Skip to content

METHODOLOGY.md

Latest commit

 

History

History
41 lines (30 loc) · 2.36 KB

METHODOLOGY.md

File metadata and controls

41 lines (30 loc) · 2.36 KB
Raw

🧮 Financial Methodology

1. Valuation Standard

This Digital Twin utilizes the Discounted Cash Flow (DCF) method, the industry standard for commercial real estate valuation. It projects future cash flows over a 10-year holding period and discounts them back to present value.

2. The "Waterfall" Logic

The model strictly follows a "Debt-First" repayment hierarchy:

  1. Gross Income: Calculated as Leasable Area (90k sqm) * Rent * (1 - Vacancy).
  2. Net Operating Income (NOI): Gross Income minus Operating Expenses (OpEx).
  3. Debt Service: The Bank is paid first. We calculate an annual mortgage payment based on a 20-year amortization schedule.
  4. Equity Cash Flow: The remaining cash (if any) is distributed to the Investor (WestProp).

Formula: Equity CF = NOI - Annual Debt Service

3. Key Assumptions

A. Economic Assumptions

  • Inflation (Escalation): Rents represent nominal figures and increase by 3.0% per annum (compounding).
  • Exit Cap Rate: 8.0%. This assumes the mall is sold at the end of Year 10 based on Year 11's projected NOI.

B. Debt Structuring

  • Amortization: Loan payments are calculated based on a 20-year profile, even though the project is exited in Year 10. This mimics standard commercial mortgage terms.
  • Refinancing/Exit: At the end of Year 10, the outstanding principal is paid off using the proceeds from the sale of the mall.

C. Sensitivity Analysis (Heatmaps)

The Risk Heatmap performs a Two-Variable Sensitivity Test:

  1. X-Axis: Construction Cost (Capex Risk)
  2. Y-Axis: Rental Rate (Market Risk)
  • Green Zone: IRR > 15% (Target met)
  • Red Zone: IRR < 10% (Capital at risk)

4. Metric Definitions

  • Equity IRR (Internal Rate of Return): The annualized compounded return rate on the specific cash invested by shareholders.
  • Equity Multiple: The total cash returned divided by the total cash invested. (e.g., 2.0x means you doubled your money).
  • Breakeven Point: The exact year where the cumulative net cash flow turns positive (Payback Period).

5. Limitations

  • Taxation: The model calculates Pre-Tax returns. ZIMRA Corporate Tax (24.72%) and VAT are excluded for strategic clarity.
  • Construction Drawdown: Interest During Construction (IDC) is modeled simply as part of the total funding requirement, rather than an S-Curve monthly drawdown.