I Feel the LNG Love!, page-43

Ckleinnba,

Let me put the LNG value equation in terms you understand. Let's substitute Magnolia and BH for two townhouse complexes that I am planning to build (Magnolia to be complete by early 2019 and BH early 2020.. I have acquired rights to a lease over the land for both projects for a period of 75 years. For Magnolia I have a binding agreement to be able to take up the option to lease the land for which I have so far paid nothing. For BH I have a binding agreement to be able to take up the option to lease the land which was included in the $11m purchase price I paid for an existing townhouse project which I bought from another developer.

In both cases, the market for townhouse rentals has long term demand such that potential tenants are willing to sign 20 year fixed price + inflation rental contracts in order to secure a property to live in long term. Not only this, but they are willing to put their credit ratings on the line to guarantee that they will continue to pay whether they live in the property for the entire period or not (I effectively have a legal right over their current and future salaries to receive the payments they have agreed to make).

On both Magnolia and BH I plan to build 4 townhouses each (for a total of 8 townhouses), but in the case of BH I am applying for approval to potentially build 2 more in the future. The market for townhouses says that I will be able to rent each townhouse for a profit after expenses but excluding interest on any loan, taxes, and deprecation on the buildings of just under $250k per year + inflation. Magnolia and BH will each cost around $3.5 million to build (an average of $875k per townhouse). I have firm interest from 10 tenants to rent the 4 Magnolia townhouses, 4 have signed a letter of intent to sign a lease, and 1 has just indicated that they have all the paperwork ready to sign with me very soon.

On the construction front, I have found a builder who is willing to agree to a fixed time and price contract to build the townhouses and so far we have agreed to a price for the first 2 townhouses at Magnolia and are planning to sign off on the complete agreement for 4 townhouses in the next few months. The builder is so certain in their ability to deliver on time that they are willing to include a clause which states that if the townhouses are not habitable by my tenants on the agreed date that they will pay me $1k a day until they are (from this I can take the profit that I would have made, and can compensate the tenants for having to stay in a hotel until the properties are ready). And the builder I have found is one of the worlds largest townhouse development companies, with probably more experience in building townhouses than any other company in the world.

In order to begin construction of Magnolia and BH I need to gain government approval to allow me to rent the townhouses I an planning to build, and I also need government environmental and construction approval to build the townhouses. In the case of Magnolia I have applied for and gained approval to rent the townhouses, and in the case of BH I have applied for government approvals and are expecting them to be granted mid year. On the environmental and construction approval side of things I were notified this Friday that I will receive my approval early next year for Magnolia. In the case of BH, I have gained nine of the required ten approvals and have been informed that the final approval is before the government and scheduled to be decided upon mid year.

On the finance side of things I have agreed to sell 50% of Magnolia to an investment fund for $660k, in order to provide the capital component required to build the townhouses. The remainder of the construction cost of Magnolia will be a loan from the bank. Although I currently have no assets to borrow against, I have the $660k in capital which will be contributed to the project and I will have bankable rental contracts against which the bank will happily loan me the $2.9M I need. I have the worlds largest loan advisor signed on to secure the loan for me.

My question to you is how much would you offer me today to buy a 10% stake in these projects? Would you offer me more or less than $225k? What concerns do you have in me being able to build even at least 2 townhouses at Magnolia and receive rent from them for a period of 20 years? Finally, lets assume you offered me $150k and I accepted it, would you be concerned if somebody came along two weeks later and offered you $75k to buy your share of the project from you?