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Example related to office lease proposals
5 year lease:
Net rent: $400 per square metre
Outgoings: $100 per square metre
Incentive: 25% of net rent (incentive assummed to be taken upfront i.e. towards fitout contribution)
Incentive value: $500 per square metre
Amortised incentive value @ 12% = $133.46
Therefore:
Gross face rent = $500
Net face rent = $400
Gross effective rent = $366.54
Net effective rent = $266.54
Note: There is both an argument for and against towards applying a finance rate or a discount rate related to the riskiness of the office cashflow in calculating the amortised value of the incentive. I've used a rate similar to a discount rate that investor might adopt in assessing the merits/value of a project. Comments welcome....
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∙ 13y ago
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