Key takeaways
- SARARN SUK is a hypothetical case study: a 247-unit condominium with a 48-month duration.
- Recalculated from the model's cash flows, it gives a Project IRR of 15.9%, an Equity IRR of 25.4% and a MOIC of 1.72x, well below the figures in the first investment memo.
- The conclusion therefore changes from Proceed to proceeding only if the structure is adjusted and the conditions are met.
Project overview
| Location | Karon Beach, Phuket (hypothetical), 2 buildings, about 300 metres from the beach |
| Land | 3 rai 2 ngan, purchase price THB 60 million per rai, totalling THB 210 million |
| Number of units | 247 units (1BR 180, 2BR 54, 3BR 13), total saleable area 9,798 sq m |
| Average price | THB 6.0 million per unit, or 151,194 THB/sq m |
| Project cost (EAC) | THB 1,046 million, or 106,756 THB per sq m sold |
| Duration | Land purchased in month 1, construction in months 6–30, transfers in months 31–48 |
The land cost in the model is THB 219 million, THB 9 million above the purchase price of THB 210 million. In this case study, the difference is treated as land acquisition costs and related taxes and fees.
| Type | Amount | Area (sq m) | Price/unit (THB) | Sales value (THB m) |
|---|---|---|---|---|
| 1-Bedroom | 180 | 32 | 4,800,000 | 864.0 |
| 2-Bedroom | 54 | 56 | 8,400,000 | 453.6 |
| 3-Bedroom | 13 | 78 | 12,600,000 | 163.8 |
| Total | 247 | 1,481.4 |
Project P&L
| Item | THB m | % of revenue |
|---|---|---|
| Revenue from unit sales | 1,512 | 97.7% |
| Car park and other revenue | 35 | 2.3% |
| Total revenue | 1,547 | 100.0% |
| Cost of sales | (1,064) | (68.8%) |
| Gross profit | 483 | 31.2% |
| Specific Business Tax (SBT) 3.3% | (51) | (3.3%) |
| Transfer fee 1% (assumed) | (15) | (1.0%) |
| Commission 3% | (46) | (3.0%) |
| Advertising and SG&A 4.5% | (70) | (4.5%) |
| Warranty 0.5% | (8) | (0.5%) |
| Operating profit (EBIT) | 293 | 18.9% |
| Interest not capitalised | (22) | (1.4%) |
| Profit before tax | 271 | 17.5% |
| Corporate income tax (CIT) 20% | (54) | (3.5%) |
| Net profit | 217 | 14.0% |
Cost of sales of THB 1,064 million equals the EAC of 1,046 plus car park costs of THB 18 million.
Three sets of figures in the source documents. The first executive summary states revenue of 1,512 and profit of THB 318 million, which does not match the P&L table, so it is not used. The P&L table above uses revenue of 1,547 and profit of 217, while the P&L sheet in the Excel file uses revenue of 1,516.4 and profit of THB 224.7 million, and the Unit Mix supports unit sales of THB 1,481.4 million. These must be reconciled to a single set before real use.
Sources and uses of funds
| Uses | THB m | Sources | THB m |
|---|---|---|---|
| Land | 219 | Equity | 310 |
| Soft Cost | 98 | Land Loan 7.0% | 147 |
| Structural hard cost | 320 | Project loan at 7.5%, drawn (facility 600) | 589 |
| Architectural and M&E hard cost | 230 | ||
| Landscape and common areas | 45 | ||
| FF&E | 35 | ||
| Capitalised interest | 62 | ||
| Contingency | 37 | ||
| Total | 1,046 | Total | 1,046 |
Drawn LTC is 70.4% (736 ÷ 1,046) and debt-to-equity is 2.37x, within the assumed limits of LTC not exceeding 75% and D/E not exceeding 2.5x. Customer advances are an interim source of funds and are not included in this table, because that would double-count them against receipts.
The Presale target of 70% of unit sales equals THB 1,058 million. Booking deposits, contract deposits and a 20% down payment therefore amount to about THB 212 million in cash during construction. The conditions for using booking deposits must be checked against the loan agreement and the escrow before they are used.
Cash flow from the model
| Item (THB m) | Year 1 | Year 2 | Year 3 | Year 4 | Total |
|---|---|---|---|---|---|
| Receipts from sales and transfers | – | 227.5 | 530.7 | 758.2 | 1,516.4 |
| CAPEX | (316.0) | (290.8) | (324.2) | (115.1) | (1,046.0) |
| Selling, administrative, interest and tax expenses | – | (41.3) | (96.5) | (137.8) | (275.6) |
| Project CF | (316.0) | (104.6) | 110.1 | 505.3 | 194.8 |
| Equity CF | (186.0) | (124.0) | 106.9 | 427.8 | 224.7 |
Recalculated returns
Calculated in Python directly from the cash flow rows, using the model's annual periods. NPV follows the Excel method, which discounts the first period by one year.
| Indicator | Per the model's cash flow | Adjusted to match P&L 1,547 | First memo (not used) |
|---|---|---|---|
| Project IRR | 15.9% | 17.6% | 28.5% |
| Equity IRR | 25.4% | 24.7% | 42.3% |
| Equity MOIC | 1.72x | 1.70x | 2.34x |
| Project NPV @ 10% (THB m) | 54.1 | 69.9 | ~300 |
| Equity NPV @ 20% (THB m) | 27.1 | 23.2 | – |
| Project payback (years) | 3.6 | 3.6 | – |
| Equity payback (years) | 3.5 | 3.5 | ~3.2 |
The "Adjusted to match P&L" column scales receipts proportionally to THB 1,547 million, adds car park CAPEX of THB 18 million in year 3, and uses total expenses including interest and tax of THB 266 million per the P&L, so that cumulative profit equals exactly THB 217 million.
What these figures do not tell us
The model's Project IRR is not truly unlevered
The project cash flow already includes capitalised interest of THB 62 million and non-capitalised interest of THB 22 million. If the THB 84 million of interest is removed and the 20% tax effect is adjusted, the unlevered IRR is about 21.7%. The 15.9% figure is therefore a return after some financing costs and should not be called unlevered without explanation.
Cash flow and distributions do not reconcile by THB 29.9 million
Cash available for distribution per the Cash Flow sheet totals THB 504.8 million, but the model distributes THB 534.7 million. The THB 29.9 million difference comes from CAPEX of 1,046 versus COGS of 1,027 (19.0) and cash flow expenses of 275.6 versus P&L of 264.7 (10.9). If distributions are capped at the cash actually available, Equity IRR falls to 22.6% and MOIC to 1.63x.
An annual model is too coarse for real decisions
Annual periods show Peak Funding only at the yearly level. A real project needs a monthly model, because booking deposits, construction progress payments and transfers do not occur at the same time.
Comparison with thresholds
| Indicator | Result | Threshold referenced in the memo | Status |
|---|---|---|---|
| Project IRR | 15.9–17.6% | 18–22% | Fail |
| Equity IRR | 24.7–25.4% | 25–30% | Borderline, at the lower threshold |
| MOIC | 1.70–1.72x | 2.0x | Fail |
| Net Margin | 14.0–14.8% | 15% | Slightly below |
| Equity payback | 3.5 years | Not more than 4 years | Pass |
Risks to monitor
| Risk | Level | Mitigation |
|---|---|---|
| Presale below target | Medium | Set Presale conditions before construction starts and adjust the payment plan |
| Market prices fall | Medium | Diversify across Thai and foreign buyers |
| Construction cost overruns | Medium-high | Fixed Price Contract, Contingency 3.5%, Performance Bond |
| Construction is delayed | Medium | Penalty clauses and milestone-based payments |
| Interest increases | Medium | Set a fixed rate or partially hedge |
| Tight cash flow during peak CAPEX | Medium | Equity reserve and standby facility |
| Foreign quota and permits | Medium | Check the latest regulations and obtain the EIA before construction starts |
Conclusion
Proceed with conditions; this is not yet a full Proceed. The recalculated figures do not support the original proposal. Project IRR and MOIC are below the thresholds, and the project can withstand a price cut of only about 5% before Equity IRR falls below 20%. The following should be adjusted before submitting for approval:
- Reconcile the Unit Mix, P&L and Cash Flow sheet into a single set of figures, and build a monthly model
- Adjust the Unit Mix, prices or specification until the board's hurdle is met
- Set Presale milestones before construction starts, and sign a fixed price contract with a good-quality contractor
- Demonstrate that equity and a standby facility are available for a one-year delay
- Prepare monthly progress reports and Covenant reports from the start of the project