Design a model to forecast three years of rental income for Stavrina Office REIT, whose in-place rents sit below market. Build it and name the drivers you would test.

Rental income of about Rs 1,939 crore, Rs 2,104 crore and Rs 2,265 crore in years 1 to 3, from a run-rate of Rs 1,858 crore today. The model splits the book into leases that expire and are marked to market, leases that stay and escalate, and vacant space that is leased up. Market rent on re-letting, retention and occupancy are the drivers to stress.

Picture a landlord with ten flats on old leases at Rs 20,000 while new tenants pay Rs 24,000. His income does not jump to Rs 24,000 a flat tomorrow; it rises one flat at a time as leases end. A REIT model is that landlord's notebook at scale: each year you split the occupied area into three pieces, the part that expires, the part that stays, and the vacant part that gets leased. Expiring space is re-let at market rent, staying space gets its escalationA rent increase written into the lease, here 15% every three years, which the tenant pays whatever the market does., and new leasing comes in at market.

Today 17.2 million sq ft is occupied at Rs 90 a month, an annual run-rateWhat rent would total over twelve months if today’s leases stayed exactly as they are. of 17.2 million x 90 x 12, Rs 1,857.6 crore. Because escalation dates are spread evenly, a third of the staying book gets its 15% each year, which averages 5%. Income for a year is taken as the average of the opening and closing run-rate, since leases turn over through the year.

The gap to market arrives only through expiries, not all at once: even after three years the book's average rent of Rs 108.5 is still below year 3's market of Rs 113.6. The market keeps moving while the book catches up. Notice too that the quiet line, escalations, adds more than the headline gap: Rs 258 crore against Rs 123 crore over three years.

Stress the three assumptions a leasing team can get wrong. If market rent stays flat at Rs 105 instead of rising 4%, year 3 income is Rs 2,236 crore. If occupancy stays at 86%, it is Rs 2,170 crore. If 30% of expiring tenants leave and their space sits empty for six months, year 3 is Rs 2,210 crore. Occupancy is the largest single swing, which is why the first question on any office REIT is how much of the vacancy is actually being negotiated.

Say the limitation too. This model treats the market rent as one number, but a portfolio has buildings in different micro-markets with different gaps, and a real model runs the same logic building by building. The structure stays the same; only the rows multiply.