Reading 38: EOC #22 (Question on Terminal Value)

CFA Level II Alternative Investments
#1

In Reading 38 EOC#22, we have this assumption:

Assumption2: Property B is exepcted to have the same NOI for the holding period due to existing leases, and a one time 20% increase in year 6 due to lease rollovers. No further growth is assumed.

Now the above, I assumed the 20% in Year 6 was some sort of non-recurring income related with signing the lease. But to calculate the terminal value, they used the (NOI * 20%) / Rate.

In CFAI, if they say a 20% increase due to lease rollovers, does that mean the rents are increasing 20% because the lease is expiring and renewing? I assumed it was some sort of signing fee and just wanted to clarify that’s what it actually means.

Thanks!

#2

Lease Rollovers are when the old leases end and new leases are made at a higher rate yeah.

#3

I thought it just meant it ends, not that it implies higher rate. Thanks :slight_smile: