Classification
>insert government department crest<
Cost Benefit Analysis
for Lease Endorsements
<Agency>
<Project Name>
<Location>
Version (Date): Day Month Year
This process is for agencies that have not transitioned to Coordinated Procurement Arrangements.
Table of Contents
1.Executive Summary
2.Purpose
3.Background
4.Current Situation
4.1Site and location details
4.2Building Details
4.3Occupancy profile.
4.4Fitout
4.5Building Services
4.6Lease Details
5.Establishing The Requirement
5.1Location
5.2Market Commentary
6.Options Consideration
6.1Discounted Options
6.2Available Options Considered
6.3Summary of Consideration of Options
7.Financial Analysis
7.1Funding Sources
7.2Cash Flow Assumptions
7.3Escalation Rates
7.4Discounted Rate and Net present Value (NPV)
7.5Fit out
7.6Cash Flow Summary
7.7Programming / Timing
8.Risk Analysis
9.Recommendation
Appendix 1: Financial Analysis
Appendix 2: Cash Flows – Options
Appendix 3: Risk Assessment
- Executive Summary
Provide a brief summary of the proposal, the reason for the change, and the benefits (savings, efficiency gains, co-location, WoAG outcomes etc).
Include a summary of the current situation/positon, the options considered and the preferred solution (the proposal).
Lease details / Existing / Preferred Option (Option 1)Net Lettable Area (NLA)
Rent ($/sqm/yr)
Outgoings ($/sqm/yr)
Lease Type (eg: Fully Gross, Gross, Single Net, Double Net, Triple Net, Owned)
Escalation rate (%/yr)
Building grade (to PCA rules)
ASL or headcount
Occupational density (m2/workpoint)
Non-office area
Sub-leased area
Lease length and option length(s)
Incentives in Lease deal. (E.g. fitout cost incorporated in rent)
Number of carparks and cost
Whole of life cost
Average annual change (cost or save)
- Purpose
State the desired outcome of the business case (i.e delegate approval to enter into a new lease, notification of intent to enter into a negotiation, intention to approach the market, request to review a proposal in the early planning stage etc).
- Background
Information relevant to the development and consideration of the proposal. For example, is it a new requirement, replacing an existing expiring lease or a lease for a property that is no longer suitable. Policies and directives that influence the change such as new policies and Government directives, Machinery of Government changes, Budget announcements, alignment with the agency/Portfolio strategic plan or property strategy, and associated projects and policy directives.
- Current Situation
Essential details of the current situation, lease status, usage/occupation profile, property condition and other issues impacting on the current situation and causing the change. This may include the end of a lease term, termination of the lease by a landlord, and redevelopment or reuse.
4.1Site and location details
Site and location considerations (inner CBD location, outer suburb business precinct, suburban shopfront) and attributes of the current location such as public transport, customer accessibility, proximity to related facilities (head office, bulk storage, related agencies, heavy vehicle access etc).
4.2Building Details
Relevant background information (purpose built by the Cwlth in xxx, sold and lease back in 00/00/0000).
Basic description and relevant physical characteristics (i.e. modern six story office building of 35,000sqm, 40yr old 1,200sqm single level retail office in an arcade complex, AC clad industrial warehouse etc). Building condition relevant to the proposal.
4.3Occupancy profile.
Tenant and sub tenant details, relevant to the proposal. Areas under lease (office NLA, storage, end of trip facilities) and occupation density. This information may be best presented in a short description followed by a table.
4.4Fitout
Age and condition of the fit out. Layout (open plan, offices etc). Special fit out requirements (bulk storage, computer server rooms, special use rooms such as chambers and hearing rooms).
4.5Building Services
Condition and performance of the building services, relevant to the proposal. Special Plant and Services installed as part of a fit out to meet the operational requirements.
4.6Lease Details
Specific details of the lease including lease type, costs, area, lease term, options to extend the term, and critical dates. Property maintenance arrangements and covenants to refresh/upgrade services of the interior finishes and end of lease make good commitments, as relevant.
- Establishing the Requirement
Basically a functional brief that establishes the parameters for the new leased property (i.e. what is needed). This includes the operational requirements of the agency and the occupancy profile (numbers and density), spatial requirements for office accommodation, storage, special use space, secure and open car parking space.
For new requirements this section may include references to a Policy, directive, decision of Government or Portfolio/Agency objective.
5.1Location
Factors that influence or limit the location parameters for the new leased property. This may include access to public transport, customer accessibility, proximity to related facilities (head office, bulk storage, related agencies, heavy vehicle access) and service delivery related to policy (shopfronts and customer service centres).
5.2Market Commentary
Market factors that influence the proposal such as the availability of suitable properties, competition, cost, market forecasts etc. This may include a comparison of market rent rates for CBD and inner/outer suburb locations.
- Options Consideration
Detail the options considered from both an operational and financial perspective. Options that have been considered, but not developed due significant factors that would reasonably prevent them from being realised, are summaries under Discounted Options in this section.
Options that have been developed are listed under Available Options Considered. Document the risks associated with each of the Available Options. Options to be considered are, but not limited to:
6.1Discounted Options
Clearly state the options and reasons they have been discounted.
6.2Available Options Considered
Detail the options that have been financially modelled and provides a summary of the advantage and disadvantages of each scenario. Details of the financial cost modelling results, together with explanations of the assumptions made for each scenario should be documented in Section 7, Financial Analysis.
6.2.1Status Quo – Do Nothing
This is seldom an option that is available for leased property. Reasons for discounting this option may include end of lease with no Options to extend the term under the current lease.
6.2.2Alternative Funding Arrangements
Specialist funding vehicles such as Public Private Partnership (PPP) or hybrid financing models for new constructions or pre-commitment lease arrangements for specialised property that are not available in the market.
6.2.3Build Own Operate
Suitable for highly specialised long term requirements where private ownership would present an unacceptable risk to Government. Requires a New Policy Proposal and Two Stage Capital Works Approval.
Influenced by Government Policy on property ownership and competing priorities for Capital funding from the Federal Budget.
6.2.4Buy
Suitable in some instances where the long term cost effectiveness of ownership overwhelmingly outweighs leasing cost and risk form the private sector. Influenced by Government Policy on property ownership and competing priorities for Capital funding from the Federal Budget
6.2.5Existing Commonwealth Leases or Owned Properties
In accordance with RMG 500 exhausts all options to utilise existing leased or owned property before considering a new lease.
6.2.6Pre-commitment Lease
Detail options for a pre-commitment lease if applicable.
6.2.7New Lease Option <inset #> <insert title or address>
Detail options for new leases. List each option separately, providing specific details of each offer including rent type, costs (rent, fit out, outgoings, operating expenses.
6.3Summary of Consideration of Options
1
Classification
Classification
6.4 Option Comparison Table
Lease Details / Existing / Preferred Option (Option 1) / Option 2 / Other option(s)Net Lettable Area (NLA)
Rent ($/sqm/yr)
Outgoings ($/sqm/yr)
Lease Type (eg: Fully Gross, Gross, Single Net, Double Net, Triple Net, Owned)
Escalation rate (%/yr)
Building grade (to PCA rules)
ASL or headcount
Occupational density (m2/workpoint)
Non-office area
Sub-leased area
Lease length and option length(s)
Incentives in Lease deal. (E.g. fitout cost incorporated in rent)
Number of carparks and cost
Whole of life cost
Average annual change (cost or save)
1
Classification
Classification
- Financial Analysis
- Funding Sources
State how the preferred option will be funded (from existing POE/operational or departmental budgets, from offsets etc).
7.2Cash Flow Assumptions
Detail all assumptions for the cost inputs used in the financial cost modelling and cash flow analysis, including but not limited to the following.
7.2.1Timing Assumptions
Detail the critical dates used in the cost modelling (lease start and end date, initial lease term and options to extend the term).
7.3Escalation Rates
7.3.1Rent
Detail the rent escalation rates used in the cost modelling. Use specific rates from the offer(s) were possible. Detail the anticipated At Market rent review rates (where applicable).
7.3.2Operating Expenses
Detail the assumptions for the operating expenses and the escalation rate applied. A typical escalation rate is the Consumer Price Index (CPI), goods and services, in the relevant region.
7.4Discounted Rate and Net Present Value (NPV)
Detail the assumptions for the discount rate used; and the basis for the sensitivity analysis (if applicable). Please note that the discount rate used to calculate Net Present Value for a Commonwealth lease is the cost of money, or lost opportunity to Government. This is the 10yr bond rate.
7.4.1Sensitivity Analysis
Detail the rates and rational for applying a sensitivity analysis margin to the discount rate (where applicable).
7.5Fit out
Detail the assumptions for the fit out rate or the total fit out costings used. Provide details of the cost, rate and term of the fit out provided by the landlord (where applicable) and amortised in the rent, or through a separate payment method.
7.6Cash Flow Summary
Provide a summary of the cash flows for the options considered, in nominal dollar terms and Net Present Values. Present this information in a table. Provide a conclusion from the information in the table.
7.7Programming / Timing
Detail the relevant critical dates and timings for the proposal, including the risks and the cost of the risks if realised.
- Risk Analysis
Statement of the risks associated with the proposal, including the consequences of the risks if realised.
- Recommendation
Provide a summary of the options considered in the proposal and clearly state the preferred option as a recommendation of the report. Link the recommendation to the purpose of the report stated in Section 2 Purpose.
1
Classification
Classification
Appendix 1: Financial Analysis
Appendix 2: Cash Flows – Options
Appendix 3: Risk Assessment
1
Classification