TLO DEVELOPERS: STRATEGIC OPTIONS Case Study Analysis
Weakness-Threat
Low liquidity position along with the high input costs and competition in the market force the company to take certain actions. See the Table 1 below:
Table-1: TWOS Analysis
|
TWOS Analysis |
Strengths:
· Brand Reputation · Profitable Business · Brand loyalty · High quality input used |
Weaknesses:
· All competes for tenants · Lower trend of liquidity ratio |
| Opportunities:
· Growth in the Real-Estate Industry · Market development · Product Expansion |
Strong market reputation, customer relations, profitable experience and usage of high quality inputs can be utilized to explore and enter into the new markets. | Low liquidity position resists the company to expand towards new markets. |
| Threats:
· High competition · The success of commercial-state highly depends on the performance of oil and gas especially in Calgary · Chances of bankruptcy due to low liquidity position. |
Strong market position and customer relations with profitable business could help the business to expand to new markets and reduce the competitor’s threat and proper valuation can decrease the chances of estimation error of oil and gas fluctuations. | Low liquidity position along with the high input costs and competition in the market force the company to take certain actions. |
Quantitative Analysis
In order to understand each of the alternatives, Quantitative Analysis is being done where according to the given data, NPV in terms of perpetuity is calculated for each of the alternatives with the assumptions of cost of capital of 10% and growth rate of 5%. Calculations of each alternatives, including:Status Quo, Office Development, Hotel development and Parking lot is given below:
Table-2: Summary of Alternatives
| Alternative Summary | ||||
| Status Quo | Office Development | Hotel Development | Parking Lot | |
| NPV Perpetuity | 3764370 | -76360102 | 174905351 | 4566523 |
From the above table based on projections of 2014, we can say that Hotel Development is best alternative to be invested with the positive NPV of $174905351.
Qualitative Analysis
From all of the alternatives including Status Quo, Office Development, Hotel development, Parking lot and selling the existing business, Hotel Development is one of the best alternative to be invested because experienced third party operator would be hired to run the hotel which leads to less chances of operational lacking because TLO is new to this area of developing Hotel building and as almost 60 parking lots are already there in the Calgary. Because the core strength of the company is lying under the customer’s loyalty so Hotel Building will not only increase the worth of the company but also increase brand reputation and brand loyalty.
Recommendations
Based on the financial projections of 2014, the founder, Graham and Hart, of TLO Developers are recommended to invest for the Hotel Development project because NPV in terms of perpetuity is high in this alternative as compare to other alternatives of Status Quo, Office Development, Hotel development, Parking lot and selling the existing business.
Conclusion
In conclusion, it could be said that with the development of a Hotel at the Land area the company could generate highest ever value that could increase its worth in the markets along with no further pressures of handling the operations of the new hotel due to the presence of the third party. Moreover, the occupancy rate of 52% that is based upon the industry average, which could also be increased to improvise the cash flows.
Appendices
Appendix 1: Status Quo
| Alternative-1: Status Quo | |
| 2014 | |
| Revenue | 360,000 |
| Operating Expenses | |
| Property Taxes | 85000 |
| Operating Profit | 275000 |
| EBIT(1-Tax) | 188218.5177 |
| NPV (Perpetuity) | 3764370 |
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