INTRODUCTION
FPT Corporation
FPT Corporation, originally a State-owned enterprise in Vietnam, transitioned to a joint stock company following Decision No.178/QD-TTg Established under Business Registration No 0103001041 by the Hanoi Department of Planning and Investment on May 13, 2002, the corporation has undergone several amendments since its inception.
As at 31 December 2010, FPT Corporation had 11 subsidiaries, as follows:
1 FPT Information System Joint Stock Company;
3 FPT Telecom Joint Stock Company;
4 FPT Software Joint Stock Company;
5 FPT IT Services Company Limited;
8 FPT Hoa Lac High-tech Park Development Company Limited;
10 FPT Online Services Joint Stock Company;
11 FPT City Da Nang Joint Stock Company
During the 2010 FPT Strategy Conference, the Corporation’s leaders unanimously agreed to set the following strategic objective for the period 2011 - 2024:
FPT MUST BECOME A VIETNAMESE LEADING GLOBAL CORPORATION
OneFPT is the Corporation’s Strategy for 2011 - 2024 to achieve the goal OneFPT strategy follows 3 main directions:
1 Go-Mass: provides FPT’s products/ services to customer on-time, any time, everywhere
2 Synergy: gather all internal and external forces to achieve OneFPT targets “One- ownership, one resource, achieves OneFPT targets “One-ownership, one resource,
Chapter 1 Introduction one benefit” Foster internal communication & cooperation; Simplify & integrate FPT Management System; Provide each customer with FTP’s solutions/ products/ services
3 Best-in-Class: do the best of completion missions for OneFPT targets Build FPT world-class Quality Standard; Lean & Efficiency toward Preventive & Proactive; Provide best products/ services “Supex Goals”; Develop “Best-in-Class” leadership; Favor Talent; Ensure of “Right People”; Develop continuously Creativity & Improvement.
FPT Land Company Limited (F.Land)
FPT Corporation entered the real estate sector in 2006 with the founding of FPT Land Company Limited, which specializes in real estate trading, investment, and brokerage services, alongside leasing offices, apartments, and warehouses The company also engages in hospitality, construction, and real estate management FPT's primary focus is to develop infrastructure for its operations while pursuing high-tech projects that enhance user convenience Notable milestones include the launch of FPT Da Nang Building and FPT Building in Ho Chi Minh City in 2009, following the earlier establishment of FPT Cau Giay Building in Hanoi in 2007.
FPT is committed to further investing in the 181-hectare FTP City in Da Nang, which features a software park, an FPT University campus, and a residential area, strategically located 7km from the city center along a major traffic route Additionally, FPT plans to enhance its investment in the hi-tech industrial park in Ho Chi Minh City and other significant projects.
FPT Software Joint Stock Company (F.Soft)
In 2010, FPT Software faced significant challenges, including an incomplete recovery in the traditional Japanese market and difficulties in securing contracts with major EU customers Additionally, ineffective expenditure management hindered the company's ability to meet its operational goals for the year.
Chapter 1 Introduction was the success of FPT Software in the US market, in which growth was respectable and two contracts worth USD 1 million were signed with Twin City Fan Companies and CourtTrax
By the end of fiscal 2010, FPT Software achieved sales of VND 1,000 billion, reflecting a 34% increase from 2009 and meeting 95% of its target Additionally, the company reported a pre-tax profit of VND 230 billion, which represents a 10% rise compared to the previous year and fulfills 80% of its planned goals.
Figure 1-3 F.Soft profit and growth
FPT Software, a leading software exporter in Vietnam, aims to significantly increase its global market share, which remains relatively small The company has set ambitious growth targets for the future, particularly focusing on the Japanese and US markets, identified as key opportunities for expansion in 2011 The Japanese market is anticipated to offer greater profitability compared to the previous year, highlighting FPT Software's strategic direction for growth.
In the coming years, FPT Software aims to enhance its service quality and secure large contracts by investing in highly skilled human resources To achieve this, the company plans to intensify its human resource investments in 2011 and implement various strategies to boost labor productivity and growth These strategies include adopting applications that support production and management, as well as reforming the cost structure.
Since 2006, F.Soft has been investing in the Telecommunication Technology Research and Software Production Center located in Saigon High-Tech Park (SHTP) in District 9, Ho Chi Minh City This significant project is structured in three phases, beginning with an initial registered investment amount.
The project, with an investment of 560 billion VND, includes a 5-storey office building in Phase 1 designed to accommodate 1,000 IT programmers Phase 2 aims to match this scale, ultimately supporting 2,000-3,000 experts The total project will provide workspace for 4,000-5,000 staff, reflecting FPT's strategic focus on rapid growth in the software export sector.
The project has completed its first phase, accommodating 800 IT staff, but faces challenges in District 9 due to inadequate infrastructure and social amenities for high-tech workers, such as community connectivity, entertainment options, and social relationship management As a result, the goal of employing 5,000 IT programmers at SHTP appears increasingly unattainable Consequently, F.Soft has decided to downscale the SHTP project to two phases, targeting 2,500 IT programmers, and is exploring development opportunities in Dong Nai and Hanoi The final phase will involve constructing an office building with a gross floor area of 15,000 m², designed to support a maximum of 3,000 staff members.
Raising of cooperation
F.Soft's development plan necessitates new office space, fostering collaboration between two FPT subsidiaries With a growing employee base, F.Soft requires additional workspace while also needing to conserve cash for development, which typically incurs negative operating cash flow As a result, leasing office space emerges as a viable option.
F.Land, with experience in F.Soft’s first phase in SHTP as a project management, could be a partner
From FPT Corporation's perspective, this collaboration aligns perfectly with their new strategic direction The synergy between the two subsidiaries is expected to enhance operational efficiency, while clarifying profit sources will provide improved insights for business unit management.
The differentiation of two profit-driven business units within the same corporation may prompt F.Soft to reject an unreasonable proposal from F.Land The key challenge lies in presenting a solution that is equitable for both parties involved.
F.Land is required to make and present a proposal for opportunity venture Early meeting is agreed F.Land would build a 15,000-m2 office building on F.Soft’s own land in SHTP and rent to F.Soft for a certain period of years After the concession period, the office building would belong to F.Soft the lessee The problem to be addressed in this research is to evaluate such business opportunity from F.Land’s point of view, to decide whether invest in the project, to prepare options to convince F.Soft in the presentation, to predict key financial factors change during negotiation
The research is aimed to provide answers to the above problems, based on project appraisal technique, financial analysis and risk assessment The research objectives are:
• To build the financial model of project
• To determine proposal options which are contributed by: initial lease payment, residual payment, monthly payment paid by F.Soft the lessee, the concession period…
• To analyze sensitivity of financial model calculation input using Monte Carlo simulation
• To evaluate the project result with its distribution and probability
• To analyze scenario and riskiness of input which impact on model’s forecast results using Oracle Crystal Ball software
The project appraisal framework encompasses multiple sectors that demand a skilled workforce, extensive experience, and thorough data analysis Key components include market analysis, technical analysis, human resource analysis, and financial analysis This research aims to provide concise insights through reporting on market and technical analysis under typical conditions.
Chapter 1 Introduction eye view about the project, bypassing human resource analysis and focusing about financial analysis and risk assessment The research assumed that rational decision would be made based on financial view with fully risk warning
The research paper is structured into seven chapters, beginning with Chapter 1, which outlines the research background, objectives, scope, and limitations Chapter 2 offers a comprehensive literature review, while Chapters 3, 4, 5, and 6 delve into market, technology, finance, and risk analyses, respectively Finally, Chapter 7 concludes the paper with a summary and the author's recommendations.
LITERATURE REVIEW
INVESTMENT PROJECT LIFE CYCLE
Historically, feasibility studies for projects have been conducted on an ad hoc basis due to the lack of a standardized approach Typically, the investment life-cycle is recognized as comprising six distinct yet overlapping stages of development.
The investment life-cycle stages are summarized in the following table:
Identify business need Define the opportunity Undertake initial assessment Decision to proceed
Capital cost estimate (+/-30%) Operating cost estimate Cash flows
Appraisal Define objectives, scope and business requirement Define project structure and strategy Develop business case
Identify source of funds and cost Carry out studies
Capital cost estimates (+/- 15%) Operating cost estimate
Cash flows Identify the cost of the planning phase
Put funds in place Obtain all consents and licenses Undertake the concept design Preparation of the project plan
Cost of finance Capital cost estimates (+/- 10%) Operating cost estimate
Final decision to proceed Place any enabling contracts that are required
Identify the total cost of the asset creation phase
Put project team in place Detailed design
Place contracts Construct Commission and handover Train operators and prepare for operation
Scope Quality Schedule Capital Cost Risk management
Operating Cost Maintenance cost Revenue
Shutdown costs Staff redundancy cost Disposal cost / income
Figure 2.1 investment Project life cycle stage summary
PROJECT APPRAISAL FRAMEWORK
Project appraisal and evaluation, collectively known as project assessment, play crucial roles in determining a project's viability and success Project appraisal focuses on evaluating the potential worth of a project before its initiation, while project evaluation examines its performance after implementation A comprehensive project appraisal framework is essential for effective decision-making and assessing project outcomes.
The initial step in assessing market demand involves addressing key questions: "What should be produced?", "Which market segment will the product target?", and "What quantity will be produced?" This analysis is crucial for understanding consumer needs and aligning production strategies accordingly.
To decide: Quality, Scope, Pricing strategy and Technology used
This article addresses critical aspects such as the physical scale, layout, and location of facilities, along with the technology employed and associated cost estimates It emphasizes the importance of these factors in relation to engineering data and proposed procurement arrangements Additionally, it outlines the procedures for securing engineering, architectural, or professional services while considering the potential impacts on both the human and physical environment, ensuring the project's technical adequacy and soundness.
The success of development projects hinges not only on increasing physical assets and capital but also on enhancing human and institutional capabilities for effective management Institutional appraisal addresses various questions regarding the adequacy of human resources and the institutional framework supporting project implementation This aspect is often the most challenging for achieving overall project success Many technically sound projects fail due to deficiencies in human and institutional factors, known as 'soft' inputs Consequently, project appraisal must include a thorough and sensitive evaluation of the institutional context and local conditions.
Financial appraisal, also known as investment appraisal, focuses on assessing the adequacy of funds, evaluating the financial viability of a project, and determining the borrower's capacity to service debt It also involves analyzing the procedures for recovering investment and operating costs, ultimately aiming to ascertain whether the project generates a profit.
FINANCIAL MODEL
A financial model is an advanced spreadsheet that evolves from merely organizing data to serving as a powerful analysis tool It illustrates the relationships between input and output variables through various functions, formulas, and data As additional cells are incorporated into the model, the spreadsheet increasingly reflects the dynamics of a real-world system.
Chapter 2 Literature review or situation Almost all financial-statement models are sales driven; this term means that as many as possible of the most important financial statement variables are assumed to be functions of the sales level of the firm
RISK AND RISK ANALYSIS
Uncertainty often correlates with risk, which encompasses the likelihood of undesirable events and their potential severity A significant reduction in inventory can lead to shipping delays, representing an undesirable outcome If these delays result in lost orders, the severity of the situation amplifies the associated risk Consequently, as uncertainty and risk escalate, the complexity of decision-making intensifies.
There are two points when analyzing risk:
• How significant is the risk?
Every change, whether positive or negative, carries inherent risks Identifying these risks is crucial, and employing a model can assist in quantifying them Quantifying risk involves assessing the likelihood of its occurrence and the potential costs associated with it, aiding in decision-making about whether to accept the risk For instance, a 25% chance of exceeding a schedule with a personal cost of $100 may be a risk worth taking, whereas a 5% chance of a more significant issue could warrant reconsideration.
Chapter 2 Literature review running over schedule, knowing that there is a $10,000 penalty, you might be less willing to take that risk
Risk analysis aims to determine the likelihood of achieving specific outcomes by evaluating how changes in various inputs affect overall results This process involves using a model to assess the impact of different variables on the final outcome.
Three traditional ways to capture the uncertainty are:
Point estimates represent the most probable values for uncertain variables, known as the mode While they are the simplest to calculate, they can lead to misleading conclusions For instance, relying on an average river depth of three feet could result in dangerous situations, just as assuming an average travel time of 25 minutes to the airport may cause you to miss your flight half of the time.
Range estimates generally involve three scenarios: the best case, the worst case, and the most likely case While these estimates illustrate the spectrum of potential outcomes, they do not indicate the likelihood of any specific outcome occurring.
What-if scenarios typically rely on range estimates and are often created informally They explore various possibilities, such as the worst-case scenario for sales, the impact of best-case sales with worst-case expenses, and the outcomes of average sales paired with best-case expenses Additionally, they consider situations where sales and expenses are both average, yet anticipate flat sales for the following month.
Analyzing data using ordinary spreadsheets is a time-consuming process that generates extensive information but fails to calculate the probability of various outcomes A significant limitation of traditional spreadsheets is that only one cell can be modified at a time, making it nearly impossible to explore the full spectrum of potential outcomes Consequently, this restricts the ability to accurately assess the risks affecting the bottom line.
"What-if" analysis provides single-point estimates that reveal possibilities but fail to convey the probability of achieving specific outcomes While these estimates can indicate what may happen, they do not offer insights into the likelihood of those scenarios occurring.
Modern way to analyze uncertainty:
Monte Carlo simulation is used by Crystal Ball software to model the complexity of a real-world scenario For each trial of a simulation, Crystal Ball repeats the following three steps:
1 For every assumption cell, a random number is generated according to the range you defined and then is placed into the spreadsheet
3 A value is retrieved from every forecast cell and added to the chart in the forecast windows
The final forecast chart illustrates the overall uncertainty derived from the assumption cells affecting the model's output When developing and simulating spreadsheet models, it is essential to thoroughly analyze the problem's nature and consistently refine the models to ensure they closely align with your specific situation.
Figure 2.3 Simulation by Crystal Ball software illustration
MARKET ANALYSIS
MARKET OVERVIEW
The office leasing sector, a key segment of real estate, has experienced consistent growth in Vietnam since its inception in the 1990s By the second quarter of 2011, Ho Chi Minh City boasted over 1.7 million square meters of office space available for lease Office buildings in this market can be categorized into three distinct grades.
A grade A office must satisfy 22 items of standard, including:
1 First-class design of a newly constructed building
2 Excellent location: Buildings with an excellent location generally are either in the city center and/or CBD
3 Easy access to the building
4 Attractiveness to the most creditworthy and prestigious tenants on the market
5 High rent levels Rent levels should be above the average for the particular city
7 Underground parking lot providing enough parking space for the building
8 Use of high-quality building materials
9 Floor to ceiling height responding to the regulatory requirements for this type of buildings but not less than 2.70 m
10 Flexibility of internal design – ‘open space type’
11 Under floor cabling system (raised floors) and suspended ceilings
12 24-hours security and access control
13 High-speed lifts with waiting time max up to 30 seconds At least 2 lifts with a capacity of at least for 6 people
14 HVAC system to provide heating, cooling and humidity control of the air and control of microclimate in the office according to the EU HVAC standards
15 Dual power supply with automatic switch
17 Common areas not more than 12 percent of TBA
19 Luxury meeting rooms and a large impressive lobby
20 Food and rest areas for staff /restaurant, café, fitness/ for the buildings designed for more than 250 people
21 Modern window panes, high-quality window frames, sun-protection glass
22 Energy efficiency class A (the highest efficiency class according to EU Energy efficiency standards)
1 A grade B office building must be Compulsory characteristics:
2 High rent levels Rent levels should be above the average for the market in the particular city
4 Use of high-quality building materials
5 Floor to ceiling height responding to the regulatory requirements for this type of buildings but not less than 2,70 m
6 Flexibility of internal design – ‘open space type’
7 24-hours security and access control
8 High-speed lifts with waiting time max up to 30 seconds At least 2 lifts with a capacity of at least for 6 people
9 Dual power supply with automatic switch
11 Luxury meeting rooms and a large impressive lobby
12 Food and rest areas for staff /restaurant, café, fitness/ for the buildings designed for more than 250 people
13 Modern window panes, high-quality window frames, sun-protection glass
Buildings in this category exhibit lower quality characteristics and are typically intended for administrative use from earlier periods, often dating back 20 to 25 years They fulfill only some of the primary requirements for grade B office buildings.
Figure 3.1 Office space stock in Ho Chi Minh City
The office building intentionally proposed to F.Soft is located on District 9, a suburban in HCMC According to early discussion between F.Land and F.Soft, the building shall comply with grade C standard
Figure 3.2 Future supply by grade in HCMC
A recent survey reveals that the average asking price for real estate has shown a significant increase since 2006, driven by a real estate bubble, followed by a decline after peaking in the first half of 2008 due to the global financial crisis This crisis led to a slowdown in foreign investment in Vietnam, compounded by the inevitable burst of the real estate bubble Additionally, the oversupply of office spaces has provided tenants with greater opportunities to select suitable leasing options.
Figure 3.3 Average asking rents grade A & B office space
Figure 3.4 Current asking rents of major office building in HCMC
New entrants in the market are currently struggling due to the ongoing downtrend, making it challenging for them to attract customers For example, the Bitexco Financial Tower in District 1 has only managed to fill 35% of its available space since its opening in November 2011.
Vincom Center (district 1), Maritime Bank Tower (district 1), Green Power (district 1) are less than 50% occupancy Especially REE Tower‘s (district 4) vacancy rate is up to 92%
Figure 3.5 Vacancy rate by grade
SAIGON HIGHTECH PARK
The land owned by F.Soft is located on Saigon Hi-Tech Park (SHTP), District 9,
Ho Chi Minh City landlords must adhere to both local regulations and the guidelines of the Saigon Hi-Tech Park (SHTP) As one of only two national hi-tech parks in Vietnam, SHTP plays a crucial role in the city's economic strategy, serving as a key driver for Ho Chi Minh City's development.
Since its establishment in 2010, Saigon Hi-Tech Park (SHTP) has garnered significant support from central and local governments, along with relevant state agencies This backing has enabled the Park to provide investors with the most attractive tax incentives and a streamlined, one-stop investment application service.
The Park boasts several advantages, including its proximity to numerous educational institutions, airports, and seaports, as well as strong connections with local universities Its dedicated and experienced staff fosters a supportive environment for tenant success Additionally, SHIP provides a comprehensive "one-stop-shop" application service and offers the highest legally permitted tax incentives to assist investors in managing their businesses effectively.
• Location: o 15 km northeast of downtown HCMC o 18 km from Tan Son Nhat Airport
Chapter 3 Market analysis o 12 km from Sai Gon Harbour, in proximity to Tan Cang Port, Thi Vai port and Cat Lai port
1 Microelectronics, Optoelectronics, Information technology, Telecommunications
3 Biotechnology applying in agriculture, healthcare and environment
4 New material technology, Nano technology, New energy technology
Leasing a service office in SHTP poses higher risks compared to other locations, primarily due to restrictions on company investments and its limited appeal to investors Currently, only two companies are involved in constructing and renting office spaces in the area One notable project is the Internet Chip office building, which has been under construction since July 2011 and is expected to commence operations in the second half of 2012, featuring a total gross floor area of 27,655 m² across nine stories.
TECHNOLOGY ANALYSIS
STANDARD APPLICATION
The building shall be confirmed with current Vietnamese Standard (TCVN), Construction Standard and Qualification (TCXDVN), including but not limit:
TCVN 4601:1988 Office building – Design standard
TCVN 2748:1991 Classification of building – General principles
TCXDVN 276: 2003 Public building – Basic rules for design
TCVN 2737:1995 Loads and effects – Design standard
TCVN 6160:1996 Fire protection – High rise building – Design requirements TCVN 5760:1993 Fire extinguishing system – General requirements for design, installation and use TCVN 5738:2001 Automatic fire alarm system – Technical requirements
TCVN 5687:1992 Ventilating, air-conditioning, heating - Design standard TCVN 4474:1987 Internal drainage – Design standard
TCVN 4513:1988 Internal water supply – Design standard
TCVN 5744:1993 Lift – Safe requirements for installation and use
TCXDVN 16:1986 Artificial lighting in civil works – Design standard
TCXDVN 29:1991 Natural lighting in civil works – Design standard
TCXDVN 25:1991 Installation of electric wire in dwellings and public buildings
The design standards for electrical and structural engineering are crucial for ensuring safety and functionality in buildings TCXDVN 27:1991 outlines the design criteria for electric distribution networks in residential and public buildings TCXDVN 198:1997 provides guidelines for designing monolithic reinforced concrete structures in high-rise buildings Additionally, TCXDVN 46:2007 focuses on the protection of structures against lightning, offering comprehensive guidance for design, inspection, and maintenance practices.
BASIC DESIGN
The project begins with a land area of 10,000 m² and a total required rentable floor area of 15,000 m², with an estimated utilization ratio of 75% This ratio is calculated by dividing the total rentable floor area by the total construction floor area and is influenced by factors such as the building's unique design, space for essential facilities like electrical and mechanical rooms, elevators, staircases, corridors, and public toilets A higher utilization ratio enhances financial returns for investors.
The building would have 1 basement for motorbike and car parking for employees Other elements is calculated in the figure below
Total construction floor area, excluding basement 20,000 m2 < /B8
Number of leasing floor 5 floors
CONSTRUCTION STRUCTURE & FINISHING MATERIAL
Foundation Reinforced concrete Column & Slab Reinforced concrete Wall Silicate brick / Gypsum board / Glass
Figure 4.2 Construction schedule & Finishing schedule
EQUIPMENT SCHEDULE
Elevator system 3 elev., 1,600 kg max load, 1.5 m/s speed, 6 stops
Air conditioner system Cassete type
MASTER SCHEDULE
The schedule is built based on experience and typical deal between F.Land the lessor and F.Soft the lessee
This phase focuses on assessing the potential for mutual profit and advantage for both parties involved Valuation is determined by each side's strategies, anticipated returns, and perceived risks Numerous meetings and discussions take place during negotiations, ultimately leading to a contract or agreement on key issues Additionally, this phase serves as a precursor to the subsequent stage in the process.
This phase would include Basic design, Detailed design, Construction permit application and other necessary licenses related to construction such as: water supply, water disposal, environmental impact, electricity supply agreements
Because F.Soft the lessee has right to ownership after leasing period, they might to ask their approval on design drawing That could make the design phase longer than usual
In this phase, F.Land the lessor would be able to plan Fund Mobilization, Project Budgeting, Project Management and other Preparation for construction
The construction phase of the office building is expected to last no more than one year, barring any unforeseen delays, and will encompass the scope, structure, equipment, and finishing details Upon completion, F.Land will operate the building to serve F.Soft for several years A typical construction schedule is provided in the Appendix for further reference.
Figure 4.5 A brief view of construction schedule
The operation phase involves managing and maintaining the office building throughout the leasing period, which is initially determined by financial analysis and subsequently negotiated between the two parties Typically, this phase lasts between 5 to 10 years, aligning with the standard break-even period observed in similar real estate projects Upon completion of the operation period, ownership of the building will transfer from the lessor to the lessee.
FINANCIAL ANALYSIS
TOTAL INVESTMENT AMOUNT
Determining the total investment amount involves various methods, with a more thorough feasibility study leading to greater accuracy and potentially higher costs for one party The total investment is influenced by numerous factors, including key elements that play a critical role in the assessment process.
• Design: uniqueness, scope and specification (earthquake resistance, architecture, green environmental, modern design, local or international class…)
• Construction: kind and quality of structure and raw material (steel bar, concrete, brick, cement, construction method, safety regulation…)
• Finishing material: kind and brand name of ceramic tile, water painting, stone or even tree in landscaping…
• Equipment: imported or local equipments, their brand name, level of quality…
• Skill of Board of Project Management
• External impact: especially price level of material and labor cost during construction period
A practical approach to assess construction costs is by utilizing the Investment Rate issued by the Ministry of Construction, which is specifically applicable to government projects This rate represents the monetary investment allocated for each square meter of total construction floor area, tailored for various construction types over a designated timeframe As per the most recent update on March 22, 2011, the investment amount for constructing one square meter of an office building is set at 6,920,000 VND.
Total Investment Amount calculation - MOC-based method
Figure 5.1 Total Investment Amount calculation
The total investment amount in this phase remains uncertain and is influenced by the project's quality, with a potential calculation precision of ±30% However, when accompanied by detailed design drawings, the cost estimate precision can improve to ±20% During the construction phase, this precision can further enhance to ±5%.
So here I assumed the Total investment amount is “temporarily fixed” and is an input for the financial model.
WORK BREAKDOWN STRUCTURE
A work breakdown structure is essential for understanding the purpose and allocation of funds in a construction project, drawing on data from a similar project conducted a year prior, with the assumption that component portions remain unchanged While the estimated Total Investment Amount may vary, it encompasses typical components essential for construction Although errors in this estimation can be significant, they can be mitigated through detailed drawings and a Bill of Quantities Therefore, it is recommended that the lessor, F.Land, provide a more accurate Total Investment Amount during the next negotiation phase, or that both parties agree on this amount following the construction phase.
1a Construction cost - Main building 178,235,629 75% 1b Construction cost - Temporary building 1,781,504 1%
Figure 5.2 Total Investment Amount Breakdown estimate
1.6 Active lightning system 398,136 0% 1.7 Drainage and water supply 5,351,152 3%
Figure 5.3 Construction cost – Main building Breakdown (code 1a) estimate
2.5 Ventilation equipment of air conditioner 370,351 1%
2.8 Fire fighting & prevention 1,995,252 5% 2.9 Active lightning on AC and DATA line 494,782 1%
2.11 Internet & telecommunication infrastructure 2,894,583 7% 2.12 Hub & Cisco network 5,363,365 12%
Figure 5.4 Equipment cost Breakdown (code 2) estimate
4.2 Investment project appraisal 443,595 5% 4.3 Shop drawing - Estimate - BOQ 4,005,846 44%
4.6 Bidding - Construction package 160,590 2% 4.7 Bidding - Equipment package 99,454 1% 4.8 Site Inspector - Construction 2,597,250 29% 4.9 Site Inspector - Equipment installation 236,631 3% 4.10 Quality conformity certificate 909,037 10%
Figure 5.5 Investment & construction consultant cost Breakdown (code 4) estimate
5.3 Project completion fee 148,311 12% 5.4 Investment approval fee 23,093 2% 5.5 Shop drawing approval fee 18,358 1% 5.6 Estimate - BOQ approval fee 22,725 2%
Figure 5.6 Other cost Breakdown (code 5) estimate
Figure 5.7 Main structure cost Breakdown (code 1.3) estimate
OPERATION EXPENSE
There are numerous costs associated with operating, maintaining and disposing of a building Building-related costs usually fall into the following categories:
The management fee covers essential services including the cleaning of public areas, collection and disposal of solid waste, external glass cleaning, security measures, operation of the control room, maintenance of public toilets, and management of utilities such as water and electricity for elevators and information signal boards.
• Electricity consumption expense: this is a huge amount and shall be paid by the lessee
Estimating maintenance fees can be challenging due to varying operating schedules and maintenance standards across different buildings, even those of similar type and age It is crucial to apply engineering judgment when calculating these costs, which include expenses for maintenance, lubricants, and parts replacement for essential systems such as generators, elevators, air conditioners, ventilation systems, fire protection systems, and repairs for common building defects.
Maintenance cost 0.1% of Total Investment Amount, first 2 years
1.0% of Total Investment Amount, 2 years after finshing
DEPRECIATION SCHEDULE
Depreciation method is straight line for 25 years
Depreication period 25 years - Straight line
FINANCING SCHEDULE
The funding for the project will be sourced from three primary avenues: equity from F.Land, borrowing, and a down payment from F.Soft The proposed debt-to-equity ratio is 7:3, which aligns with standard practices in real estate ventures The debt will be secured through bank financing or surplus cash from the head office F.Soft's down payment, ranging from 10% to 20% of the total investment, will be a negotiable component of the leasing option The disbursement process will be structured to align with the construction phase.
Loan - Support data 1 2 3 Total investment amount 237,416,453
Cash flow from Financing activities
Figure 5.11 Loan support data and Financing schedule
LOAN & INTEREST EXPENSE
Beginning balance 33,500,000 28,714,286 23,928,571 19,142,857 14,357,143 9,571,429 4,785,714 - Interest 5,929,500 5,082,429 4,235,357 3,388,286 2,541,214 1,694,143 847,071 - Principal 4,785,714 4,785,714 4,785,714 4,785,714 4,785,714 4,785,714 4,785,714 - Yearly payment 10,715,214 9,868,143 9,021,071 8,174,000 7,326,929 6,479,857 5,632,786 - Ending value 28,714,286 23,928,571 19,142,857 14,357,143 9,571,429 4,785,714 - -
Loan - Support data 1 2 3 4 5 6 7 8 Total investment amount 237,416,453
INCOME STATEMENT
< =IF($D$37-I10>0,$D$38*$D$39*12,IF($D$37- I10>-1,$D$38*$D$39*($D$37-I10+1)*12,0)) Car parking fee
Unit price for rent 450 000 VND/m2/month, icl service charge
Cash out Design phase 2% of Total Investment Amount
Depreication period 25 years - Straight line
Figure 5.17 Pro forma Income statement
The financial statements from 2011 to 2021 indicate consistent leasing fees of $81,000,000 annually Parking fees remained stable, while the enhancement costs showed a gradual increase, reaching $5,089,233 by 2021 City consumption figures fluctuated, with a notable rise to $789,230 Income levels varied, peaking at $69,905,684 in 2011 and gradually declining to $64,509,076 by 2021 Total expenses also saw a decline, impacting net income, which rose from $45,353,255 in 2011 to $61,727,647 in 2021 Tax liabilities increased over the years, culminating in $1,487,359 in 2021 Overall, the financial data reflects a trend of increasing operational costs alongside fluctuating income and tax obligations.
CASH FLOW STATEMENT
Cash flow from Operating activities
Total Cash in flow 81,000,000 < =SUM(I96:I98)
Total Cash out flow 14,163,476 < =SUM(I102:I106)
Total Cash flow from Operating activities 66,836,524 < =I99-I107
Cash flow from Investing activities
Total Cash flow from Investing activities (4,748,329) (116,334,062) (116,334,062)
Cash from Operating&Investing activities (4,748,329) (116,334,062) (116,334,062) 66,836,524 < =I114+I109
Cash flow from Financing activities
Total Cash flow from Financing activities 5,000,000 116,306,234 117,091,020 (45,052,429) < =SUM(I119:I123)
Increase / Decrease cash 251,671 (27,828) 756,958 21,784,096 < =I124+I114+I109 Closing cash balance 251,671 223,843 980,801 22,764,896 < =SUM(I126:I127)
Figure 5.18 Cash flow statement calculation
Figure 5.19 Pro forma Cash flow statement
The financial statement reflects a consistent operational cash flow, maintaining a steady fee structure over the years from 2011 to 2023 Total operational costs have been outlined, including maintenance and utility expenses The cash flow from investing activities shows a significant outflow, indicating ongoing investments Furthermore, financing activities demonstrate a mix of equity and debt financing, contributing to the overall cash balance The statement also highlights a decrease in cash, emphasizing the need for careful financial management moving forward.
EQUITY CASH FLOW
LEASING OPTION
To ensure fairness for both parties after constructing the model, the net present value (NPV) of the equity cash flow must equal zero This objective is achieved by utilizing Excel's Goal Seek feature to determine the base case.
Key leasing factor input & Result
Total investment amount 237,416,453 000 VND Variation 0%
Down payment 15.0% of Total Investment
Monthly payment 450 000 VND/m2/month, gross , including service charge & parking fee
To maintain a constant Net Present Value (NPV) of zero when one or more factors change, it is necessary to adjust the other influencing factors accordingly This can be effectively accomplished using the Goal Seek function in Excel, where you set the NPV cell to a value of zero by modifying the relevant input cells.
RISK ANALYSIS
LIQUIDITY RISK
The financial model assumes a fixed initial funding source from equity and debt, which may result in a negative cash balance if the total investment amount unexpectedly increases during the construction phase.
Figure 6.1 Shortage of Cash due to increase of Total investment amount
Figure 6.1 show us if the Total investment amount increases 10%, investor must make up for 19 billion VND more
A potential cause of cash shortages may arise if the down payment is lowered and F Land is unable to secure a grace period from the bank For example, a cash flow analysis reveals the implications of a 10% down payment combined with the absence of a grace period.
Cash from Operating&Investing activities (4,748,329) (116,334,062) (116,334,062)
Cash flow from Financing activities
Total Cash flow from Financing activities 5,000,000 110,370,823 111,155,608
Figure 6.2 Negative closing cash balance illustration
In 2012 and 2013, a significant portion of cash from debt and equity was allocated to finance construction projects and repay existing debts, resulting in a cash shortage This liquidity risk threatens project viability, potentially leading to bankruptcy if additional funding is not secured promptly An ideal solution is essential to mitigate this risk.
• Negotiating not to let the down payment reduce too much
• Negotiating the borrowing and grace period
Figure 6.3 Additional equity depend on Borrowing period & Grace period
If the Down payment at 15% of Total Investment, borrowing term fixed at 5 years and grace period at 0 years are defined, equity should be increased by 0.9 billion VND
Figure 6.4 Additional equity depend on Borrowing period & Grace period
If down payment is negotiated at 10% of Total Investment and additional equity is
F.Land should aim to negotiate a maximum debt of 11 billion, seeking terms that include either a minimum of 7 years, a 5.5-year term with a 1.25-year grace period, or a 4-year term with a 6-month grace period.
Other analysis figures at various down payments are listed in appendix.
RELATIONSHIP BETWEEN DOWN PAYMENT AND MONTHLY
Figure 6.5 Relationship between Down payment and Monthly payment
(Leasing period = 8 years, IRR = 25%, Borrowing period = 7 years, Grace period = 0)
With Down payment running in range from 10% to 20% of Total Investment Amount, monthly payment would be inversely proportional and from 460 to 400 thousand VND per square meter.
INPUT SENSITIVITY
In the analysis presented in Figure 5.19, sensitivity testing of key input factors is conducted to identify which elements significantly influence the results This testing aims to highlight critical areas that may require focused attention and solutions for potential future issues The calculations involve adjusting the input values from 90% to 110% of the base case value to assess their impact.
Figure 6.6 Project IRR sensitivity analysis on ±±±±10% of base element
Figure 6.4 illustrates that the investment rate, or total investment amount, significantly influences the project's internal rate of return (IRR) If the total investment amount increases by more than 10% while other factors remain constant, the project's IRR could fall below 19%.
That means the project could be failure if F Land the lessor still want to get the return of
During the lease period, the lessor may consider reducing their expected return to secure the project An alternative solution is for both parties to agree on a fixed total investment amount after the building's construction, which can help the lessor mitigate risks associated with the construction phase; however, this approach may lead to reluctance from the lessee.
The unit price for rent, or monthly payment, significantly influences project outcomes A higher monthly payment correlates with an increased internal rate of return (IRR) for the project Therefore, during the same leasing period, it is crucial to negotiate the monthly payment meticulously.
Leasing period is also important In this test, it just run from -10% to 10% However in negotiation, it could fluctuate more widely, from 5 to 10 years and 0.5 year step.
DISCOUNT RATE vs NPV
This analysis demonstrates the impact of varying the discount rate on project Net Present Value (NPV) while keeping all leasing factors constant As illustrated by the blue line in Figure 5.19, the NPV equals zero at the base case, indicating that from the lessor's perspective, the leasing contract is equitable for both parties, yielding no profit from future cash flows All future cash flows received amount to zero profit.
In leasing agreements, a dispute may arise if the lessee believes the lessor's expected return is too high, prompting a request for a lower discount rate To maintain a net present value (NPV) of zero—considered fair for both parties—future cash flows must be adjusted, leading to changes in leasing factors such as reduced monthly payments or a shorter lease period If the lessor accepts these new terms, resulting in a return rate of 23%, they could face a loss of 5 billion VND in the present value of all future cash flows compared to their original expectations.
Figure 6.7 Relationship between NPV and Discount rate
The article illustrates how the Net Present Value (NPV) is affected by variations in the discount rate, with the blue line representing the initial cost of equity.
= 25% The red one for initial cost of equity = 20%
Figure 6.8 Relationship between NPV and Discount rate at various Cost of equity
RESULT DISTRIBUTION & PROBABILITY
To determine the distribution and probability of the project IRR and ensure its success, it is essential to define realistic input probabilities The model's effectiveness is significantly compromised if the input data is unrealistic This process of gathering input is often time-consuming and requires thorough research, along with subjective estimations The accompanying figure represents the author's perspective on the associated probabilities and assumptions.
Simulation started on 1/31/2012 at 15:02:21 Simulation stopped on 1/31/2012 at 15:02:26
Worksheet: [Final Project - Financial Model 31.01.2012.xls]1 Assumptions
Worksheet: [Final Project - Financial Model 31.01.2012.xls]2 IS-CFS
Assumption: Real interest rate Cell: D83
With all uncertainties estimated, project IRR are forecasted as below The figure show us 41% of probability to get IRR ኑ 25% and NPV ኑ 0; 84.7% of probability to get IRR ኑ 15%
VALUE AT RISK
Value at Risk (VaR) is utilized to assess the potential risk of loss in this project As illustrated in Figure 6.11, at a 95% confidence level, there is a 5% probability of incurring a loss of 32 billion VND, which represents the present value of all future cash flows during the leasing period.
CONCLUSION AND RECOMMENDATION
The current office rental market is facing challenges due to the global recession, leading to a rise in office space vacancies This situation presents lessees with more options for their workplace strategies Nevertheless, the project advocates for long-term and stable accommodations, which could provide significant advantages in the future.
Building construction and management is not a modern or strange technology With many experience from other projects, F Land the lessor has enough ability to conduct the project with controllable budget
The project is funded through three primary sources: equity from the lessor's shareholder, loans from borrowing, and down payments from the lessee Currently, obtaining bank loans for real estate projects is challenging due to a credit crunch This issue can be addressed by seeking alternative funding sources, such as FPT Corporation, or by increasing the down payment.
Model forecast distribution showed us the probability to succeed the project With well control, the project could bring profit for both parties
For detail summary of the project, Executive Summary Report is issued to help the manager or decision-maker quickly understand and decide whether it is worth to go further
This research aims to assess a business opportunity through specific cooperation between enterprises, a common occurrence in the business landscape By developing a dynamic Excel model and visual charts, the study identifies key lease factors and evaluates opportunity assessments, aiding decision-makers in understanding profitability and uncertainty The model highlights profit sources, fluctuations, and their impacts, while emphasizing the importance of accurate estimates for reliable outcomes As the cooperation between the two companies is in its early stages, further discussions and negotiations are necessary to refine data, with recommendations for ongoing updates to the research as more information becomes available.
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7 European Commission (2004), “Project Management Cycle Guidelines”
8 Loren E Abraham et al (1996), "Sustainable Building Technical Manual: Green Building Practices for Design, Construction, and Operations", USA: Public Technology, Inc
APPENDIX 2: DETAIL BOQ OF SIMILAR PROJECT
1a Construction cost - Main building 122,365,687,723 75% 1b Construction cost - Temporary building 1,223,071,477 1%
2.5 Ventilation equipment of air conditioner 254,260,500 1%
2.8 Fire fighting & prevention 1,369,818,182 5% 2.9 Active lightning on AC and DATA line 339,687,300 1%