Investment Analysis1 William Morgan Drive Toronto, ON

Ryan MalenfantGreg Gowan

Outline• Property Description - Ryan• Highest & Best Use - Ryan• Neighbourhood Description - Ryan• Market Analysis - Greg• Nearby Employment Districts - Greg• Valuation Assumptions - Greg• Investor Profile - Ryan• Investor, Direct Cap & DCF Values – Greg• Estimated Market Value - Greg• Sensitivity Analysis - Ryan• Recommendations - Ryan & Greg

Property Description• Class B Office• Built in 1963• 26,245 GSF• 1.23 acre lot size• Zoned E01.0 Employment• Tenants• Community Care Centre signed until 2023 with yearly $0.25/SF

increases• Real Estate Firm signed until 2023 with step up in 2019 of

$2.00/SF • 36 parking spaces• 12.5 km from CBD (via DVP)

Highest and Best Use• Physically Possible• Legally Permissible• Financially Feasible• Maximally Productive

• As Vacant:Given the current zoning, location, and site area it is our opinion the HBU of the subject site ‘as if vacant’ is the development of a 2 storey commercial office building.• As Improved:Given the current zoning, location, site area, and building improvements it is our opinion that the HBU of the subject site would be for the continuation of the commercial office use.

Neighbourhood Description• Thorncliffe Park• Mixed use & employment zones• Mostly low rise 1-2 storey building

• Transportation• DVP• TTC bus service• Future Ellington LRT

• Amenities within 2 km radius• All Big Five banks• Restaurants• Office supply & printing services• Leaside Smartcentre & East York Town Centre

• Dry cleaning & tailoring• Travel agencies• Major telephone carriers

Market Analysis

Employment• The Office Sector is Toronto’s largest source of employment

representing nearly half of all jobs (48.2%) (Source: Toronto Employment Survey 2013, March 2014)

• Employment is continuing to grow in TorontoMarket Rents• Central East Area of Toronto Class B Weighted Average Net

Rent is $12.31/SF, Weighted Average Gross Rent is $26.38/SF for Q3 of 2014. (Source: Colliers Q3 2014 GTA Office Statistics)

Market Vacancy• Market vacancy rate for Central East Area of Toronto Class B

Office Space is 8.1% (Source: Colliers Q3 2014 GTA Office Statistics)

Nearby Employment Districts

Valuation Assumptions• Vacant space (basement) rented out at $7.00 /PSF Gross• Vacancy & Bad debt 10% of GPI• Expenses increase 3%/year• Management Fee 5% of EGI• Replacement Reserves $0.15/PSF• Market Office Cap Rate 7%• We used a rate between Suburban & Downtown

• Terminal Cap Rate 8%• Cost of Sales of 5%

Investor Profile• Required rate of return 7%• Not eligible for capital gains• Willing to put down 40% equity• 5 year holding period• Mortgage• Quoted at 6.5% closed nominal interest rate• Amortized over 25 years, Term of 5 years

Investor, Direct Cap & DCF ValuesDirect Cap• Year 1 NOI: $170,000• Cap Rate of 7%• Giving us a Direct Cap value of $2,423,000

DCF• Year 5 NOI: $184,000• Terminal Cap Rate 8%• Giving us a Net Sales Proceeds of $2,189,000• Value as per Discounted Cash Flow of $2,231,000

Investor• At purchase price of $2,000,000 & Required rate of return of 7%• NPV of $94,000 and an IRR of 9.96% • Cash on Cash Return of 7.5%

Estimated Market ValueDirect Cap DCF

Value $2,423,000 $2,231,000

Weight 40% 60%Weighted

Value$969,200 $1,338,600

Weighted Value

$2,307,800

Rounded To:

$2,300,000

Sensitivity Analysis• Holding original model constant; vacant space remains vacant• Year 1 NOI: $135,000• Giving us Direct Cap value of $1,930,000• Net Sale Proceeds of $1,745,000• NPV $(120,000)• IRR of 3.0%• Cash on Cash Return 4.6%

• Holding original model constant; 100% equity• NPV $(42,000)• IRR of 6.5%• Cash on Cash Return 6.3%

• Holding original model constant; 25% equity• NPV $125,000• IRR 13.1%• Cash on Cash Return 8.6%

Recommendation• Based on Direct Cap and DCF Valuations, purchase property

for $2,000,000 • Otherwise, seek other investment opportunities

• Have a tenant commitment for the vacant space• Use less equity; provides better returns• Hold onto the property in the long term to benefit from

appreciation of land value

Questions or Comments?