09-27-2023 ANSWERS SA#4 Location Risk Analysis Yale SOM 895

Yale School of Management LAST NAME: International Real Estate, Mgmt 895 FIRST NAME: ANSWERS Skill Assessment #4 Location and Market Timing Risk Analysis Munich and Athens Shopping Centers (PEP Perlacher Einkauff-Paradies and The Mall Athens) 9/27/2022 Below are the cash flows for two shopping centers: one is located in Munich and the other in Athens. Both centers are considered to be dominant in their respective markets, with similar sales volumes and tenancy. Assume that you are able to purchase a 100% interest in either center at returns set by your company Investment Committee. Questions: 1. Calculate the Reversionary Value (Assumed Sale Price) at the specified rate for each asset at the end of Year 5, based on Year 6 NOI; 2. Using the @NPV function, calculate the purchase price for each asset at the rates specified based on a 5-year hold; 3. What is the first-year return (OAR) for each asset? 4. What is the value per square meter for each asset? 5. Which asset would you acquire for the five-year investment period? 6. What further information would be most important for you to have to complete your analysis? Investment Committee Rates Munich Athens Spread (BP) Discount Rate 4.50% 8.00% 350 Exit Cap Rate (Reversionary OAR) 4.00% 6.00% 200 GLA (Gross Leaseable Area) in Sq. Meters 50,000 58,500 Currency Euros Note: All amounts shown are in Euros Munich Center Pro Forma (Euro 000) Period: 0 1 2 3 4 5 6 Reversionary Value NOI (Net Operating Income) 20,000 € 21,400 € 22,042 € 24,246 € 23,761 € 24,355 € 608,883 € Cash Flow Before Debt and Taxes: 18,600 € 20,972 € 21,601 € 22,307 € 23,286 € Purchase Price and Cash Flows/Reversion: 581,923 € 18,600 € 20,972 € 21,601 € 22,307 € 632,169 € FX Adjustment: None Value Per Square Meter (000): 11,638 € OAR Year 1 (%): 3.44% Athens Center Pro Forma (Euro 000) Period: 0 1 2 3 4 5 6 Reversionary Value NOI (Net Operating Income) 11,000 € 11,770 € 12,123 € 13,335 € 13,069 € 13,395 € 223,257 € Cash Flow Before Debt and Taxes: 10,230 € 11,535 € 11,881 € 12,269 € 12,807 € Purchase Price and Cash Flows/Reversion: 198,472 € 10,230 € 11,535 € 11,881 € 12,269 € 236,064 € FX Adjustment: None Value Per Square Meter (000): 3,393 € OAR Year 1 (%): 5.54% SELLERS NOTES (2019) 50% interest sold to HSBC for banks own account 9/2005 for Euro 200MM, implied 100% value Euro 400 MM; after Olympics but was also estimated to be Euro 350 MM Cap rate of 6.25% on initial income in place but rents climbed steeply in first 3 years so much high in year 3 with debt, equity cap rate at about 9.25% HSBC got a put option since center was built and approvals withdrawn, if approvals were not obtained; Untested retail market, so rents were structured with low base and more percentage rated "Portugese Model" was used where rents were structured as service agreements rather than leases to bypass some regulatory lease laws