I am looking at investing into a REIT and am doing a desktop review of their assets. I am hoping to get community feedback regarding one asset within the portfolio as to what DCF inputs I should use. The asset is an industrial site with development potential however, it is subject to a ground lease for the next 29 years. I am looking to do a DCF over the 29 years horizon until the lease expiry when it can be developed.
Asset: Industrial land within 15 km of the Sydney CBD with development upside Market Value (Subject to No Lease / Vacant Possession): Say $60 million Ground lease: $400,000 per annum net (tenant pays all outgoings) with CPI increases and market review every 8 years Term: 29 years remaining
I will need to do a DCF and PV projected cashflows and the asset value over the 29 year period, my questions for the community: - What growth rate would you assume for the asset? - What growth rate would you assume for industrial ground rents in an inner Sydney locale? - What discount rate would you apply to the cashflow?
I would be keen to hear any answers and rationale to the above three questions.
