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CHAPTER FIFTEEN

CHAPTER FIFTEEN. FINANCING CORPORATE REAL ESTATE. Firms Own Real Estate for a Variety of Reasons. Owning is an integrated part of the firms operation diversification from the core business Retaining real estate from former business operations

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CHAPTER FIFTEEN

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  1. CHAPTER FIFTEEN FINANCING CORPORATE REAL ESTATE

  2. Firms Own Real Estate for a Variety of Reasons • Owning is an integrated part of the firms operation • diversification from the core business • Retaining real estate from former business operations • Acquiring real estate for future expansion of relocation

  3. Cash Flow from Operations

  4. Cash Flow from Operations Continued

  5. Cash Flow from Sale

  6. Summary After-Tax Flows

  7. Owning vs. Leasing • If ATIRR of 13.79 is not sufficient to warrant the risk associated with owning, it should lease

  8. Other Factors Affecting Own vs. Leasing Decisions • Space requirements and need for flexibility • Length of time space needed • Ability to bear the residual risk associated with owning • Ability to manage the property

  9. Other Factors Affecting Own vs. Leasing Decisions Continued • Ability to lease special purpose buildings • Tax considerations • Access to capital to finance owning • Sometimes corporate debt is cheaper than mortgage debt

  10. Other Factors Affecting Own vs. Leasing Decisions Continued • Control over the property and location • Effect on financial statements • Operating vs. capital lease • Balance sheet vs. income statement • Desire for diversification

  11. Sale- Leaseback • Source of capital • E.P.S. • Most consider tax considerations • Mortgage may be at a favorable rate

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