 1.50 1.46 1.42 1.38 10.50% 1.64 1.60 1.56 1.52 1.48 1.44 1.40 1.35 10.75% 1.61 1.57 1.53 1.49 1.45 1.41 1.37 1.33 11.00% 1.59 1.55 1.51 1.47 1.43 1.39 1.35 1.31 11.25% 1.56 1.52 1.48 1.45 1.41 1.37 1.33 1.29 11.50% 1.54 1.50 1.46 1.42 1.38 1.35 1.31 1.27 11.75% 1.51 1.48 1.44 1.40 1.36 1.32 1.29 1.25 12.00% 1.49 1.45 1.41 1.38 1.34 1.30 1.27 1.23 54
  • Sensitivity Analysis on DSCR (Goliath) - Bedrock Vacancy Rate 1.51 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 1.71 1.66 1.62 1.58 1.54 1.49 1.45 1.41 8.25% 1.68 1.64 1.60 1.56 1.51 1.47 1.43 1.39 8.50% 1.66 1.61 1.57 1.53 1.49 1.45 1.41 1.37 8.75% 1.63 1.59 1.55 1.51 1.47 1.43 1.39 1.35 9.00% 1.61 1.57 1.53 1.49 1.45 1.41 1.37 1.33 9.25% 1.58 1.54 1.50 1.47 1.43 1.39 1.35 1.31 9.50% 1.56 1.52 1.48 1.44 1.40 1.37 1.33 1.29 9.75% 1.54 1.50 1.46 1.42 1.38 1.35 1.31 1.27 10.00% 1.52 1.48 1.44 1.40 1.37 1.33 1.29 1.25 10.25% 1.50 1.46 1.42 1.38 1.35 1.31 1.27 1.23 10.50% 1.47 1.44 1.40 1.36 1.33 1.29 1.25 1.22 10.75% 1.45 1.42 1.38 1.34 1.31 1.27 1.24 1.20 11.00% 1.43 1.40 1.36 1.33 1.29 1.25 1.22 1.18 11.25% 1.41 1.38 1.34 1.31 1.27 1.24 1.20 1.17 11.50% 1.40 1.36 1.33 1.29 1.26 1.22 1.19 1.15 11.75% 1.38 1.34 1.31 1.27 1.24 1.20 1.17 1.14 12.00% 1.36 1.32 1.29 1.26 1.22 1.19 1.15 1.12 55
  • Sensitivity Analysis on DSCR (Securitization) - Bedrock Vacancy Rate 1.69 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%Interest Rate 8.00% 2.13 2.08 2.02 1.97 1.92 1.86 1.81 1.76 8.25% 2.08 2.03 1.98 1.93 1.88 1.82 1.77 1.72 8.50% 2.04 1.99 1.94 1.89 1.84 1.79 1.73 1.68 8.75% 2.00 1.95 1.90 1.85 1.80 1.75 1.70 1.65 9.00% 1.96 1.91 1.86 1.81 1.76 1.71 1.67 1.62 9.25% 1.92 1.87 1.82 1.78 1.73 1.68 1.63 1.58 9.50% 1.88 1.83 1.79 1.74 1.69 1.65 1.60 1.55 9.75% 1.85 1.80 1.75 1.71 1.66 1.61 1.57 1.52 10.00% 1.81 1.76 1.72 1.67 1.63 1.58 1.54 1.49 10.25% 1.78 1.73 1.69 1.64 1.60 1.55 1.51 1.47 10.50% 1.74 1.70 1.66 1.61 1.57 1.52 1.48 1.44 10.75% 1.71 1.67 1.62 1.58 1.54 1.50 1.45 1.41 11.00% 1.68 1.64 1.60 1.55 1.51 1.47 1.43 1.39 11.25% 1.65 1.61 1.57 1.53 1.48 1.44 1.40 1.36 11.50% 1.62 1.58 1.54 1.50 1.46 1.42 1.38 1.34 11.75% 1.59 1.55 1.51 1.47 1.43 1.39 1.35 1.31 12.00% 1.56 1.52 1.49 1.45 1.41 1.37 1.33 1.29 56