Financial analysis and risk assessment of officebuilding project between subsidiaries of FPT corporation

FINANCIAL ANALYSIS AND RISK ASSESSMENT OF OFFICE BUILDING PROJECT BETWEEN SUBSIDIARIES OF FPT CORPORATION By HUỲNH PHÚC DUY Submitted in partial fulfillment of the requirements for the

FINANCIAL ANALYSIS AND RISK ASSESSMENT

OF OFFICE BUILDING PROJECT BETWEEN SUBSIDIARIES OF FPT CORPORATION

By

HUỲNH PHÚC DUY

Submitted in partial fulfillment of the requirements for the degree of

Master of Business Administration (MBA)

DECLARATION

I hereby declare that this paper submitted in partial fulfillment of the MBA degree

is my own work and that all contributions from any other persons or sources are properly and duly cited I further declare that it does not constitute any previous work whether published or otherwise In making this declaration I understand and acknowledge any breaches of the declaration constitute academic misconduct, which may result in my expulsion from the program and/or exclusion from the award of the degree

HCMC, December 31 st , 2011

HUỲNH PHÚC DUY

Again, thank you very much!

HUỲNH PHÚC DUY

EXECUTIVE SUMMARY

The purpose of this research is to determine the feasibility of cooperation between 2 companies That is to build a 15,000-square-meter office building and rent it to the land owner for a certain time after handover back This cooperation is specific because stakeholders are subsidiaries in same corporation However, distinction of 2 profit-motivated business units might lead the lessee to refuse unreasonable lessor’s proposal The project is on the stage of negotiation that terms and conditions are not fixed yet and Detailed Drawing are not issued

The research could help decision-maker to determine the lease factors for negotiation, to understand uncertainty of result, to see how input and output are related Financial analysis of the project is conducted by building excel financial model based on assumptions from experience of other projects Risk assessment is carried out by sensitivity analysis on the model and forecast simulation using Crystal Ball software The summary of this research are condensed in the following page

SOLVAY BRUSSELS SCHOOL OF ECONOMICS AND MANAGEMENT

HO CHI MINH CITY OPEN UNIVERSITY

Master of Business Administration (MBA)

MBA THESIS ASSESSMENT

Dear: Board of Thesis Evaluation

Academic Year: 2011 - 2012

Topic:

FINANCIAL ANALYSIS AND RISK ASSESSMENT OF

OFFICE BUILDING PROJECT BETWEEN SUBSIDIARIES

OF FPT CORPORATION

Student:

HUYNH PHUC DUY

In term of the contents, the thesis has presented a subject, which was, agreeably appropriate to the current condition within the area of project appraisal – public sector as well as private sector

To the exact, the enquiry focused mostly on the assessment of the financial advantages and the possible risks occurred within certain projects In which, the student has done such important jobs as searching for data, analyzing markets and interpreting some of the riskiest factors experienced by, for example, a real-estate project or more specifically, rental office segmentation

The student has shown off his knowledge achieved during his time spent studying and investigating with Solvay Brussels School This was proved by the ways he designed his research or collected useful data, as well as the ways he applied scientific criteria to

evaluate projects’ profits leading to quantitative conclusions and some proposals to deploy the projects

In term of the presentation, the thesis, with solid and comprehensible layout, has done great in clarifying the ideas that the student wished to present

I present to you, Board of Thesis Evaluation, my assessment of the student HUYNH PHUC DUY and ask you to permit him to further defend his thesis

General assessment: Very Good

Dr Nguyen Tan Binh

Advisor

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 1

1.1 BACKGROUND 1

A FPT Corporation 1

B FPT Land Company Limited (F.Land) 2

C FPT Software Joint Stock Company (F.Soft) 2

D Raising of cooperation 4

1.2 PROBLEM STATEMENT 5

1.3 RESEARCH OBJECTIVES 5

1.4 SCOPE & LIMITATION 5

1.5 PAPER STRUTURE 6

CHAPTER 2 LITERATURE REVIEW 7

2.1 INVESTMENT PROJECT LIFE CYCLE 7

2.2 PROJECT APPRAISAL FRAMEWORK 8

2.3 FINANCIAL MODEL 9

2.4 RISK AND RISK ANALYSIS 10

CHAPTER 3 MARKET ANALYSIS 13

3.1 MARKET OVERVIEW 13

3.2 SAIGON HIGHTECH PARK 17

CHAPTER 4 TECHNOLOGY ANALYSIS 19

4.1 STANDARD APPLICATION 19

4.2 BASIC DESIGN 20

4.3 CONSTRUCTION STRUCTURE & FINISHING MATERIAL 20

4.4 EQUIPMENT SCHEDULE 21

4.5 MASTER SCHEDULE 21

CHAPTER 5 FINANCIAL ANALYSIS 23

5.1 TOTAL INVESTMENT AMOUNT 23

5.2 WORK BREAKDOWN STRUCTURE 24

5.3 OPERATION EXPENSE 26

5.4 DEPRECIATION SCHEDULE 27

5.5 FINANCING SCHEDULE 27

5.6 LOAN & INTEREST EXPENSE 29

5.7 INCOME STATEMENT 30

5.8 CASH FLOW STATEMENT 33

5.9 EQUITY CASH FLOW 35

5.10 LEASING OPTION 36

CHAPTER 6 RISK ANALYSIS 37

6.1 LIQUIDITY RISK 37

6.2 RELATIONSHIP BETWEEN DOWN PAYMENT AND MONTHLY PAYMENT 39

6.3 INPUT SENSITIVITY 40

6.4 DISCOUNT RATE vs NPV 42

6.5 RESULT DISTRIBUTION & PROBABILITY 43

6.6 VALUE AT RISK 47

CHAPTER 7 CONCLUSION AND RECOMMENDATION 48

REFERENCE 49

APPENDIX 51

LIST OF FIGURES

Figure 1-1 F.Soft profit and growth 3

Figure 1.2 F.Soft growth plan 3

Figure 2.1 investment Project life cycle stage summary 8

Figure 2.2 Financial model illustration 10

Figure 2.3 Simulation by Crystal Ball software 12

Figure 3.1 Office space stock in Ho Chi Minh City 15

Figure 3.2 Future supply by grade in HCMC 15

Figure 3.3 Average asking rents grade A & B office space 16

Figure 3.4 Current asking rents of major office building in HCMC 16

Figure 3.5 Vacancy rate by grade 17

Figure 4.1 Basic Design Calculations 20

Figure 4.2 Construction schedule & Finishing schedule 20

Figure 4.3 Equipment schedule 21

Figure 4.4 Master schedule 21

Figure 4.5 A brief view of construction schedule 22

Figure 5.1 Total Investment Amount calculation 23

Figure 5.2 Total Investment Amount Breakdown estimate 24

Figure 5.3 Construction cost – Main building Breakdown (code 1a) estimate 25

Figure 5.4 Equipment cost Breakdown (code 2) estimate 25

Figure 5.5 Investment & construction consultant cost Breakdown (code 4) estimate 25

Figure 5.6 Other cost Breakdown (code 5) estimate 26

Figure 5.7 Main structure cost Breakdown (code 1.3) estimate 26

Figure 5.8 Operation expense estimate 27

Figure 5.9 Depreciation calculation 27

Figure 5.10 Depreciation schedule 27

Figure 5.11 Loan support data and Financing schedule 28

Figure 5.12 Financing structure 28

Figure 5.13 Loan & Interest calculation 29

Figure 5.14 Loan & Interest schedule 29

Figure 5.15 Debt cash flow 30

Figure 5.16 Income statement calculation 30

Figure 5.17 Pro forma Income statement 31

Figure 5.18 Cash flow statement calculation 33

Figure 5.19 Pro forma Cash flow statement 33

Figure 5.20 Equity cash flow 35

Figure 5.21 Lease option summary 36

Figure 6.1 Shortage of Cash due to increase of Total investment amount 37

Figure 6.2 Negative closing cash balance illustration 37

Figure 6.3 Additional equity depend on Borrowing period & Grace period (at Down payment =15%) 38

Figure 6.4 Additional equity depend on Borrowing period & Grace period (at Down payment =10%) 39

Figure 6.5 Relationship between Down payment and Monthly payment (Leasing period = 8 years, IRR = 25%, Borrowing period = 7 years, Grace period = 0) 40

Figure 6.6 Project IRR sensitivity analysis on ±10% of base element 41

Figure 6.7 Relationship between NPV and Discount rate 43

Figure 6.8 Relationship between NPV and Discount rate at various Cost of equity 43

Figure 6.9 Assumption report 45

Figure 6.10 Forecast report 46

Figure 6.11 Value at Risk 47

Chapter 1 Introduction

CHAPTER 1 INTRODUCTION

1.1 BACKGROUND

A FPT Corporation

FPT Corporation was incorporated as a State-owned company in Vietnam and subsequently equitised in accordance with Decision No.178/QD-TTg, following which the Corporation officially operated as a joint stock company FPT Corporation was established under the Business Registration No 0103001041 issued for the first time by Hanoi Department of Planning and Investment dated on 13 May 2002 and its amendments

As at 31 December 2010, FPT Corporation had 11 subsidiaries, as follows:

1 FPT Information System Joint Stock Company;

2 FPT Trading Group;

3 FPT Telecom Joint Stock Company;

4 FPT Software Joint Stock Company;

5 FPT IT Services Company Limited;

6 FPT Media Company Limited;

7 FPT Education Company Limited;

8 FPT Hoa Lac High-tech Park Development Company Limited;

9 FPT Land 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-“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

B FPT Land Company Limited (F.Land)

FPT began investing in real estate in 2006 with the establishment of FPT Land Company Limited, operating including real estate trading, investment and brokerage services, leasing and renting of offices/apartments, warehouses, storage; doing business in hospitality, restaurants, dormitories, real estate management and investment; construction

of civil, industrial, transportation and irrigational works, and other real estate activities The primary goal of FPT real estate investments is to build infrastructure for FPT Corporation The next goal is to engage in projects with high technology application content, creating utilities and conveniences for users In 2009, FPT started operations in FPT Da Nang Building and FPT Building in Ho Chi Minh City Prior to that, in 2007, FPT also put into use FPT Cau Giay Building in Hanoi

FPT will continue investing in the development of the 181-hectare FTP City in Da Nang, which comprises a software park, an FPT University campus, and a residential area This complex is located on a central traffic route 7km from the city center FPT will also continue its investment in the hi-tech industrial park in Ho Chi Minh City and some other projects

C FPT Software Joint Stock Company (F.Soft)

2010 was a challenging year for FPT Software due to the incomplete recovery of the traditional Japanese market and difficulties in signing and implementing contracts with several large customers in the EU market In addition, weak management of expenditure assistance prevented FPT Software from completing the plan for 2010 A highlight in 2010

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

At the end of fiscal 2010, FPT Software sales reached VND 1,000 billion, up 34% compared to 2009, reaching 95% of the plan Prof it before tax was VND 230 billion, a 10% increase from the previous year and 80% of the plan

(Source: FPT Annual Report 2010)

Figure 1-3 F.Soft profit and growth

Although FPT Software is leading software exporter in Vietnam, its global market share is still very small Therefore, the Company continues to set high growth target for the future The Japanese and US markets are evaluated to be two major markets for FPT Software in 2011 The Japanese market is expected to be more profitable than in 2010

In the coming years, FPT Software will need highly skilled human resources to provide high quality services and to engage in large contracts In 2011, FPT Software will intensify human resource investments In addition, the company will initiate various measures to raise labor productivity and increase growth, such as implementing applications to support production and management, and reforming the cost structure

(Source: FPT Annual Report 2010)

Figure 1.4 F.Soft growth plan

Chapter 1 Introduction

Since 2006, F.Soft has invested in project of Telecommunication Technology Research and Software Production Center in Saigon High-Tech Park (SHTP), district 9 HCMC The project was divided into 3 phases with initial registered investment amount of

560 billion VND Phase 1 comprises a 5-storey office building that would be working place for 1,000 information technology (IT) programmers Phase 2 was tending to be on the same scale And the last one was to serve 2,000-3,000 experts Total project scale was

to support for 4,000-5,000 staffs That was the strategy of FPT in growing fast in software export sector

At the moment, project has finished phase 1, operating for 800 IT staffs The challenge is coming due to infrastructure and social affair in district 9 not to satisfy specific requirements of high-tech workforce, IT programmer, such as community connection, after work entertainment, social relationship management or even sports The target of 5,000 IT programmers working in SHTP become far away Moreover, F.Soft have planned to develop its other projects in Dong Nai and Ha Noi where could be better places fit their strategy and opportunity That led to the F.Soft‘s decision to reduce the SHTP project scale to 2 phases with 2,500 IT programmers That means the next as well the last phase is an office building with 15,000m2 gross floor area supporting for 3,000 staffs maximum

D Raising of cooperation

The development plan of F.Soft, coming with requirement of new office space is raising cooperation between 2 FPT subsidiaries F.Soft need more space for their employees, in fact They also need to reserve cash for development, which stage always brings negative operating cash flow Consequently office space leasing is a considerable option

F.Land, with experience in F.Soft’s first phase in SHTP as a project management, could be a partner

Moreover, from FPT Corporation point of view, the cooperation is the right move

at the right time for their new strategy Synergy between 2 subsidiaries could bring more efficiency operation Clarifying the source of profit could bring better view of business unit

management

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

1.3 RESEARCH OBJECTIVES

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

1.4 SCOPE & LIMITATION

Project appraisal framework includes various sectors that require many workforce, experience, expertise, time and data digging such as market analysis, technical analysis, human resource analysis and financial analysis This research comprises reporting market and technical analysis in usual condition for purpose to give a brief information and bird-

Chapter 2 Literature review

CHAPTER 2 LITERATURE REVIEW

2.1 INVESTMENT PROJECT LIFE CYCLE

In the past feasibility studies for projects have been developed on an ad hoc basis because a standardized approach has never really been developed The investment life-cycle was normally considered to consist of 6 separate stages of development that can overlap These are:

The investment life-cycle stages are summarized in the following table:

Opportunity

identification

Identify business need Define the opportunity Undertake initial assessment Decision to proceed

Capital cost estimate (+/-30%) Operating cost estimate Cash flows

Preliminary risk review

business requirement Define project structure and strategy Develop business case

Identify source of funds and cost Carry out studies

Decision to proceed

Capital cost estimates (+/- 15%) Operating cost estimate

Cash flows Identify the cost of the planning phase

Full risk review

Investment

planning

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

Cash flows

Chapter 2 Literature review

Final decision to proceed Place any enabling contracts that are required

Identify the total cost of the asset creation phase

Scope Quality Schedule Capital Cost Risk management

Take benefits Maintain

Operating Cost Maintenance cost Revenue

Other benefits

Sale or disposal

Shutdown costs Staff redundancy cost Disposal cost / income

Figure 2.1 investment Project life cycle stage summary

2.2 PROJECT APPRAISAL FRAMEWORK

Project appraisal and evaluation are often referred to together as project assessment Project appraisal is concerned with assessing, in advance, whether a project is worthwhile and therefore if it should be proceeded with The process of project evaluation is concerned with assessing, in a retrospective sense, the performance of a project after it has been implemented and completed Project appraisal framework comprises:

• Market analysis

This first part is to determine market demand to answer these following questions

o “What is to be produced?”

o “Which segment is the product of project on?”

o “How much is it produced?”

To decide: Quality, Scope, Pricing strategy and Technology used

Chapter 2 Literature review

• Technology analysis

This is mainly concerned with issues related to physical scale, layout, location of facilities, technology used, cost estimates and their relation to engineering or other data on which they are based, proposed procurement arrangements, procedures for obtaining engineering, architectural or other professional services, the potential impact on the human and physical environment, and a range of other similar concerns related to the technical adequacy and soundness of the project

• Human resource analysis

The objective of many projects is not merely to add to physical assets and capital, but also to create and enlarge human and institutional capabilities to manage and maintain development undertakings Institutional appraisal is concerned with a large number of questions which deal with the adequacy or otherwise of such human capability and the institutional framework in which projects are implemented This is possibly the most challenging aspect of the project’s overall success Many failure projects which are technically well-designed and well-endowed (in terms of their ‘hard’ inputs), have limitations at the human and institutional level (the so-called ‘soft’ inputs) Therefore project appraisal requires careful and sensitive consideration of the institutional dimension and local conditions

• Financial analysis

Financial appraisal (investment appraisal) is concerned with such questions as the adequacy of funds, the financial viability of the project, the borrower’s ability to service debt, procedures for recovering investment and operating costs, etc, and, ultimately, does the project return a profit?

2.3 FINANCIAL MODEL

A financial model is a spreadsheet that has taken the leap from being a data organizer to an analysis tool A model represents the relationships between input and output variables using a combination of functions, formulas, and data As you add more cells to the model, your spreadsheet begins to portray the behavior 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

Figure 2.2 Financial model illustration

2.4 RISK AND RISK ANALYSIS

Uncertainty is usually associated with risk, where risk includes the possibility of an undesirable event coupled with severity If the reduction in inventory is large enough, there will be a delay in shipping orders (an undesirable event) If a delay in shipping means losing orders (severity), then that possibility presents a risk As uncertainty and risk increase, decision-making becomes more difficult

There are two points when analyzing risk:

• Where is the risk?

• How significant is the risk?

Almost any change, good or bad, poses some risk Once identifying the risks, a model can help to quantify them Quantifying risk means determining the chances that the risk will occur and the cost if it does, to help deciding whether a risk is worth taking For example, if there is a 25% chance of running over schedule, costing you $100 out of your

Chapter 2 Literature review

running over schedule, knowing that there is a $10,000 penalty, you might be less willing

to take that risk

Finding the certainty of achieving a particular result is often the goal of a model analysis Risk analysis takes a model and sees what effect changing different values has on the bottom line Risk analysis can:

Three traditional ways to capture the uncertainty are:

• Point estimates

Point estimates are when we use what we think are the most likely values (technically referred to as the mode) for the uncertain variables These estimates are the easiest, but can return very misleading results For example, try crossing a river with an average depth of three feet Or, if it takes us an average of 25 minutes to get to the airport, leave 25 minutes before your flight takes off You will miss your plane 50% of the time

• Range estimates

Range estimates typically calculate three scenarios: the best case, the worst case, and the most likely case These types of estimates can show the range of outcomes, but not the probability of any of these outcomes

• What-if scenarios

What-if scenarios are usually based on range estimates, and are often constructed informally What is the worst case for sales? What if sales are best case but expenses are the worst case? What if sales are average, but expenses are the best case? What if sales are average, expenses are average, but sales for the next month are flat?

Traditional ways limitation:

This is extremely time consuming, and results in lots of data, but still doesn’t provide the probability of achieving different outcomes Two fundamental limitations of ordinary spreadsheets is still faced Only one spreadsheet cell can be changed at a time As

a result, exploring the entire range of possible outcomes is next to impossible; you cannot realistically determine the amount of risk that is impacting the bottom line

"What-if" analysis always results in single-point estimates which do not indicate the likelihood of achieving any particular outcome While single-point estimates might tell you what is possible, they do not tell you what is probable

Chapter 2 Literature review

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

2 The spreadsheet is recalculated

3 A value is retrieved from every forecast cell and added to the chart in the forecast windows

The final forecast chart reflects the combined uncertainty of the assumption cells on the model’s output When building and simulating spreadsheet models, it is required to carefully examine the nature of the problem and continually refine the models until they approximate your situation as closely as possible

Figure 2.3 Simulation by Crystal Ball software illustration

Chapter 3 Market analysis

CHAPTER 3 MARKET ANALYSIS

3.1 MARKET OVERVIEW

Office for lease is a branch of real estate Starting in Vietnam from the 1990s, this sector has been growing year over year Until Quarter 2 2011, there are over 1.7 million total floor area office space for lease in Ho Chi Minh City Services office buildings could

be classified into 3 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

6 Professional property management

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

16 Room depth 18-20 m between windows

Chapter 3 Market analysis

17 Common areas not more than 12 percent of TBA

18 Building Management System

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

3 Professional property management

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

10 Room depth 18-20 m between windows

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

Grade C:

Buildings of this category are with lower quality characteristics Generally, such buildings are indented for administrative use for earlier periods, often dating to 20-25 years

Chapter 3 Market analysis

(Source: CBRE Report)

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

(Source: CBRE Report)

Figure 3.2 Future supply by grade in HCMC

Chapter 3 Market analysis

A recent survey show average asking price trend over year It was significantly increasing from 2006 due to real estate bubble and then decreasing after reaching the peak

in first half 2008 The reason is global financial crisis making the trend of slow-down of foreign company in Vietnam Another reason is real estate bubble explosion indispensably Last but not least, the over-supply let tenants to have more chance to choose appropriate office space for leasing

(Source: CBRE Report)

Figure 3.3 Average asking rents grade A & B office space

(Source: CBRE Report)

Figure 3.4 Current asking rents of major office building in HCMC

Newcomers to this market are especially affected by the downtrend nowadays They are facing difficulties to attract customers Bitexco Financial Tower (district 1), for

Chapter 3 Market analysis

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%

(Source: CBRE Report)

Figure 3.5 Vacancy rate by grade

3.2 SAIGON HIGHTECH PARK

The land owned by F.Soft is located on Saigon Hi-Tech Park (SHTP), District 9,

Ho Chi Minh City Right and obligation of landlord would be complying with both HCMC Regulation and the Park So it seems necessary to take a glance about the SHTP Being one

of Vietnam's only two national hi-tech parks and considered one of Ho Chi Minh City's five focal economic projects serving as the driving force for the city's development until

2010, Saigon Hi-Tech Park (SHTP) has received exceptional supports from both the central and local governments, as well as from other relevant state agencies As a result, the Park has been authorized to offer the highest tax incentives and one-stop investment application service to investors

At the same time, the Park has a number of advantages, such as close proximity to many educational institutions, airports, and seaports and close connection with local universities, while its dedicated and experienced stall creates an environment conducive to tenants operating successfully SHIP also offers a "one-stop-shop" application service and highest tax incentives allowed by the law to help investors conduct their businesses

• Total area: 913 hectare (9,130,000 m2)

• 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

• Prefer industrial Sector:

1 Microelectronics, Optoelectronics, Information technology, Telecommunications

2 Precise mechanics, Automatics, Robot

3 Biotechnology applying in agriculture, healthcare and environment

4 New material technology, Nano technology, New energy technology

The service office for lease here is riskier than elsewhere due to the limit of company investing in SHTP and its attraction to investor Up to now, there are 2 companies building and renting office space One of them is Internet Chip office building, under construction from July 2011, planning to operate from second half 2012 with 9-story 27,655 m2 gross floor area

Chapter 4 Technology analysis

CHAPTER 4 TECHNOLOGY ANALYSIS

4.1 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

– Design standard TCXDVN 27:1991 Electric distribution network in dwellings and public

buildings – Design standard TCXDVN 198:1997 High rise building – Guide for design of monolithic

reinforced concrete structure TCXDVN 46:2007 Protection of Structures Against Lightning – Guide for design,

inspection and maintenance

Chapter 4 Technology analysis

The building would have 1 basement for motorbike and car parking for employees Other elements is calculated in the figure below

Building coverage area 3,333 m2 < =B4/(B11+1)

Total construction floor area,

Building coverage ratio 33% < =B3/B2

Floor area ratio 200% < =B4/B2

Number of leasing floor 5 floors

Number of motorbike 2,222 bikes < =B7/1.5

Landscape, pavement area 6,667 m2 < =B2-B3

Basic Design Calculations

Figure 4.1 Basic Design Calculations

4.3 CONSTRUCTION STRUCTURE & FINISHING MATERIAL

15 16 17 18 19 20 21 22 23

Pile Precast concrete pile Foundation Reinforced concrete Column & Slab Reinforced concrete Wall Silicate brick / Gypsum board / Glass Interior Paint

Ceiling Suspended ceiling Exterior Stone / Paint

Construction structure & finishing schedule

Figure 4.2 Construction schedule & Finishing schedule