REFX Infinite Building (perpetual term): contract master data & postings (public cloud)

[Cedric_Manhaeve]

Dear Partner community,

We have a case for perpetual building leases. There is a standard term for 50 years with automatic renewals, each time 50-year renewal. Today this manage this in Excel and use a term of 999 years (= infinite).

In S4, they would like to calculate the NPV lease liability. This is by default long-term (> 1 yr).

When trying to simulate the valuation for a very large probable end date for example, we receive an error stating that the NPV calculation is not possible.

Thus, is it possible to valuate infinite real estate leases in S4? If so, how should the key parameters be maintained?

Thank you,

Cedric

[HenrikeGrötecke]

Hello, thank you for your question. It has been forwarded to the experts. Kind regards, Henrike

[anja_wolf-galka]

Hi Cedric, you have mentioned today this is managed in Excel. I am interested in how Excel performs an NPV calculation based on a term of 999 years. The discounting of payments over such a very long period of time is the problem during the calculation of the net present value. Have you tried it already with a probable end in 50 years (your mentioned standard term)? Best regards, Anja

[Cedric_Manhaeve]

Hi Anja & Henrike, thank you for looking into my question! The calculation is rather straightforward, eg with a quarterly payment: =-PV(quarterly discount rate; 4 quarters * 999 years;quarterly payment;;1). In the case we would use 50 years, it would follow the 'finite lease' calculations and saw some differences with infinite leases.

[Cedric_Manhaeve]

@HenrikeGrötecke, @anja_wolf-galka , would you have any feedback on my latest comment? Many thanks, Cedric