ICSC European Retail Property School

Creating Value through an

effective Business Plan

Wednesday, July 9th 8:30 – 12:00Scandic Berlin Potsdamer Platz, Berlin, Germany

Bernd Huber, MRICS

• Almost two decades of R/E experience (broker, building administrator, developer, asset-, investment-, and expansion manager, Charted Surveyor)

• MD Reiter Immobilien Salzburg• Senior Portfolio Manager REDEVCO CE• External Senior Consultant to several developers • MD TRIO/DELTA Holding• Member of the Board of the IFA-Group• CEO of IMAG Real Estate Consultancy

• Still learning something new every day

Introduction

Who are You?

What is the purpose of the Business Plan?

Why you think you need need a Business Plan?

What would you like to learn?

Introduction

Time

Va

lue

Current

Position

VALUE

CREATION

Target

Position

Definition

• What is Value? The estimated amount of money a informed third party buyer is willing to pay at a certain time.

• Why? Owner’s, acquisition’s central Objective

• How? Valuation and Performance: NOI and Cash Flow

Optimize Product: Extension, tenant mix, creation of a brand

Strategic Planning via the Business Plan

• Prime Challenge of the Management? Drive Future Property Growth

• Maximize Center Value (Performance)

• Differentiate Center/Branding of Center (Sustainability)

The creation of Value

Is a strategic planning document accomplishing the following:

• Provides an overview of the investment plan for owner andmanagement

• Offers detailed recommendations for the operation of theproperty

• Aids in forecasting market conditions that impact operationsand value

• Summarizes the current market and financial position andthe operational result

• Outlines the marketing, financial, and operating recommendations to be implemented

Definition of a Business Plan

The Business Plan establish performance projections based on implementing the recommendations.

It sets the tone for an overall direction to maximize value in the current and future years through leasing and merchandising strategies, consumer marketing, redevelopment opportunities, and capital improvements to the physical plant.

Definition of a Business Plan

Provides to owner and manager:

1. The “Map” for enhancing value

2. A vehicle for management participation

3. A set of measurable goals and objectives

4. A comprehensive overview of the property

5. A trigger for permanent target/status quo comparison (Research, SWOT)

Why do a Business Plan?

• The Leasing Plan

• The Operational Plan

• The Marketing Plan

• The Redevelopment Plan

• The Financial and Capital Plan

The Components

• Preparation: is a cycle of analyzing, identifying, preparing, implementing, evaluating, and replanning or reforecating

• Organization and preparation of the documentation

• Participation through the “Team Approach”

• Conclusion on basis of the assembled information

• Implementation

• Evaluation and Measurement (Key factor of success)

The Essentials

Analyze previous year´s

budget, forecasts,

operations, and expenditure

Prepare the

actual plan

Present for

actual approval

Implement and

monitor plan

Examine and explain

the variances

Reforcast

The Essentials: Business Plan Cycle

• Start with a “BIG PICTURE”, Zoom In

• Delegate data collection,

• Maintain a Schedule

• Keep an open mind

• Size only counts if you can make it happen (Big Plans Gather Dust)

The Essentials

• Financial Statement

• Lease Expiration Report and Rent Roll

• Lease Abstracts

• Sales Report

• The Floor Plan

• Accounts Receivable Report

• List of Current Vendor Contracts

• Site Agreements

• Market commentary (population & employmenttrends, trade area analysis, …)

• That’s just a start!

The Tools

….Providing the Basis for Actions

Executed via the Research Studies Plan

• Market Research– Catchment Area updating– Area Demographic and Psychographics changes– Spending Power and Market Share

• Consumer Research– Center’s customer perception– Non client surveys

Research Studies

• Center Research– Sales turnover evolution

– Footfall evolution and distribution

– Current status merchandising mix and weak tenants

– Current concerns for management/marketing team

Research Studies

• Competition Research– Current competition and recent evolution

– Proposed new competitive centers

• Trends Research– Trends in merchandising, store design and size

– New formats and retailers in the market

– Trends in consumer spending and behavior

– Trends in technology

Research Studies

A.Leasing Actions

1). Vacant Space• Vacant units and expiring leases (the opportunity)

• Strengthen existing or introduce new merchandise categories

• Introduce new tenant brands

• Benefits of chains and local stores

Component 1: The Leasing Plan

2). Recapturing Tenant Space• Review tenant performance

• Find the opportunities

• Reasons for recapturing space

• Price Factor: Financial impact

• Evaluate buyout costs

Component 1: The Leasing Plan

3). Subdividing Large Space and Upsizing Small Space• Prospective tenants' GLA requirements

• Maximize number of tenants in subdivided space

• Determine responsibility for preparing space

Component 1: The Leasing Plan

4). Temporary Tenants/Specialty Leasing/Carts• Definition and goals

• Capital and other expenses

• Financial and merchandise qualifications

• Prospecting and visual presentation

• Impact on existing merchants

Component 1: The Leasing Plan

B. Budget Preparation:

Leasing/Releasing affects the Cash Flow– Increased Minimum Rents, and Potential Turnover Rents

– Tenant Allowances and Concessions, Rent Credit or Free Rent Periods

– Contractual Discounts in renewals

– Growing trend of break-clauses

– Possibility of consolidation of turn over rents into fixed rent

– Offsets to Percentage Rents and CAPs or Limits on Service Charges recoveries

– Tenant fitting out contribution

– Impact on the Performance of the Centre

Component 1: The Leasing Plan

A. Marketing Approaches– Institutional/Sales Promotion/Community Loyalty

– Merchants Association / Marketing Fund

– Comparative/Competitive: Legal restrictions

Component 2: The Marketing Plan

B. Marketing Actions– Advertising Media

– E-Commerce

– Visual Merchandising / Sales promotion

– Gift Cards

– Loyalty Cards

– Social Media

– Leasing Brochures

– Mayor Events (Opening, Re-launch, Seasonal etc.)

– Community Relations/Special Events

– Sponsorship

Component 2: The Marketing Plan

C. Working with Tenants– Merchant Relations and Participation

– Retailing tips and teaching

D. Commercialization /Additional Income– Sponsorship

– Roll In/Carts

Component 2: The Marketing Plan

E. Budget Preparation:

Marketing also affects Cash Flow– Global marketing expenses/income budget

– Distribution criteria, and Owners direct participation

– Impact on the Performance of the Center

– Parallel to service charges caps anchor tenants tend to avoid Marketing Expenses

Component 2: The Marketing Plan

F. Public Relations– Community Relations/Special Events

– Sales Promotion

Component 2: The Marketing Plan

A. Operational Goals and Objectives– Identify and prioritize G and O

– Establish Ownership Standards of Operations (SOP) and Conduct Rules

– Audit the Center

– Define specifications, procedures, and policy to achieve the standards

– Gather competitive Data about service Charges Costs in other Centers to benchmark the own prformance

Component 3: The Operational Plan

B. Operational Actions

• Visual Elements• Accessibility and Signage

• Architecture and Physical layout

• Amenities and Landscaping

• Multi sensorial Environment

• Tenant Design and Appearance

Component 3: The Operational Plan

• Cleaning and Maintenance• Property Inspections

• Preventive, Corrective

• Providing services to tenants

• Security• Either Surveillance and intrusion or Fire detection /

Combat

• Monitor Level of Security

• Proper Staffing

• Police and fire dept. relationships

Component 3: The Operational Plan

• Other Operational issues• Parking, other services

• Centre Management

• Insurance, Taxes, rent collection costs

Component 3: The Operational Plan

C. Budget Preparation– Impact of Operational Plan on both income and expenses

– Expense Planning

• Project based on actual data

• Competitive Bids for everything

• Payables procedure

– Zero Based Process

Component 3: The Operational Plan

D. Operating Costs: Operations affect

Cash Flow– Leasing/Occupancy level impact on payment of service

charges

– Effects of decisions and actions on property cash flow and increasing service charges

– Effects on Tenant and Leasing of increasing Service Charges: Effort Ratio

– Impact on the performance of the center…pay me now or pay me later?

Component 3: The Operational Plan

A. Needs and Opportunities for redevelopment

B. The Types of Redevelopment– Renovations

– Refurbishments

– Expansions

Component 4: The Redevelopment Plan

C. The Multi-annual Plan versus the Investment Plan

D. Financing the redevelopment– The capital/income budget

– The return on investment (ROI)

Component 4: The Redevelopment Plan

1. Net Operating Income

2. Financial Statements

3. Long Term Capital Needs

4. Budgeting Process

5. Collections

6. Country Risk

Component 5: The Financial and Capital Plan

A. Monitoring and Recording

B. Monthly, Quarterly and Annual Reporting

C. Tenant acceptance

D. Centre awareness and consumer perception

E. Performance of the Centre:– Footfall and customer frequency and profile

– Turnover sales, market share

– Net Operating Income, Capitalization Value

Evaluation and Measurement

• Summary: What’s our Fundamental Goal?

• We get there using the Business Plan as the Tool

• Expand your Management World

• Business Plan is a joint effort, a mean of management participation, a common textbook, which can only be put into effect as a group task

• Prepare for challenges for the future

Conclusion

WHAT WILL YOU TAKE BACK?

WHAT WAS YOUR LEARNING MOMENT?

Conclusion

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