Case Study

Tristar Infra Ltd. owns a Business Park located at prime CBD area. This Business Park has 6 lakh sq ft of
commercial space available for rent. The promoters are now looking to exit from their investment in this
Business Park. They are ready to sell their equity stake (45 Crs equity shares) to any prospective bidder at
₹20 per share, thereby valuing the Business Park at ₹900 Crs.

White Rock Plc, a Real Estate fund, is interested in acquiring the equity stake in this Business Park.
However before deciding on the acquisition (at ₹20 per share), the fund will like to carry out their financial
due diligence. Below are the commercial details of the Business Park;

Available space = 6,00,000 sq ft

Financial Year Expected Occupancy ratio
2020-21 80%
2021-22 85%
2022-23 90%
2023-24 92%
2024-25 95%
2025-26 95%
2026-27 98%
2027-28 98%
2028-29 98%

Proposed Rent Structure

Financial Year monthly Rent (₹ per sq ft)
2020-21 160
2021-22 160
2022-23 8% increase over previous year
2023-24 180
2024-25 180
2025-26 10% increase over previous year
2026-27 220
2027-28 220
2028-29 10% increase over previous year
From Year 2029-30 Assume 4% growth in Rent
 Operational cost estimates
Property Other Insurance
Maintenance Tax (₹ per operational Cost Premium (for Collection loss ( for
Year
Cost (₹ per sq. sq. ft. per (₹ per sq. ft. per the year ₹ in the year)
ft. per month) month) month) Crs)
0.1% of gross rent
2020-21 15 4 12 1
collection
Inflation
6% 4% 5% 10%
estimates
White Rock Plc has adopted accounting policy of providing 10% depreciation (SLM).
Applicable tax rate is 30%.

The White Rock Plc intend to invest in this business park with equity funding. The cost of equity is 16% for
the White Rock Plc. You are required to;

 Find out NPV of the project

 Assuming White Rock Plc go ahead with this investment, what will be the likely value of their
equity in year 2029-30.