Fair Rental Valuation of the Property for leasing out industrial land for a leading Chemicals Manufacturing Company
Title: Provided the client the scenarios (lease terms) that can help the client maximize their Rental & Present Value (PV) of the Discounted Cash Flow (DCF) of the Rentals
Business Scenario:
- The Client is a leading Chemicals manufacturing company
- The Client has 27 acres of industrial land with existing construction (warehouses) & railway siding that it intends to lease out so as to augment it’s income.
- The client was interested in evaluating the PV of the DCF of the rentals under different lease periods
Our Solution:
- We made an assessment of the existing state of infrastructure at the facility & the investments required to modify the property
- A market survey was done to identify the benchmark rates for warehousing rentals in the vicinity & other warehousing cluster areas in the surrounding areas
- Identification of Potential Buyer Segment was done to evaluate the buyer segment with Highest & best Usage
- Predicting future economic activity growth in the area for the next 20 years & the derived demand for the particular property
- A Scenario Analysis was done for the different lease terms (lease period, modification to the property etc.), and the PV of the DCF was calculated for each scenario. Monte Carlo simulation was used to arrive at the range of PV of DCF to the client for each scenario.
- Equivalent Annual Annuity approach was used to compare the cash flows in different scenarios.
Benefits:
- Comparison of the different scenarios lead to a clear identification of the lease terms (lease period etc.) that the client should rent the property for.
- The PV of the DCF of the rentals helped the client in clearly identifying the incremental changes in rental value under different scenarios.
- The client intends to use this information in formulating the Terms & Conditions of the tender that it intends to release for leasing out the property so as to maximize the rental value from the property.