The table below presents an array of scenarios for the return on equity for the fully-phased expansion of Carousel Center. The square footage number is found on p. 15 of the Deloitte & Touche report. For various values of "Total Operating Receipts / s.f." and "Operating Expense Ratio," I calculated the stabilized "Net Income." For each Net Income number, I entered that amount as the "Stabilized Net Income" in each of the two columns in the table on p. 61 of the Deloitte report—the table on which the projected return on equity for the mall expansion is calculated. The first line in the table represents (approximately) the calculations made by Deloitte & Touche when it projected the return on equity to be 2.5% without SIDA bond funding and 7.7% with SIDA bond funding. (It is useful to compare the "Total Operating Receipts / s.f." and "Operating Expense Ratio" figures here to the national and regional norms given on p. 35 of the Deloitte report and also on p. 3 of my 11/24/00 memo to Jim Mahaney.)
| Total Operating Receipts per sq ft | Operating Expense Ratio | Net Income Ratio1 | Total GLA (all 3 phases) | Total Operating Receipts2 | Net Income3 | Return on Equity / no SIDA bonds | Return on Equity / with SIDA bonds |
|---|---|---|---|---|---|---|---|
| $20.57 | 47% | 53% | 3,577,669 | $73,592,651 | $39,004,105 | 2.5% | 7.7% |
| $20.57 | 40% | 60% | 3,577,669 | $73,592,651 | $44,155,591 | 3.9% | 12.2% |
| $20.57 | 35% | 65% | 3,577,669 | $73,592,651 | $47,835,223 | 4.9% | 15.3% |
| $20.57 | 30% | 70% | 3,577,669 | $73,592,651 | $51,514,856 | 5.9% | 18.5% |
| $25.00 | 47% | 53% | 3,577,669 | $89,441,725 | $47,404,114 | 4.8% | 14.9% |
| $25.00 | 40% | 60% | 3,577,669 | $89,441,725 | $53,665,035 | 6.5% | 20.3% |
| $25.00 | 35% | 65% | 3,577,669 | $89,441,725 | $58,137,121 | 7.7% | 24.2% |
| $25.00 | 30% | 70% | 3,577,669 | $89,441,725 | $62,609,208 | 8.9% | 28.0% |
| $30.00 | 47% | 53% | 3,577,669 | $107,330,070 | $56,884,937 | 7.4% | 23.1% |
| $30.00 | 40% | 60% | 3,577,669 | $107,330,070 | $64,398,042 | 9.4% | 29.5% |
| $30.00 | 35% | 65% | 3,577,669 | $107,330,070 | $69,764,546 | 10.9% | 34.1% |
| $30.00 | 30% | 70% | 3,577,669 | $107,330,070 | $75,131,049 | 12.3% | 38.7% |
Notes:
| Total Operating Receipts per sq ft | Operating Expense Ratio | Net Income Ratio1 | Total GLA (all 3 phases) | Total Operating Receipts2 | Net Income3 | Return on Equity / no SIDA bonds | Return on Equity / with SIDA bonds |
|---|---|---|---|---|---|---|---|
| $35.00 | 47% | 53% | 3,577,669 | $125,218,415 | $66,365,760 | 10.0% | 31.2% |
| $35.00 | 40% | 60% | 3,577,669 | $125,218,415 | $75,131,049 | 12.3% | 38.7% |
| $35.00 | 35% | 65% | 3,577,669 | $125,218,415 | $81,391,970 | 14.1% | 44.1% |
| $35.00 | 30% | 70% | 3,577,669 | $125,218,415 | $87,652,891 | 15.8% | 49.5% |
| $40.00 | 47% | 53% | 3,577,669 | $143,106,760 | $75,846,583 | 12.5% | 39.4% |
| $40.00 | 40% | 60% | 3,577,669 | $143,106,760 | $85,864,056 | 15.3% | 48.0% |
| $40.00 | 35% | 65% | 3,577,669 | $143,106,760 | $93,019,394 | 17.2% | 54.1% |
| $40.00 | 30% | 70% | 3,577,669 | $143,106,760 | $100,174,732 | 19.2% | 60.2% |
| $45.00 | 47% | 53% | 3,577,669 | $160,995,105 | $85,327,406 | 15.1% | 47.5% |
| $45.00 | 40% | 60% | 3,577,669 | $160,995,105 | $96,597,063 | 18.2% | 57.2% |
| $45.00 | 35% | 65% | 3,577,669 | $160,995,105 | $104,646,818 | 20.4% | 64.1% |
| $45.00 | 30% | 70% | 3,577,669 | $160,995,105 | $112,696,574 | 22.6% | 71.0% |
Notes:
According to Deloitte & Touche, Pyramid projects that in the first stabilized year of the full expansion (year 6), total sales will be $328 per square foot. Let's accept this figure. On the table on page 3 of my memo to Jim Mahaney, we can see that the national norms for the Ratio of Total Operating Receipts to Total Sales are in the 14-15% range. Let's suppose that the mall expansion can achieve a 14% ratio. To calculate "Total Operating Receipts / s.f.," we have: $328 x .14 = $45.92. Since, for the past three years, Carousel Center has maintained an Operating Expense Ratio of 34%, let us also use that figure for the expansion. These assumptions yield the following results when we calculate the Net Income and use that figure for the "Stabilized Net Income" on the table on p. 61 of the Deloitte & Touche report: A return on equity of 21.5% without SIDA bond funding and 67.3% with SIDA bond funding.
| Total Operating Receipts per sq ft | Operating Expense Ratio | Net Income Ratio1 | Total GLA (all 3 phases) | Total Operating Receipts2 | Net Income3 | Return on Equity / no SIDA bonds | Return on Equity / with SIDA bonds |
|---|---|---|---|---|---|---|---|
| $45.92 | 34% | 66% | 3,577,669 | $164,286,560 | $108,429,129 | 21.5% | 67.3% |
Notes: