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Lecture_400X_Proformas

Lecture_400X_Proformas - Lecture Topic 4 Real Estate Cash...

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Lecture Topic 4 – Real Estate Cash Flow Pro Formas
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The PROFORMA Defn: multi-year cash flow forecast How long? Who needs it? What do the numbers represent? But the proforma can be more useful than just “window dressing”, if done properly. It is the basic vehicle to implement the DCF valuation method
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Two types of Cash Flows: Operating Reversion (Sale of Property, Sometimes partial sales )
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Two ways of defining "bottom line". . . 1) Property level (PBTCF, most common in practice ): Net CF produced by property, before subtracting debt service payments and income taxes. CFs due purely to underlying productive physical asset, not based on financing or income tax effects. 2) Equity ownership after-tax level (EATCF): Net CF available to equity owner after debt service & taxes. Determines value of equity only (not value to lenders). Sensitive to financing and income tax effects.
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- Operating Expenses = - OE _____________________ _______ Net Operating Income = NOI - Capital Improvement Expenditures = - CI _____________________ _______ Property Before-tax Cash Flow = PBTCF
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How do we forecast vacancy? 1. Look to the general rental market; adjust for non-stabilized buildings.
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