1. Project Finance ModellingApril 151 Introduction

2. Renewable Energy Analysis2 Real Estate Characteristics and Corporate versus Project Finance Analysis Real Estate and Project Finance  Project Stages  Non-recourse Debt  Cash Flow and Financing  Equity IRR Real Estate and Corporate Finance  Portfolio of Projects  Terminal Values  Financing of consolidated projects

3. Renewable Energy Analysis3 Valuation Ratios in Real Estate versus Project Finance and Corporate Finance Corporate Finance  Enterprise Value  P/E Ratio  Discounted Cash Flow Project Finance  Project IRR  Equity IRR Real Estate Finance  Cap Rates

4. Renewable Energy Analysis4 Example of Model Output

5. Renewable Energy Analysis5 Challenging Financing Issues Cascade of financing during construction Inclusion of land loan and revolving credit facility Cash flow waterfall with cash sweeps on debt facilities Cash flow sweep and allowance for dividends Break-even analysis from debt perspective

6. Project Finance ModellingApril 156 Overview of Real Estate Exercises

7. Renewable Energy Analysis7 Exercise 1 – A to Z Basic Model FAST Modeling Standards Illustration  Flexible  Accurate  Structured  Transparent Model Illustrates timing issues for flexibility, accuracy checks, structuring with different parts and transparency with simple formulas

8. Renewable Energy Analysis8 Exercise 1 - Continued Demonstrates the measurement of return  Project IRR  Equity IRR  MIRR  XIRR

9. Renewable Energy Analysis9 Exercise 1 – Hotel Project Finance Demonstrates basic structure of project finance model for real estate:  Structuring the construction period and holding period separately  Structuring the financing of the model  Setting-up inputs and operations sections in a structured manner  Computing IRR and DSCR outputs

10. Renewable Energy Analysis10 Example of Sources and Uses Summary

11. Renewable Energy Analysis11 Exercise 2 – Key Points Setting up Flexible Investment Model Consolidating Investments Financing Investments at SPV and Consolidated Levels Creating Cash Flow Waterfall for Consolidated Model Cash Flow Sweep in Consolidated Model

12. Renewable Energy Analysis12 Example of Summary Page

13. Renewable Energy Analysis13 Exercise 2 – Investment Portfolio

14. Renewable Energy Analysis14 Key Mechanical Points in Exercise 3 Create common start date for all projects in portfolio Use INDEX function with project code number to arrange inputs for individual projects Create different time period codes for each project Use lookup table with time period codes to set-up S-curve for each project

15. Renewable Energy Analysis15 Exercise 3 – Building Model with Multiple Investments Compute the IRR from the above information

16. Renewable Energy Analysis16 Exercise 4 – Consolidation of Portfolio with Data Table Same inputs as Exercise 3 Mechanical Issues  Create Index Code  Use INDEX Function  Use DATA TABLE with Index Code to Consolidate Accounts

17. Renewable Energy Analysis17 Data Table in Consolidation Set up table with Project Code Number Put code numbers in different rows Put the output desired on the column above the rows Sum the individual rows for the consolidated analysis

18. Renewable Energy Analysis18 Exercise 5 – Flexible Dates The exercise demonstrates how to:  Create a model with flexible periods  Establish an analysis that does not begin at the first day of a period  Set-up begin and end dates in a model  Compute IRR’s with flexible dates

19. Renewable Energy Analysis19 Exercise 6 – Mixed Use Development Without Automatic Consolidation Demonstrates Principles of Mixed Use Analysis  Varying S-Curves for individual projects  Varying progress payments for individual projects  Requirement to consolidate individual projects

20. Renewable Energy Analysis20 Input Database Example

21. Renewable Energy Analysis21 Input for Development Plan

22. Renewable Energy Analysis22 Time Line for Different Projects in Mixed Development

23. Renewable Energy Analysis23 Exercise 7 – Portfolio with Data Table Simple Annual Model that Illustrates how to Efficiently Consolidate Projects in Mixed Use Development

24. Renewable Energy Analysis24 Exercise 8 – A to Z Model with Scenario Analysis FAST Modeling Standards Illustration  Flexible  Accurate  Structured  Transparent Model Illustrates timing issues for flexibility, accuracy checks, structuring with different parts and transparency with simple formulas

25. Renewable Energy Analysis25 Exercise 8 – Single Project Annual This exercise works through structuring and financial issues associated with a single project Issues include:  Flexible Timing in Annual Model  Flexible Structuring of Inputs  Operating and Financing Analysis  Financing  Scenario Analysis  Model Verification

26. Renewable Energy Analysis26 Exercise 9 - Comprehensive Mixed Use Development

27. Renewable Energy Analysis27 Exercise 10 – Lease Roll Analysis Objective  Model different risk profiles from alternative lease contracts  Use Scenario Analysis and Break-even analysis for market lease rates  Apply monte carlo simulation to analysis

28. Renewable Energy Analysis28 Inputs for Lease Roll

29. Renewable Energy Analysis29 Inputs for Analysis Market Lease Rates and Growth  Sensitivity Analysis Idle Time After Lease Multiple Lease Expirations

30. Renewable Energy Analysis30 Create Code Number Code for First Lease  Date is less than or equal to the expiration date Code for Idle Time  Date is greater than the expiration date and less than or equal to the expiration date plus the idle time period  Need the AND function Code for Spot Rates  Date is greater than the expiration date plus the idle time

31. Renewable Energy Analysis31 Range Names and Code Numbers Since the formula is long for the code number can create range names for the code number Put formula together with range name Make different range names for each component of the code number

32. Renewable Energy Analysis32 Choose Function with Row Number Use the code number as the basis for the CHOOSE function First option  Lease Rate  Zero for Idle Period  Net Spot Lease Rate After Idle Period

33. Renewable Energy Analysis33 Exercise 10a – Lease Roll with Monte Carlo Simulation Apply on Monthly Basis and Compute Months Use the EOMONTH to Compute  Expiration Month  End of Idle Period  End of Second Lease Compute the Fraction of Month Off the Lease Use the DAYS360 Function divided by 360

34. Renewable Energy Analysis34 Exercise 11: Cap Rate Analysis Enter Assumptions for:  Net Rental Growth Rate  Cost of Capital  Tax Rate  Depreciation Rate  Remaining Life Derive Cap Rate Evaluate Cap Rate for Different Cost of Capital

35. Renewable Energy Analysis35 Valuation Analysis in Corporate Finance, Project Finance and Real Estate Corporate Finance  P/E Ratio, EV/EBITDA Ratio and Discounted Cash Flow  Terminal Value is Major Part Project Finance  Equity IRR and Project IRR  Evaluate over Project Life without Terminal Value Real Estate Finance  Equity IRR and Project IRR  Terminal Value with Cap Rates

36. Renewable Energy Analysis36 Credit Analysis in Corporate Finance, Project Finance and Real Estate Finance Corporate Finance  Debt Repayment from Ability to Re-finance and Credit Quality of Company  Use Debt/EBITDA, Debt/Equity and Interest Coverage Project Finance  Debt Repayment Directly from Cash Flow without Valuation  Use DSCR, LLCR and PLCR Real Estate Finance  Debt Repayment from Cash Flow and Ability to Sell Project  Use Debt to Value with Cap Rate in Valuation

37. Renewable Energy Analysis37 Complex Lease Roll

38. Renewable Energy Analysis38 Exercise 11 – Cap Rate Analysis

39. Renewable Energy Analysis39 Definition of Cap Rate Formula  Cap Rate = Net Rental/Value of Property With Yield  Assume the yield on a property = cap rate  Yield = Net Rental/Investment  Net Rental = Yield x Investment Yield and Cap Rate  Cap Rate = Yield x Investment/Value of Property  Cap Rate/Yield = Investment/Value of Property Where Yield = Cap Rate  Here the Investment = Value of Property 30 April 2015www.edbodmer.com39

40. Renewable Energy Analysis40 Apply Monte Carlo Simulation Enter the volatility for lease rates Develop a time series function for lease rates Create Macro for Simulation Evaluate alternative distributions of value

41. Renewable Energy Analysis41 Exercise 12: Residential Exercise Set-up Inputs with Different Milestones for Construction  Walling  Foundation  Completion Set-up Inputs for Different Payments (which can be the same as the milestone dates) Percent of Payment and Percent of Construction

42. Renewable Energy Analysis42 Residential Exercise - Mechanics Set-up dates with common start date and evaluate dates on a monthly basis Use the EOMONTH function for milestone payments and for dates Compute the construction period in months for the different project phases Compute switches for dates and for the construction periods

43. Renewable Energy Analysis43 General Inputs for Financing

44. Renewable Energy Analysis44 Example of Inputs for Residential Project

45. Renewable Energy Analysis45 Financing and Cash Flow Waterfall Set-up Cash Account, Equity Account and Debt Account Use MAX and MIN functions to evaluate what happens with positive and negative cash flow

46. Renewable Energy Analysis46 Exercise 13 - Financing