RISK - REWARD ANALYSIS CASE STUDY

FALMOUTH

The vendor, a large quoted company, had completed a well-publicised growth phase through acquisition, and as such established a requirement to dispose of liabilities from its accounts. In January 2007 we paid £1.75m for the site valued at £1.925m. With debt of £1.54m, payable at a rate of 5.5%, debt servicing was £85,000pa versus annual income of £132,000, producing a £47,000 annual positive cashflow. Including transaction costs, the Falmouth purchase equalled £1.835m. With equity of £295,000 (17% of the purchase price) invested, there was an annual 16% return on investment capital from rent alone.

Besides this, the low base rents and low capital value in the new building gave us confidence in the opportunity to realise rental and capital growth.