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Assignment: Write a formal report summarizing your findings. You may work in groups of 3-4 people. The report should contain an executive summary (roughly page, single spaced), and any appendices you feel are necessary. It should answer the following questions: 1) Which option should you choose? (Hint ? value the store?s ongoing operations as a perpetuity) 2) How will the new inventory system impact your recommendation?

Big 5 Sporting Goods You are an analyst for Big 5 Sporting Goods (NASDAQ: BGFV), a sporting goods retailer headquartered in El Segundo, California with 420 stores throughout the West. One of your real estate people tells you that a new opportunity has arisen at the location in Richfield, Utah. Richfield is a city of 7,520 people in central Utah. Although there are dozens of towns nearby, it is the largest city for 100 miles in any direction and is conveniently located on I-70 a mere 35 miles from its intersection with I-15. Its remoteness, plus its location on major transportation corridors, makes it central Utah's de facto regional capital. According to Roylance Ward, author of Utah: A Guide to the State, Richfield is the \"commercial capital of a vast mountain-valley region.\" A large competitor, K-Mart, announced on Jan. 20th 2016 that it is closing its location in Richfield as part of a national restructuring. K-Mart's location is superior to Big Five's current location. The owners of the space that K-Mart just vacated have offered to rent the space to Big Five. You are given a 2-year old advertising brochure for the plaza (see Blackboard). The plaza used to house a direct competitor to Big 5 called Hibbett Sports. Big Five's current location is a stand-alone structure that is 6,500 square feet. This is a bit smaller than Big Five's typical format of 8,000 - 15,000 square feet, and as a result it only has $1.5 million in annual sales. You are currently paying $9/sf per month. The owners of the former K-Mart location are subdividing the K-Mart space and are offering to let you rent either 9,000 or 16,000 square feet in their center for $9/sf per month. If you choose the bigger store, they will give your firm $1 million as an inducement for taking the bigger space. The sales department gives you the following information: Expected sales in 9,000 square foot at K-Mart location: Expected sales in 16,000 square foot at K-Mart location: Cost of Goods Sold as a percent of Sales: Store Operating Expenses: Inventory Turnover (Current): $2.25 million per year $3.2 million per year 35% $300,000 per year per location 80 days The finance department gives you the following information: WACC: Growth Rate of FCF: Marginal Tax Rate: Average Tax Rate: 13% 2% 30% 21% Also, the warehouse department is experimenting with a new inventory system. It could reduce the inventory turnover to as low as 20 days. If successful, it could be implemented company-wide within 6 months. There is a clause in your current lease that allows you to close the store with a 6-month notice. You estimate it will cost $400,000 to open the new store and move your inventory to the new store. However, you think you can use this offer from the owners of the K-Mart as leverage to reduce your current rent to $7/sf per month. Assignment: Write a formal report summarizing your findings. You may work in groups of 3-4 people. The report should contain an executive summary (roughly page, single spaced), and any appendices you feel are necessary. It should answer the following questions: 1) Which option should you choose? (Hint - value the store's ongoing operations as a perpetuity) 2) How will the new inventory system impact your recommendation? RICHFIELD PLAZA U.S . Hig hw RIC HFIEL D, U TAH ay 8 9- 12, 005 CP D DEMOGRAPHICS Total Employees 3,843 4,190 4,969 in W 1200 S a SM field Rich Ca 1080 South US 89 | Richfield, Utah 84701 St Richfield Plaza P R O P E RT Y H I G H L I G H T S 112,954-square-foot shopping center anchored by K-mart and Dollar Tree South St nal t Rd Median HH Income $44,766 $45,978 $44,563 70 S Airpor 2012 Population 8,080 9,374 14,497 S 500 E 3 miles 5 miles 10 miles L O C AT I O N 89 National tenants include Maurices, Pizza Hut, UPS Store and McDonald's Salt Lake City Provo Located on main thoroughfare U.S. 89 Good ingress/egress and traffic signal 15 70 Richfield Cedar City L E A S I N G C O N TA C T Kevin Heglin Phillips Edison & Company 222 S. Main Street, Suite 1730 Salt Lake City, UT 84101 Mobile (513) 225-8318 kheglin@phillipsedison.com MORE INFO www.phillipsedison.com P H I L L I P S E D I S O N & C O M P A N Y RICHFIELD PLAZA 1080 South U.S. Highway 89 | Richfield, Utah 84701 1156 1160 1162 1168 1274 1166 1282 O-1 1172 S I T E BO U N DA RY 1153 1040 SPACE TENANT SQ. FT. 1040 Kmart\t84,183 1153 Hibbett Sports 4,265 1156 Security Finance 1,348 1160 State Driver's License 2,782 U. S PYLON SIGN .H IGH WA Y 8 9 1162\tAVAILABLE 1,391 1166 Hansen Beauty Supply 1,391 1168 Papa Murphy's Pizza 1,391 1172 UPS Store 1,391 1274 Maurices 4,500 1282 Dollar Tree 8,000 OUTPARCEL O-1 Pizza Hut TOTAL SQ. FT. 12, 005 AD T SITE LEGEND Available 2,275 112,917 Occupied Leased (not occupied) Owned by Others PHILLIPS EDISON & COMPANY RICHFIELD PLAZA 1080 South U.S. 89 | Richfield, Utah 84701 U.S . Hig hw ay 8 9- 12, 005 CP D PHILLIPS EDISON & COMPANY No Window RICHFIELD PLAZA 1080 South U.S. 89 | Richfield, Utah 84701 70 This map was produced using data from private and government sources deemed to be reliable. The information herein is provided without representation or warranty. 2009 Sites USA Inc., Chandler, AZ (480) 491-1112. All Rights Reserved. PHILLIPS EDISON & COMPANY Logos are for identification purposes only and may be trademarks of their respective companies. 89 Demographic Summary Report 1990 - 2000 Census, 2012 Estimates & 2017 Projections Calculated using TAS Retrieval Retrieval Population Richfield Plaza Richfield,UT Households Population by Race Income Education (Age 25+) Longitude: -112.088841 1.00 Mile Radius 3.00 Mile Radius 5.00 Mile Radius 10.00 Mile Radius 2,970 3,126 3,000 2,637 2,021 8,080 8,483 8,131 7,299 6,031 9,374 9,882 9,389 8,366 6,919 14,497 15,371 14,375 12,616 10,398 2.70% 1.30% -0.36% 1.03% 1.93% 1.09% -0.23% 0.98% 1.92% 1.16% -0.06% 1.06% 1.95% 1.31% 0.31% 1.18% 30.3 31.8 32.2 33.2 989 1,041 997 869 657 2,741 2,878 2,757 2,367 1,963 3,167 3,340 3,172 2,695 2,216 4,936 5,235 4,894 4,121 3,350 2.83% 1.39% -0.31% 1.03% 1.89% 1.54% -0.22% 0.98% 1.98% 1.64% -0.05% 1.06% 2.09% 1.73% 0.31% 1.18% Population per Household 2.95 2.88 2.89 2.89 White Black or African American Asian & Pacific Islander Other Races Hispanic Population 92.7% 0.2% 0.3% 2.7% 4.0% 93.0% 0.2% 0.3% 2.6% 3.9% 93.3% 0.2% 0.3% 2.5% 3.6% 93.2% 0.2% 0.3% 2.3% 4.0% $57,614 $51,466 $19,476 $55,333 $44,766 $19,121 $56,165 $45,978 $19,318 $54,428 $44,563 $18,788 1.5% 5.7% 24.6% 29.4% 14.4% 13.0% 11.4% 1.4% 6.3% 30.3% 28.1% 13.5% 11.9% 8.6% 1.5% 6.1% 30.6% 28.1% 13.0% 12.2% 8.5% 1.9% 6.5% 32.6% 28.5% 12.0% 11.0% 7.5% 77 897 11.62 38.49 340 3,843 11.31 23.78 376 4,190 11.15 24.95 457 4,969 10.88 31.74 Q4 2012 Estimated Population 2017 Projected Population 2010 Census Population 2000 Census Population 1990 Census Population Historical Annual Growth 1990 to 2000 Historical Annual Growth 2000 to 2010 Estimated Annual Growth 2010 to2012 Projected Annual Growth 2012 to 2017 Median Age Business Latitude: Q4 2012 Estimated Households 2017 Projected Households 2010 Census Households 2000 Census Households 1990 Census Households Historical Annual Growth 1990 to 2000 Historical Annual Growth 2000 to 2012 Estimated Annual Growth 2000 to 2012 Projected Annual Growth 2012 to 2017 Average Household Income Median Household Income Per Capita Income Elementary Some High School High School Graduate Some College Associates Degree Only Bachelors Degree Only Graduate Degree Number of Businesses Total Number of Employees Employees per Business Residential Population per Business 2008, Trade Area Systems This report was produced using data from private and government sources deemed to be reliable and is herein provided without representation or warranty. Apr 1, 2013 Data Source: Synergos Technologies Inc Austin, TX RICHFIELD R I C H F I EPLAZA LD PLAZA 1080South N USU.S. 89 89 | RICHFIELD, UT 84701 1080 | Richfield, Utah 84701 Price # # Price Mount Pleasant Pleasant Mount W W 4 3 15 Delta Delta Ephraim Ephraim # $ Huntington Huntington 89 Logos are for identification purposes only and may be trademarks of their respective companies. Fillmore Fillmore Fillmore 4 3 70 Ferron Ferron Logos are for identification purposes only and may be trademarks of their respective companies. Castle Dale Dale Castle Salina Salina Trade Area Richfield Richfield # # Monroe Monroe 30 30 Minutes Minutes Milford Milford Loa Loa Beaver Beaver Minersville Minersville Bicknell Bicknell Junction Junction Circleville Circleville # $ 89 This map was produced using data from private and government sources deemed to be reliable. The information herein is provided without representation or warranty. 2009 Sites USA Inc., Chandler, AZ (480) 491-1112. All Rights Reserved. Produced by Phillips Edison Research and Analysis Department 5/17/2011 PHILLIPS EDISON & COMPANY PHILLIPS EDISON & COMPANY