Appraisal for SRF plaza complex project

TRƯỜ NG ĐẠI HỌC MỞTP HCM HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉLIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL MBAVB4 ồn Th Thanh Thúy APPRAISAL FOR SRF PLAZA COMPLEX PROJECT MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART-TIME) Ho Chi Minh City (2012) i HONOR STATEMENT I pledge that this Masters Thesis entitled Appraisal for SRF Plaza Complex Project has not yet been published I further pledge that I have written this Masters Thesis myself, on my own I have not employed any sources or aids other than those listed The quotations and data used in this thesis have the highest accuracy within the scope of my knowledge Signature ồn Th Thanh Thúy ii ACKNOWLEDGMENTS Firstly, I wish to express my earnest gratefulness to Dr Nguy n Minh Ki u for his support all along this thesis He was exceptional mentors to me Thanks to my professors of MBAVB4 course, without their aid and teaching, this research work would not have been completed I am very thankful to Searefico Company for their help during my research work Finally, my husband and my parents have been a tremendous support to me all along my studies Without their encouragement, understanding and sacrifices, this work would not have been possible iv ABSTRACT The program to relocate the urban polluting enterprises and the plans to tackle thoroughly the polluting facilities into the industrial parks, industrial clusters of the Government are being implemented, and SRF Company is one of the companies affected by this policy Therefore, SRF Company must relocate their entire operations on that land into the industrial areas whether the land lease contract through 2012 or not To encourage the relocation of enterprises, the Prime Minister has issued regulations that the enterprises may change the Land Use Purpose to continue to invest if this location is suitable for land planning and corporate business functions are suitable for investment projects With the suitable plan, the State will accept and charge the land price at the state price, not at the market price Realizing that the demand for real estate is very high, SRF Company considered the plan changing the land use purpose to invest in a SRF Plaza project which is a complex including residential categories and commercial center The proposed development has a total land area of 12,573m2 Upon completion, the project will consist of a total GFA of 87,761m2 of which 78,010m2 is identified for the residential component, 9,751m2 is reserved for the retail component and the balance will serve as parking The subject property will have an overall plot ratio of whilst the total site coverage is 39%, and a maximum height restriction of 18 storeys To affirm certainty the level of efficiency, feasibility of project, SRF Company need to evaluate and assess the financial feasibility of the SRF Plaza project to confirm that the changing of current land use purpose to invest in the SRF Plaza project is effective or not v After calculating and analyzing the financial structure for SRF Plaza, with the results of NPV> 0, IRR = 50% and BCR > 1, that means the SRF Plaza project is a financially feasible project Furthermore, after performing sensitivity analyzing with the input variables concerned, the results are: the apartment selling price affected to the decision of the investor, but it is not a major concern, the apartment selling price of 12.1million/m2 for grade B apartment to get NPV > and IRR > MARR is entirely possible The commercial leasing price has absolutely no affect to the decision of the investor as analyzed above, even if the commercial leasing price is lowest then the NPV of investor is also positive and IRR > MARR On the issue of construction cost, with the increase of construction cost by 37%, NPV of the investor is zero and the nominal IRR of the investor is equal to MARR, but it is really hard to make the increasing of construction cost by 37% occur The SRF Plaza project launched in accordance with the policy to encourage relocation the urban polluting enterprises of the Government Compared to renting land from the Government, if SRF Company convert the land use purpose to invest the SFR Plaza project, then it would increase the state budget with revenues from the land use right transfer tax, tax on commercial leasing, tax on apartment selling and corporate income tax Further more, the SRF Plaza project launched will create more jobs for laborers in the execution time, contribute to make landscape more beautiful and improve the quality of life for citizens Conclusion, SRF Plaza project is financially and socially feasible, SRF Company should continue to use the leased land to consider the plan constructing SRF Plaza complex project vi TABLE OF CONTENTS Honor statement i Acknowledgments ii Tutor Comments iii Abstract iv Table of Contents vi Abbreviations ix List of Tables x List of Figures xi List of Appendix xii CHAPTER 1: INTRODUCTION .1 1.1 Rationale of the study 1.2 Statement of the problem 1.3 Research objectives .3 1.4 Research questions 1.5 Scope and limitations 1.6 Research Method .4 1.7 Structure of the study CHAPTER 2: LITERATURE REVIEW 2.1 Project valuation 2.1.1 What is the Project valuation? 2.1.2 Why is project valuation important? 2.2 Project Appraisal Method vii 2.2.1 NPV Method .10 2.2.2 IRR Method 11 2.2.3 BCR Method .12 2.3 Making decision 12 2.4 Risk management 13 2.5 Overview of Real Estate market 15 2.6 Review the construction of the complex .19 2.7 Key findings .22 CHAPTER 3: SRF PLAZA PROJECT APPRAISAL 24 3.1 Introduces of SRF Plaza 24 3.1.1 Land Description 24 3.1.2 Locality and Surrounding Development .26 3.2 Proposed Development 28 3.3 Factors Influencing the Evaluating 33 3.3.1 Time Planning 33 3.3.2 Construction Cost .34 3.3.3 Contingency Cost .37 3.3.4 Commercial selling price 37 3.3.5 Rate of payment progress 41 3.3.6 Area Rate for sale .41 3.3.7 Lease price for commercial office: 41 3.3.8 Parking charge for motorcycles and cars 41 viii 3.3.9 Loans 42 3.3.10 Depreciation .43 3.4 Cash flow chart 44 3.5 SRF Plaza project appraisal 46 CHAPTER 4: RISK ANALYSIS .47 4.1 Define the risk variables 47 4.2 Sensitivity analyzing results .48 4.2.1 Sensitivity analyzing results for apartment selling price 48 4.2.2 Sensitivity analyzing results for apartment selling growth rate 49 4.2.3 Sensitivity analyzing results for commercial leasing price 51 4.2.4 Sensitivity analyzing results for construction cost 53 4.3 Scenario analyzing results for apartment selling price and commercial leasing price 55 4.4 Simulation analysis .57 4.5 Conclusion on risk analysis 58 CHAPTER 5: CONCLUSIONS and RECOMMENDATIONS 60 5.1 Conclusions .60 5.1.1 Financially 60 5.1.2 Socially .60 5.2 Recommendations 61 Reference 63 ix Appendix .66 x ABBREVIATIONS BCR Benefit – Cost Ratio CBRE CB Richard Ellis CPI CB Richard Ellis Vietnam FDI Foreign Direct Investment GDP Gross Domestic Product GFA Gross Floor Area HCM H Chí Minh IRR Internal Rate of Return MARR Minimum Acceptable Rate of Return NLA Net Land Area NPV Net Present Value SRF Searefico VND Vietnam ong WTO World Trade Organization 78 INCOME STATEMENT NPV 2012 2013 2014 1.43 72.74 0.00 324.52 486.79 0% 40% 60% 0.00 0% 101.41 100% 0.00 0% 0.00 144.49 0.00 0% 100% 0% 0.00 0.00 6.21 0% 0% 100% 0.00 0.00 1.84 0% 0% 100% OUTFLOW (billion) Land purchase Land Area Land Price (million/m2) 13,983.00 5.10 Land purchase (billion) Land acquisition cost % 71.31 0.02 Land acquisition cost (billion) Total land purchase Construction Cost for Apartment (billion) Rate of construction progress Apartment NLA Construction cost/m2 (million/m2) Construction Cost for Commercial office Rate of construction progress Commercial Office Area Construction cost/m2 (million/m2) 78,010.43 10.40 9,751.30 10.40 Construction Cost for basement Rate of construction progress Basement Area (m2) Construction cost/m2 (million/m2) 12,641.00 11.43 Construction Cost for Proof Rate of construction progress Proof Area Construction cost/m2 (million/m2) 975.13 6.37 Construction for traffic Rate of construction progress Area 1,445.61 2015 2016 2017 2018 2019 79 INCOME STATEMENT Construction cost/m2 (million/m2) NPV Rate of construction progress Construction cost/m2 (million/m2) Total Construction Cost 2014 0.00 0.00 9.73 0% 0% 100% 0.00 570.42 504.56 10.75 43.00 53.75 0.10 0.40 0.50 2015 2016 2017 2018 2019 7,661.74 1.27 1,074.99 1.00 Contingency cost (10% of Construction Cost) Contingency cost rate 10% of 2013 1.27 Construction for greenary Area 2012 0.10 TOTAL OUTFLOW 982.39 83.49 613.42 558.31 0.00 0.00 0.00 0.00 0.00 NET CASH FLOW OF PROJECT 700.05 -80.51 -268.78 402.08 467.44 253.01 79.43 87.11 95.64 21.50 21.50 21.50 21.50 NPV OF PROJECT 700.05 Depreciation EBIT -80.51 -268.78 402.08 467.44 231.51 57.93 65.61 74.14 0.00 268.78 0.00 0.00 0.00 0.00 0.00 0.00 0.00 53.76 0.00 0.00 0.00 0.00 0.00 0.00 -80.51 -322.54 402.08 467.44 231.51 57.93 65.61 74.14 0.00 0.00 100.52 116.86 57.88 14.48 16.40 18.53 NET CAH FLOW OF INVESTOR -80.51 -322.54 301.56 350.58 173.63 43.45 49.21 55.60 Real Cash Flows -73.86 -271.48 232.86 248.36 112.85 25.91 26.92 27.91 EQUITY CAPITAL 83.49 LOAN Interest on loan rate INTEREST ON LOAN 0.20 53.76 EARNING BEFORE TAX Corporate income tax rate (%) Corporate income tax 0.25 80 INCOME STATEMENT NPV Inflation Rate 0.09 Inflation index 1.00 NPV OF INVESTOR 2012 2013 2014 2015 2016 1.09 1.19 1.30 1.41 1.54 357.86 IRR OF INVESTOR 50% Real IRR of investor 38% BCR 1.43 2017 2018 2019 1.68 1.83 1.99 81 Appendix INCOME STATEMENT 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 INFLOW (billion) Basement Number of Car Car Rental Rate (million/year) 2.19 2.19 2.19 2.19 2.19 2.41 2.41 2.41 2.41 2.41 2.65 2.65 2.65 2.65 Bike Revenue per year (billion) 1.99 1.99 1.99 1.99 1.99 2.18 2.18 2.18 2.18 2.18 2.40 2.40 2.40 2.40 Parking Revenue for Non-resident person 2.20 2.20 2.20 2.20 2.20 2.42 2.42 2.42 2.42 2.42 2.66 2.66 2.66 2.66 Total Parking Revenue (billion) 5.73 5.73 5.73 5.73 5.73 6.31 6.31 6.31 6.31 6.31 6.94 6.94 6.94 6.94 Car Revenue per year (billion) Number of Bike Bike Rental Rate (million/year) Commercial Area NLA (m2) Rental price (USD/month) USD/VND rate Rental price (millionVND/month) Revenue from Commercial Area per year 99.47 109.42 120.36 132.39 145.63 160.20 176.21 193.84 213.22 234.54 258.00 283.80 312.18 343.39 Apartment NLA (m2) Annual sales % NLA annual sales (m2) Average apartment selling price (millionVN Total Apartment Revenue (billion) TOTAL INFLOW (billion) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 105.20 115.15 126.09 138.13 151.37 166.50 182.52 200.14 219.53 240.85 264.93 290.73 319.11 350.33 82 INCOME STATEMENT OUTFLOW (billion) Land purchase Land Area Land Price (million/m2) Land purchase (billion) Land acquisition cost % Land acquisition cost (billion) Total land purchase Construction Cost for Apartment (billion) Rate of construction progress Apartment NLA Construction cost/m2 (million/m2) Construction Cost for Commercial office Rate of construction progress Commercial Office Area Construction cost/m2 (million/m2) Construction Cost for basement Rate of construction progress Basement Area (m2) Construction cost/m2 (million/m2) Construction Cost for Proof Rate of construction progress Proof Area Construction cost/m2 (million/m2) Construction for traffic Rate of construction progress Area 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 83 INCOME STATEMENT 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Construction cost/m2 (million/m2) Construction for greenary Rate of construction progress Area Construction cost/m2 (million/m2) Total Construction Cost Contingency cost (10% of Construction Cost) Contingency cost rate 10% of TOTAL OUTFLOW NET CASH FLOW OF PROJECT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 105.20 115.15 126.09 138.13 151.37 166.50 182.52 200.14 219.53 240.85 264.93 290.73 319.11 350.33 NPV OF PROJECT Depreciation 21.50 21.50 EBIT 83.70 93.65 104.59 116.63 129.87 145.00 161.02 178.64 198.03 219.35 243.43 269.23 297.61 328.83 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 EQUITY CAPITAL LOAN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Interest on loan rate INTEREST ON LOAN EARNING BEFORE TAX 83.70 93.65 104.59 116.63 129.87 145.00 161.02 178.64 198.03 219.35 243.43 269.23 297.61 328.83 Corporate income tax 20.93 23.41 26.15 29.16 32.47 NET CAH FLOW OF INVESTOR 62.78 70.24 78.44 87.47 97.40 108.75 120.77 133.98 148.52 164.51 182.58 201.92 223.21 246.62 Real Cash Flows 28.90 29.67 30.40 31.10 31.77 Corporate income tax rate (%) 36.25 32.54 40.26 33.15 44.66 33.75 49.51 34.32 54.84 34.88 60.86 35.51 67.31 36.03 74.40 36.54 82.21 37.04 84 INCOME STATEMENT 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Inflation Rate Inflation index NPV OF INVESTOR IRR OF INVESTOR Real IRR of investor BCR 2.17 2.37 2.58 2.81 3.07 3.34 3.64 3.97 4.33 4.72 5.14 5.60 6.11 6.66 85 Appendix INCOME STATEMENT 2034 2035 2036 2037 2038 2039 2040 2041 INFLOW (billion) Basement Number of Car Car Rental Rate (million/year) Car Revenue per year (billion) 2.65 2.91 2.91 2.91 2.91 2.91 3.20 3.20 Bike Revenue per year (billion) 2.40 2.64 2.64 2.64 2.64 2.64 2.91 2.91 Parking Revenue for Non-resident person 2.66 2.92 2.92 2.92 2.92 2.92 3.22 3.22 Total Parking Revenue (billion) 6.94 7.63 7.63 7.63 7.63 7.63 8.39 8.39 Number of Bike Bike Rental Rate (million/year) Commercial Area NLA (m2) Rental price (USD/month) USD/VND rate Rental price (millionVND/month) Revenue from Commercial Area per year377.73 415.51 457.06 502.76 553.04 608.34 669.18 736.09 Apartment NLA (m2) Annual sales % NLA annual sales (m2) Average apartment selling price (millionVN Total Apartment Revenue (billion) TOTAL INFLOW (billion) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 384.67 423.14 464.69 510.39 560.67 615.97 677.57 744.49 86 INCOME STATEMENT OUTFLOW (billion) Land purchase Land Area Land Price (million/m2) Land purchase (billion) Land acquisition cost % Land acquisition cost (billion) Total land purchase Construction Cost for Apartment (billion) Rate of construction progress Apartment NLA Construction cost/m2 (million/m2) Construction Cost for Commercial office Rate of construction progress Commercial Office Area Construction cost/m2 (million/m2) Construction Cost for basement Rate of construction progress Basement Area (m2) Construction cost/m2 (million/m2) Construction Cost for Proof Rate of construction progress Proof Area Construction cost/m2 (million/m2) Construction for traffic Rate of construction progress Area 2034 2035 2036 2037 2038 2039 2040 2041 87 INCOME STATEMENT 2034 2035 2036 2037 2038 2039 2040 2041 Construction cost/m2 (million/m2) Construction for greenary Rate of construction progress Area Construction cost/m2 (million/m2) Total Construction Cost Contingency cost (10% of Construction Cost) Contingency cost rate 10% of TOTAL OUTFLOW NET CASH FLOW OF PROJECT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 384.67 423.14 464.69 510.39 560.67 615.97 677.57 744.49 NPV OF PROJECT Depreciation EBIT 21.50 21.50 21.50 21.50 21.50 21.50 21.50 21.50 363.17 401.64 443.19 488.89 539.17 594.47 656.07 722.99 EQUITY CAPITAL LOAN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Interest on loan rate INTEREST ON LOAN EARNING BEFORE TAX 363.17 401.64 443.19 488.89 539.17 594.47 656.07 722.99 Corporate income tax rate (%) Corporate income tax NET CAH FLOW OF INVESTOR Real Cash Flows 90.79 100.41 110.80 122.22 134.79 148.62 164.02 180.75 272.38 301.23 332.39 366.67 404.38 445.85 492.05 542.24 37.53 38.08 38.55 39.01 39.47 39.93 40.42 40.87 88 INCOME STATEMENT 2034 2035 2036 2037 2038 2039 2040 2041 Inflation Rate Inflation index NPV OF INVESTOR IRR OF INVESTOR Real IRR of investor BCR 7.26 7.91 8.62 9.40 10.25 11.17 12.17 13.27 89 Appendix 9: Crystal ball Simulation Crystal Ball Report - Full Run preferences: Number of trials run 10,000 Extreme speed Monte Carlo Random seed Precision control on Confidence level Run statistics: Total running time (sec) Trials/second (average) Random numbers per sec 95.00% 1.02 9,772 136,807 Crystal Ball data: Assumptions 14 Correlations Correlated groups Decision variables Forecasts Forecasts Worksheet: [income statement.xls]Appendix Forecast: IRR of investor Summary: Certainty level is 84.43% Certainty range is from 20% to Infinity Entire range is from 10% to 206% Base case is 50% After 10,000 trials, the std error of the mean is 0% 90 Statistics: Trials Mean Median Mode Standard Deviation Variance Skewness Kurtosis Coeff of Variability Minimum Maximum Range Width Mean Std Error Forecast values 10,000 35% 30% 18% 3% 1.93 8.75 0.5191 10% 206% 196% 0% Forecast: IRR of investor (cont'd) Percentiles: 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Forecast values 10% 18% 21% 24% 27% 30% 34% 39% 46% 59% 206% 91 Forecast: NPV of investor Summary: Certainty level is 84.44% Certainty range is from 0.00 to Infinity Entire range is from -573.20 to 873.38 Base case is 357.86 After 10,000 trials, the std error of the mean is 1.78 Forecast Statistics: values Trials 10,000 Mean 177.77 Median 177.96 Mode Standard Deviation 177.67 Variance 31,566.60 Skewness -0.0402 Kurtosis 3.19 Coeff of Variability 0.9995 Minimum -573.20 Maximum 873.38 Range 1,446.58 Width Mean Std Error 1.78 92 Forecast: NPV of investor (cont'd) Forecast Percentiles: values 0% -573.20 10% -47.24 20% 29.37 30% 85.45 40% 132.62 50% 177.95 60% 223.37 70% 269.44 80% 327.33 90% 405.65 100% 873.38 End of Forecasts ... that whether SRF continue to use the leased land to invest in SRF Plaza complex project or not, and if the SRF Plaza project is implemented, which risks must be limited so that SRF Company can... financial structure for SRF Plaza, with the results of NPV> 0, IRR = 50% and BCR > 1, that means the SRF Plaza project is a financially feasible project Furthermore, after performing sensitivity... cost for SRF Plaza project .37 Table 3.8: Apartment selling price of projects surrounding the SRF Plaza 38 Table 3.9: Expected selling area rate 41 Table 3.10: Parking revenue for