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WALL STREET PREP INDUSTRY-SPECIFIC COURSE

Real Estate
Modeling

W W W. WA L L S T R E E T P R E P. C O M
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REIT Industry
Overview

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REIT Modeling

Real Estate Investment Trust (REIT) industry overview


• REITs are collections of real estate assets across a range of sectors
• The primary advantages of REIT ownership is diversification and significant tax
advantages
• Rather than having to purchase individual properties, a REIT enables investors
to gain access to a diversified collection of income-producing real estate similar
to investing in mutual funds
• Income-producing real estate refers to land and the improvements on it – such
as apartments, offices or hotels.
• REITs may invest in the properties themselves, generating income through the
collection of rent, or they may invest in mortgages or mortgage securities tied
to the properties, helping to finance the properties and generating interest
income.

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REIT Modeling

REIT basics
• REITs can be either public or private
• REITs invest in all property types

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REIT Modeling

Largest REITs by sector


Source: As of 12/31/11. Barclays Research, NAREIT

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REIT Modeling

Largest REITs by sector (continued)


Source: As of 12/31/11. Barclays Research, NAREIT

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REIT Modeling

Tax advantage of REITs


• Entities qualifying for Real Estate Investment Trust (REIT) status under the tax
code receive preferential tax treatment
• Specifically, the income generated by REITs is not taxed on the corporate level,
and is instead taxed only on the individual level
• This is a tax advantage over C-corporations, which are taxed on the corporate
level, and then a second time on the individual level via a tax on dividends
• REITs created to enable average investors to pool capital to invest in a
professionally managed portfolio of real estate assets.
• In order to qualify for this tax status, REITs must comply with certain
requirements (to be discussed shortly)

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REIT Modeling

Tax advantage of REITs


• REIT profits pass-through untaxed to shareholders via dividends
• REITs are required to distribute nearly all profits as dividends
• However, REIT dividends are typically “non-qualified” dividends, meaning they
are taxed at ordinary income tax rates on the shareholder level
• So while REITs avoid a corporate-level tax, the shareholders are taxed on
dividends at ordinary income tax rates
• In contrast, in a C-corp, there is a corporate-level tax, followed by a second tax
on any dividends distributed to shareholders
• However, C-corp dividends are typically “qualified dividends”, meaning they
are taxed at the 15% capital gains rate as opposed to the higher ordinary
income tax rate of “non-qualified dividends”)
• Tax rates (and thus the extent of REITs’ tax advantage) may change

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REIT Modeling

Illustration of tax advantage of REIT over C-corp


REIT C-corp
Revenue 100.0 Revenue 100.0
Expenses 80.0 Expenses 80.0
Taxable income 20.0 Taxable income 20.0
REIT dividends 20.0 Tax @ 40% 8.0
Taxes @40% 0.0 Net income 12.0

Distribution to shareholders,
Distribution to shareholder 20.0 (assuming 100% dividend payout) 12.0
Tax on REIT dividends (40%) 8.0 Tax on C-corp dividends (20%) 2.4
Net return to shareholder 12.0 Net return to shareholder 9.6

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REIT Modeling

Equity vs. mortgage REITs


• There are two types of REITs: Equity vs. Mortgage REIT by
• Equity REITs - 90% of total Market Cap
– Purchase real estate
– REITs acquire, develop, and then
operate its own properties, unlike other
$59B
real estate companies which tend to
resell once developed
• Mortgage REITs - 10% of total
– Purchase debt (real estate loans and
mortgage backed securities)
$544B

Mortgage REIT Equity REIT


Source: NAREIT

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REIT Modeling

Requirements to qualify as a REIT

REIT Requirements
Dividends At least 90% of taxable income must be distributed as a dividend
• Income not distributed is taxed at the corporate level
Gross income At least 75% of gross income must come from
(annual test) • Rents from real property
• Interest income from mortgages held
• Gain from the sale of real property / shares of other REITs
• Certain qualified investment income
At least 95% of gross income must come from
• All of the above, plus:
• Dividends, interest, and gain on sale from non real estate investments
Assets At least 75% of assets must be
Real estate, mortgages, equity in other REITs, cash and government securities
Subsidiaries • A REIT’s taxable subsidiaries (companies providing services to tenants in REIT
buildings) must be < 25% of the REIT’s assets
• Their income does not count towards the 75% income test

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REIT Modeling

Requirements to qualify as a REIT


1. Shares must be owned by at least 100 shareholders
2. Must have transferrable shares
3. No more than 50% of shares outstanding can be owned by 5 or fewer
people (“5/50 test”)
4. Although not a legal requirement, virtually all REITs limit individual
ownership to 9.9%
5. Must be a domestic corporation for federal tax purposes
6. Cannot be a financial institutions or insurance company
7. Must have a calendar year tax year
REITs in the United States
• About 76% of publicly traded REITs are formed under Maryland law
• Most of the remainder in Delaware because of the relatively well established
corporate judicial systems in these states.

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REIT Modeling

____________________________________
(1) Source: NAREIT

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REIT Modeling

REIT basics
REITs can be internally or externally managed
• Internal management
– Management are employees of the REIT
– Majority of public REITS are internally managed
• External management
– Similar to private equity, external management receives flat and incentive
fees for managing the real estate portfolio
– Flat fee based on assets under management
– Incentive fee based on returns from the sale of assets
– Typically incentive fee carries high water mark (i.e. only kicks in if NAV
exceeds highest historical NAV)
– Private and mortgage REITs tend to be externally managed

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REIT Modeling

REIT structure
• Normally, if you were to sell real estate in exchange for some type of currency
(cash or even stock), you would have to pay tax on the gain on sale
• Following that logic, when existing real estate owners want to form a REIT (to
get the pass-through tax advantages), if they transferred their assets into a
REIT in exchange for REIT shares, the transfer would be fully taxable in the
eyes of the IRS
• However there are two REIT structures that defer this tax - Umbrella
Partnerships (UPREITs) and DownREITs
UPREITs
• UPREITs allow investors to transfer assets into a REIT while deferring the
taxable event
• Assets owned by Operating Partnership (OP)
• REIT owns majority of OP (via REIT shares)
• Limited partners own minority of OP (via OP Units)

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REIT Modeling

UPREITs
• Typically in an UPREIT, realestate owners contribute their assets to the OP in
exchange for OP Units at the same time that a newly formed REIT contributes
cash, raised from an IPO in exchange for interests in the OP
• In the typical OP Unit structure, after an initial holding period, the Holders’
OP Units are convertible into shares of the REIT on a 1:1 basis.
• Capital gains taxes occur only once the OP unit holders convert their units to
common shares
• UPREITs are most common for public equity REITs

UPREIT Structure

Contribute assets Contribute cash


Real
Operating
estate REIT
partnership (OP)
owners Receive OP units REIT receives
Convertible 1:1 interest in the
into REIT shares OP REIT
shareholders

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REIT Modeling

UPREIT Pros
• Enables existing RE owners to participate in the REIT while deferring tax on the
transfer of assets
• Because OP Units are convertible 1:1 into REIT shares, RE owners’ liquidity
improves (of course once converted, the transaction becomes fully taxable)
• Another liquidity advantage is that RE owners have an established “fair value”
for their OP Units which improves their liquidity (they can borrow against it)
• If OP Unit holder retains OP Units (i.e. doesn’t convert) until death, his estate
receives a basis “step-up”, meaning conversion to REIT shares becomes a tax
free exchange

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REIT Modeling

UPREIT Cons
• Lower tax basis of acquired assets means lower future depreciation
deductions than had the transfer been fully taxable (and thus creating a
stepped up tax basis)
• Conflict of interest between OP Unit holders and management: Once an
UPREIT is established, if the REIT wants to sell a particular property, this could
result in gain recognition for the specific owner of that property. As a result,
owners often negotiate mandatory holding periods for the contributed
property to protect the tax deferral benefits they expect to receive through
contribution of appreciated property to an UPREIT.

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REIT Modeling

DownREITs
• Similar to UPREITs in that DownREITs also enable real estate holders to
transfer property to the REIT on a tax deferred basis
• Difference is that in a DownREIT the assets are in fact directly held by the REIT
or in multiple (as opposed to one) operating partnership – one OP for each
piece of property
• As with the UPREIT, property owners can exchange their OP Units for common
shares, but the value of each operating partnership is not directly related to
the value of the REIT shares, because the value of REIT shares is determined
by reference to all of the REIT’s assets rather than by reference to the assets of
only one operating partnership (as in the case of an UPREIT).
• As a result, there is no necessary correlation between the value of each
operating partnership’s assets and the value of the REIT shares, which
adversely affects the liquidity of the operating partnership’s interests.
• For this reason, the tax results for contributing property holders vary based on
the relative performance of the remainder of the REIT’s assets.

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REIT Modeling

Important REIT metrics


Occupancy rates
• Occupancy rate measures how effective a REIT is at leasing its properties
• There are several ways that REITs measure occupancy
1. Physical Occupancy = Number tenants leasing / Total leasable units
2. Financial Occupancy = Actual Rent Collected / Gross Potential Rent
3. Economic Occupancy = Effective Rents Collected / Gross Potential Rent
• They don’t always equal
• For example, if the cheap apartments in a building are rented out but the
expensive ones are not, physical occupancy will be greater than financial
occupancy
• Alternatively, if a company is trying to quickly lease-up a new development, rent
concessions may be offered, in which case financial occupancy will be greater
than economic occupancy
Net operating income (NOI)
• Rental and ancillary income less direct real estate expenses
• Captures profitability before any depreciation, interest, taxes, corporate level
SG&A expenses, capital expenditures, or financing payments

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REIT Modeling

Important REIT metrics


Capitalization (“cap”) rates
• A property’s net operating income (NOI) / The value of a property
• A way to discuss property value benchmarked against that property’s
operating income
• Property asking price is $1m, with an NOI of $125k = 12.5% cap rate
• Cap rates are simply the inverse of a traditional valuation multiple like
EV/EBITDA
• Just like with traditional multiples, there are many variables that can distort
the comparison of properties using this metric, including:
– Timing of NOI (LTM or forward)
– Growth rates, returns on capital, and cost of capital of properties (or
REITs) being compared
– However, in real estate, it is much easier to find comparable properties
(with therefore similar growth, returns and cost of capital profiles), which
mutes the problems described above

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Modeling a REIT’s
Income Statement

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REIT Modeling

Case Study: BRE Properties (BRE)


• BRE Properties is a REIT which
invests and manages multifamily
apartment communities.
• Founded in 1970 and is based in
San Francisco, California
• 21,160 properties as of
12/31/2012
• Annual sales of $400 million in
fiscal 2012

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REIT Modeling

Locate the following files - It’s time to begin step-by-step modeling!


• BRE 2012 10K
• BRE Q4 2012 Conference Call Transcript
• BRE Q4 2012 Press Release and Supplement
• REIT Model Excel Template

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REIT Modeling

Step 1: Enter general inputs as illustrated


• Hard-coded historicals and assumptions are formatted blue with a yellow background
• Calculations will be black font
• Links to other worksheets will be green font (not used in this step)
• This makes auditing a model much easier

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REIT Modeling

Step 1: Input periods


• Historical period: 3 years Step 2: Reference from the
• Forecast period: 5 years general assumptions tab

Step 3: Use the EOMONTH


function to create date
headers. For example:
=EOMONTH(E4,-12) will
calculate the date for the
year prior to the latest
actual

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REIT Modeling

Using the 10K - input


historical income
statement results

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REIT Modeling

Confirm that your EPS results match the reported EPS on the 10K. If not, check your work.

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REIT Modeling

Calculate the growth rates and margins as illustrated

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REIT Modeling

We now turn to forecasting revenue and net operating income (NOI)


• These are usually the most important forecasts for a REIT

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Understanding
and Modeling a
REIT’s Segments

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REIT Modeling

Revenue for a REIT


• Rental income represents the primary source of REIT income
– Driven from segment buildup, which separates existing properties, future
developments, acquisitions, and dispositions
– Could also be segmented by types of real estate (hotels, apartments,
commercial offices, etc.)
• Ancillary income comes from fees from ancillary services
– Phone, cable, internet, water, electricity, gas, washer/dryer services, ATM
machines, etc.
– Typically forecast after rental income is forecast by applying the historical
relationship between rental income and ancillary income

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REIT Modeling

Rental income by segment


• Same store (SS) properties: Properties that have been completed, stabilized,
and owned by the REIT for a period of time (usually 1 year)
• “Stabilized” refers to properties that have reached stable occupancy rates
• Renovation properties: Properties undergoing renovations are excluded from
SS sales so they can be analyzed separately
• Lease-up properties: Newly developed properties in the process of getting
leased and stabilized
• Recently acquired properties: Stabilized but not yet classified as SS because
REIT hasn’t owned them long enough to be considered SS
• Dispositions: REITs regularly engage in the selling of properties in their
portfolio. Reasons include suboptimal returns, capital is needed for more
attractive opportunities, the properties are in geographies or are property
types that aren’t not aligned with current business strategy.
• New developments: Future properties from construction in progress and land
under development

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REIT Modeling

Understanding same store properties


• “Same-store” is a concept used widely in both retail and real estate – it is
simply a way to compare apples-to-apples
• Enables analysts to gauge how properties held last year are performing in the
current period, without the distortive effects of new properties, renovations,
lease ups, dispositions

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REIT Modeling

Understanding same store properties


• Let’s go through an example to explain how same store sales are calculated. Below we
have a table showing the forecasts for rental income by property, as well as several
important disclosures about the properties.
• How would we calculate the SS sales growth rate for each year starting in 2011?

Rental income 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15


Property A(1) 1,465.0 1,480.0 700.0
Property B 1,900.0 1,950.0 2,000.0 2,100.0 2,200.0 2,300.0
Property C 800.0 825.0 850.0 875.0 880.0 890.0
Property D(2) 1,000.0 2,800.0 2,900.0 3,000.0 3,100.0
Property E(3) 1,800.0 1,900.0
Property F(4) 1,000.0 1,500.0 1,550.0
____________________________________
(1) On 6/30/2011, REIT announces that it plans to dispose property on 6/30/2012
(2) Lease up in 2011, stabilized on 12/31/2011
(3) Acquired by company on 12/31/2013
(4) Developed since 12/31/2011, lease-up in 2013, stabilized on 12/31/2013

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REIT Modeling

Understanding same store properties


2011 SS Sales Pool 2014 SS Sales Pool
12/31/10 12/31/11 12/31/13 12/31/14
Property A 1,465.0 1,480.0 Property B 2,100.0 2,200.0
Property B 1,900.0 1,950.0 Property C 875.0 880.0
Property C 800.0 825.0 Property D 2,900.0 3,000.0
SS sales 4,165.0 4,255.0 SS sales 5,875.0 6,080.0
SS sales % growth 2.16% SS sales % growth 3.49%

2012 SS Sales Pool 2015 SS Sales Pool


12/31/11 12/31/12 12/31/14 12/31/15
Property B 1,950.0 2,000.0 Property B 2,200.0 2,300.0
Property C 825.0 850.0 Property C 880.0 890.0
SS sales 2,775.0 2,850.0 Property D 3,000.0 3,100.0
SS sales % growth 2.70% Property E 1,800.0 1,900.0
Property F 1,500.0 1,550.0
2013 SS Sales Pool SS sales 9,380.0 9,740.0
12/31/12 12/31/13 SS sales % growth 3.84%
Property B 2,000.0 2,100.0
Property C 850.0 875.0
Property D 2,800.0 2,900.0
SS sales 5,650.0 5,875.0
SS sales % growth 3.98%

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REIT Modeling
Same store sales guidance disclosure
• BRE Properties provides a typical disclosure of same store properties
• The 2012 same store sales revenue is a “prior-period equivalent pool” of 2013 same
store properties

Same store sales come from the 20,824 pool

Lease up refers to
336 properties

Average physical occupancy = (Number tenants leasing/Total leasable units)

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REIT Modeling

Modeling same store properties


There are several approaches to forecasting same store properties:
Simple growth rate
• The simplest is by growing the prior period same store sales by a growth rate-
management often provides the same store sales growth rate as well as the “prior
period equivalent pool revenue”
Occupancy rate and rent per unit (our approach)
• Break down the revenue growth rate into two drivers – % occupancy and growth in
rental income per unit.
• The higher the occupancy and growth in average rental income per unit, the higher
the overall growth rate in same store sales
• Powerful approach because it allows for sensitivity analysis of occupancy and rent
• Always keep in mind garbage in = garbage out - the quality of the forecast is very
dependent on good management disclosures, reasonable assumptions for occupancy
and rent increases – in the absence of management guidance, equity research, or
independent analysis, building this complexity into the model will add complexity but
will not add quality

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REIT Modeling

Modeling same store properties – occupancy rate and rent per unit
• Calculating historical rent per unit
– Historical rent / unit = (1/Occupancy)x(Rental income/# of units)
1. Historical % physical occupancy for prior period equivalent pool
2. Number of SS properties
3. Prior period equivalent pool rental income
• Future rental income (future rent per unit x forecast occupancy rate x # of units)
– Future rent per unit = Historical rent per unit x 1+growth rate
– Future % growth in rent / unit
• Use SS sales % growth guidance in the absence of a thesis
– Future occupancy rate
• Make a future % physical occupancy rate assumption
• Straight-line the historical barring a thesis

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REIT Modeling

Modeling same store properties – occupancy rate and rent per unit

2013A 2014P 2015P 2016P


# of units 20,000 20,000 20,000 20,000
Occupancy rate 95% 98% 98% 98%
Rental income $400m ? ? ?
Rent per unit per year ? ? ? ?
Rent per unit per month ? $1,842 $1,934 $2,031
% growth 5% 5% 5%

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REIT Modeling

Modeling same store properties – occupancy rate and rent per unit

2013A 2014P 2015P 2016P


# of units 20,000 20,000 20,000 20,000
Occupancy rate 95% 98% 98% 98%
Rental income $400m $433m $455m $478m
Rent per unit per year $21.1k $22.1k $23.2k $24.4k
Rent per unit per month $1,754 $1,842 $1,934 $2,031
% growth 5% 5% 5%

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REIT Modeling

Modeling same store properties - real estate expenses and NOI


Management provides guidance for RE expenses and NOI:

Historical and
forecasted RE
expenses for SS
properties

Historical and
forecasted RE
expenses for all
properties

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REIT Modeling

Modeling same store properties - real estate expenses and NOI


There are several approaches to forecasting RE expenses from SS properties:
Simple growth rate
• The simplest is by growing the prior period real estate expenses by a growth rate -
management often provides the same store sales growth rate as well as the “prior
period equivalent pool revenue”
Occupancy rate and real estate expenses per unit (our approach)
• Same approach as the one we use for revenue forecasting
• Break down the RE expense growth rate into two drivers – % occupancy and growth in
RE expense per unit
• Use the same occupancy rate as the one used in the revenue buildup
• Assume a RE growth rate (from guidance or based on historical rate)
• The higher the occupancy and growth in average RE expenses per unit, the higher the
overall growth rate in RE expenses

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REIT Modeling

Modeling same store properties - real estate expenses and NOI


2013A 2014P 2015P 2016P
# of units 20,000 20,000 20,000 20,000
Occupancy rate 95% 98% 98% 98%
RE expenses $200m ? ? ?
RE expense per unit per year ? ? ? ?
RE expense per unit per month ? $939 $1,004 $1,075
% growth 7% 7% 7%

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REIT Modeling

Modeling same store properties - real estate expenses and NOI


2013A 2014P 2015P 2016P
# of units 20,000 20,000 20,000 20,000
Occupancy rate 95% 98% 98% 98%
RE expenses $200m $221m $236m $253m
RE expense per unit per year $10.5k 11.3k 12.1k 12.9k
RE expense per unit per month $877 $939 $1,004 $1,075
% growth 7% 7% 7%

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REIT Modeling

Understanding lease-up properties


• Lease-ups are properties that – as the name suggests – are in the process of getting
leased up
• The transition from when a development starts the lease-up process to when it
becomes a stabilized property can take anywhere from several months to several
years - many developments are built in such a way that the REIT can begin leasing
parts of a development before the rest of the development is complete to minimize
cost and risk.
• As a result, lease-ups can have significantly lower occupancy rates than stabilized
properties
• Management sometimes provides guidance on when it expects lease-up properties to
stabilize and at what cap rates

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REIT Modeling

Modeling current lease-ups


• Separately from same store properties: When there are many properties in the lease-
up process, we should forecast them separately.
– Use a growth rate from the prior-period equivalent lease-up pool
– Will likely show very high growth as the occupancy increases to stabilized levels
– NOI for lease-ups would also need to be forecast – usually from guidance or by
using the NOI margin from same store properties
• Include within same store properties (our approach): When there are few lease-ups,
analysts often aggregate into the same store sales pool
– Keep in mind that since lease-ups have lower occupancy rates in the first period
or two of your forecast, management guidance for same store occupancy might
be too high if including lease-ups
Modeling future lease-ups
• Lease-ups arising from future developments are modeled from a development
schedule
• We will model these later

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REIT Modeling

Modeling lease ups


Management provides guidance for lease up revenue and NOI:

Historical and
forecasted lease
up revenue

Historical and
forecasted lease
up NOI

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REIT Modeling

Modeling current lease-up properties

NOI guidance for lease-ups

Referring to cap rate

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REIT Modeling

Understanding renovation properties


• Renovations do not always merit a removal from the same store sales pool– only if
they are significant, as determined by management.
• Properties that are removed from same store and classified separately as renovations
typically have lower occupancy than stabilized properties, but the magnitude depends
on the nature of the renovations
Modeling renovation communities
• Separately from same store properties: When there are many recently renovated
properties, we should forecast them separately.
– Using a simple growth rate from the prior-period equivalent pool
– NOI for renovation properties would also need to be forecast – usually from
guidance or by using the NOI margin from same store properties
• Include within same store properties: When there are few renovations, analysts often
aggregate into the same store sales pool

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REIT Modeling

Understanding acquisition properties


• REITs are constantly developing and acquiring new properties
Modeling recently acquired communities
• These are communities the company has already acquired but aren’t in same store
sales because the company hasn’t held on to them for a full year
• Separately from same store properties: When there are many recently acquired
properties, we should forecast them separately.
– Using a simple growth rate from the prior-period equivalent will likely show a
very high growth as the current period will generate a full period of revenue from
acquisitions compared to the prior period’s partial revenue
– NOI for acquisitions would also need to be forecast – usually from guidance or by
using the NOI margin from same store properties
• Include within same store properties: When there are few acquisitions, analysts often
aggregate into the same store sales pool

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Modeling future acquisitions


• Input assumption for future spending on acquisitions, an estimated cap rate, and the
estimated NOI margin. This enables you to back into impact of acquisitions on NOI
and revenue
• Important! Model a cumulative revenue/NOI impact: For example, an acquisition of
properties in 2013 will generate revenue/NOI in 2013 and every year indefinitely into
the future

2013 2014 2015 2016


Annual acquisition spending $200 $100 $300 $200
Cap rate forecast 5% 5% 5% 5%
Cumulative NOI $10 $15 $30 $40
NOI margin 20% 20% 20% 20%
Cumulative revenue $50 $75 $150 $200

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Understanding dispositions
• REITs regularly engage in the selling of properties in their portfolio.Reasons include:
– Suboptimal returns
– Capital is needed for more attractive opportunities
– Property type/location not aligned with current business strategy
Modeling future dispositions
• Input assumption for future dispositions, an estimated cap rate, and the estimated
NOI margin. This enables you to back into impact of dispositions on NOI and revenue
• Just like with acquisitions, model a cumulative revenue/NOI impact

2013 2014 2015 2016


Disposition proceeds $200 $100 $300 $200
Cap rate forecast 5% 5% 5% 5%
Cumulative NOI $10 $15 $30 $40
NOI margin 20% 20% 20% 20%
Cumulative revenue $50 $75 $150 $200

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Effect of dispositions on the I/S – Discontinued operations


• Once a property is earmarked for disposition, it gets carved out of normal operations
and all the revenue and expenses generated from this property are identified
separately from the rest of the income statement as ‘discontinued operations’ until it
is finally sold and removed completely.
• So if we’re modeling that a property is disposed of midyear, ½ a year’s worth of
revenues and expenses are to be modeled as discontinued operations. The impact on
the I/S is thus:

Sales guidance may include properties


that we will choose to model for
Property 4 Property 1 disposition
Corresponding revenue and profits from
Property 3 property 2 must be removed from the
original forecast, which included revenue
and profits from the disposed properties.

Property 2

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Effect of dispositions on the I/S – Discontinued operations


• Below is an example of how a disposition effects the income statement:

FORECAST
2014 2015 2016 2017
Property 1 145.0 145.0 145.0 145.0
Property 2 105.0 123.0 145.0 156.0
Property 3 245.0 245.0 245.0 245.0
Property 4 234.0 234.0 234.0 234.0
Guidance for NOI 729.0 747.0 769.0 780.0
• Assume property 4 disposed midyear 2014
• Property 3 disposed midyear 2016

What would the company report on the I/S?


NOI from continuing operations 495.0 513.0 290.0 301.0
NOI from discontinued operations 117.0 0.0 122.5 0.0
Total NOI 612.0 513.0 412.5 301.0

Memo:
Unadjusted NOI guidance 729.0 747.0 769.0 780.0
Less: Cum. impact of disposed NOI 234.0 234.0 479.0 479.0

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Effect of dispositions on the I/S – Gain on sale


• Dispositions also create a gain (or loss) on sale, recognized on the I/S
• The gain on sale depends on the book value of the disposed assets
• Once we forecast the $ amount of dispositions, we can use the reported gains on sale
on past dispositions to estimate the gains on sale on the forecasted dispositions

2013
Disposition proceeds $200.0
Gain on sale (GOS) as a % proceeds (Est.) 75%
Implied gain on sale recognized on the I/S $150.0

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Effect of dispositions on the B/S


• Assets on the B/S are recorded at their gross carrying value (GCV) net of accumulated
depreciation, or net book value (BV)
• When assets are sold, their impact must be removed from the B/S
• We can calculate the BV of the assets as proceeds minus the GOS
• To determine the accumulated depreciation that will need to be removed from the
B/S due to dispositions, use the relationship between historical GV and BV of
dispositions as a guide

2013
Disposition proceeds $200.0
Implied gain on sale $150.0
Implied BV of dispositions (to be removed from the B/S) $50.0
Book value as % of gross value (Est.) 80%
Implied GV of dispositions (to be removed from the B/S) $62.5
Implied accumulated depreciation (to be removed from the B/S) $12.5

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Occupancy guidance from management

Historical monthly rent / unit

Assumptions (we’ll discuss later)

1. Same store units: We are going to include both the 20,824 SS properties and the 336 lease-up properties.
2. Avg. physical occupancy: SS occupancy for 2012 (historical) and 2013 (forecast) is provided by management. We
straight-line beyond 2013. Notice that we’re applying management’s SS occupancy forecast onto the entire
portfolio including the lease-ups. While occupancy will certainly be lower for the 336 lease-up communities in
the first year, since there are very few lease-ups the impact is likely immaterial so we use the SS occupancy
assumption. Had there been many lease-ups, a separate schedule for lease-ups would be appropriate.
3. Historical monthly-rent/unit = Monthly rental income / (Units x Occupancy). Going forward, grow prior year by
growth rate
4. Historical monthly-RE expense/unit = Monthly rental expense / (Units x Occupancy). Going forward, grow prior
year by growth rate

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Forecast rental income

Leave blank for now

Calculate growth rates as illustrated

• Management provides total revenue guidance, but our model won’t match until we forecast ancillary income.
• Management provided 2013 real estate expense guidance between $129-130m, which matches our model.

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Management did not provide guidance for any future acquisitions but we lay out the schedule to handle
acquisitions had there been some
Input assumptions for future $ amount spent on acquisitions, an estimated cap rate, and the estimated NOI margin.
This enables you to back into impact of acquisitions on NOI and Revenue.

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2. Using this, we can 3. Lastly, we calculate the cumulative impact of NOI to be


calculate the NOI lost from removed from the NOI projections for stabilized properties. We’ll
dispositions, and assuming be able to calculate the cumulative impact of revenue once we
they are disposed of midyear, estimate a % NOI margin in just a moment, so let’s leave blank for
we adjust accordingly. now

1. Company provides
guidance for $ amount of
dispositions and cap rate
estimate

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2. Calculate the implied gain:


$ value of dispositions x gain %
of net proceeds

1. Estimate the gain on dispositions by taking the average 3. We calculate the book
historical ratio of reported gains/proceeds value of dispositions as $
value of dispositions – gain
on sale of dispositions

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3. Accumulated depreciation
coming off the books = gross
value – book value of
dispositions

2. Divide the $ BV by the


1. We estimate the accumulated depreciation that comes off the book after BV as a % of Gross value to
estimate the $ Gross value
a disposition by using the historical average ratio of the book value divided by
getting disposed.
the gross carrying value of disposed properties

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Laying out historical income from discontinued operations


Once a property is earmarked for disposition, it gets carved out of normal operations and all the
revenue and expenses generated from this property are identified separately from the rest of the
income statement as ‘discontinued operations’ until it is finally sold and removed completely.

10-K footnotes

Reference from income statement


in model.

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Forecasting income from discontinued operations


Because we are assuming the midyear convention, future dispositions will generate a half year’s worth of revenue
and expenses that will be classified as discontinued operations during the period leading up to their disposal.

3. Calculate revenue as NOI/(NOI % margin) 5 . Back into RE expenses by subtracting


revenue – income from disc. ops –
depreciation and calculate NOI as Rev less
RE expenses

2. Forecast NOI margin


and depreciation margin
based on the last 3 years
average

1. Reference [Annualized NOI from 4. Calculate depreciation as


dispositions – actual NOI lost from
revenue x depreciation as % of
revenue
6. Reference from disposition schedule above
dispositions] during the period.

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Now you can complete the cumulative revenue calculation from the top of the schedule as
illustrated

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Set up the developments tab


• We will estimate NOI from developments using a complex buildup on a separate tab
• In the meantime, we can set up the revenue formula, which is simply the NOI/(NOI % margin)
• Reference historical NOI % margin from the consolidated income statement and forecast NOI %
margin based on the historical average

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Ancillary Income
& Non-Operating Items

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REIT Modeling

Ancillary income coming from stabilized properties


• Tie to rental revenue using historical relationship as a guide

Use last 3 years’ average

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Ancillary income coming from developments, acquisitions, less dispositions


• Tie to rental revenue from all three segments using historical relationship as a guide

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Reference ancillary income


from stabilized communities In line with management
guidance of $411 to $416m

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We can now begin to fill in the consolidated income statement

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We can now begin to fill in the consolidated income statement

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Reference
revenue from
all segments
into the total
revenue line

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1. Leave depreciation blank for now

2. Forecast G&A
• The most direct driver of G&A is total revenue, not SS sales
• Now that we have calculated total revenue we can forecast G&A by making a % 3. Other expenses
of revenue assumption. Historically for unusual items.
• Management guides to 2013 G&A of $24.25-23.25m per the 2012 supplement. Forecast as $0 per
• Link G&A back into to the I/S when finished management guidance and
link back to I/S

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Input non-operating assumptions as illustrated

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1. From ‘non-operating assumptions’ section on prior page Carry over all subtotal
formulas from historical
income statement

2. From ‘discontinued
operations’ section

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3 . Calculate as net income / diluted


shares outstanding

2. Straight-line historical
dilutive impact of
securities like options to
back into a basic shares
forecast

1. Input diluted shares per management guidance

4. Sanity check your forecast ratios and growth


rates.

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Understanding
the REIT
Balance Sheet

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REIT Modeling

Game plan for projecting the B/S


1. Forecast all B/S line items
• Some require a separate schedule to perform calculations; others can be straight-
lined directly on the B/S
• We’ll forecast every B/S line except for Cash & cash equivalents and the revolver
• After creating the schedules, we will link the results back to the B/S
2. Build the C/F/S
3. Complete the B/S
• After building the C/F/S we’ll have enough information to go back and forecast cash
and the revolver on the B/S

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Best practice for modeling B/S roll-forwards


• Beginning of period (BOP): Take the last historical Account balance (BOP)
year’s end of period (EOP) balance to serve as the (really previous period’s EOP)
BOP balance of the first projected year. This is
usually the first row in a schedule Increases in account
this year
• Increases / decreases in the balance: Below the first
row, add rows to reflect changes in the balances. Decreases in account
The number of rows depend on the type of balance this year
sheet item you are forecasting. For example, PP&E
would have lines for depreciation, capital Account balance
expenditures, and possibly other lines such as asset (EOP)
sales
• End of period (EOP): This is the result which you will
link back into the balance sheet
• This approach for forecasting the balance sheet
items is sometimes called a “roll-forward” or a
BASE (beginning, additions, subtractions, end)
approach

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Investment in rental properties


• This asset represents the carrying value of the REIT’s stabilized real estate assets
• Usually the biggest asset for a REIT
• Roll-forward logic:
Investment in rental properties, beginning of period (BOP)
Plus: Developments that have stabilized during the period
Plus: Capital and rehabilitation expenditures
Plus: Acquisitions
Less: Dispositions (at gross carrying value)
Equals: Investment in rental properties, end of period (EOP)

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Investment in rental properties, beginning of period (BOP)


Plus: Developments that have stabilized during the period
• We have not yet forecast developments – we’ll do it shortly
Plus: Capital and rehabilitation expenditures
Plus: Acquisitions
Less: Dispositions (at gross carrying value)
Equals: Investment in rental properties, end of period (EOP)

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Investment in rental properties, beginning of period (BOP)


Plus: Developments that have stabilized during the period
Plus: Capital and rehabilitation expenditures
• Management provided guidance of $22-25m for capital and $35-50m for rehab
expenditures
• Rather than hardcoding this guidance, forecast as a % of rental income

2013
Rental income $500
Capital and rehab expenditures as % of rental income 5%
Implied capital and rehab expenditures $25
Plus: Acquisitions
Less: Dispositions (at gross carrying value)
Equals: Investment in rental properties, end of period (EOP)

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Investment in rental properties, beginning of period (BOP)


Plus: Developments that have stabilized during the period
Plus: Capital and rehabilitation expenditures
Plus: Acquisitions
• Reference from the acquisitions section
Less: Dispositions (at gross carrying value)
• Reference from the dispositions section
Equals: Investment in rental properties, end of period (EOP)

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Construction in progress (CIP)


• Refers to REIT properties that are currently under development
• This is a separate asset from the prior asset category used for completed properties–
Investments in Real Estate
• Once assets in the CIP category are completed, they are removed from CIP and
reclassified as completed properties in Investments in Real Estate
• Roll-forward logic:
CIP, beginning of period (BOP) We have not
forecast any of
Plus: Development spending these items we’ll
Less: Prior developments moved to stabilized properties do each shortly
Plus: Transfers to CIP from land under development
Equals: CIP, end of period (EOP)

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Accumulated depreciation
• Contra asset (negative asset) that shows how much depreciation the company’s real
estate assets have accumulated
• Depreciation is generated from:
• Investments in rental properties (stabilized properties)
• CIP (not yet stabilized properties)
• Note that land is not depreciated
• Roll-forward logic:
Accumulated depreciation, beginning of period (BOP) See next page for
how to forecast
Plus: Depreciation expense during the period
this
Less: Accumulated depreciation from dispositions
Equals: Accumulated depreciation, end of period (EOP)

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Depreciation expense
• Historical depreciation is found on the C/F/S
• Future depreciation expense = Depreciable assets divided by their average useful life
• Depreciable assets = Investments in rental properties + CIP
• Estimating useful life:
• Use the historical useful life (REITs often disclose a useful life range).
• When unavailable, estimate by dividing latest historical depreciable assets by
the most recent actual depreciation expense
Accumulated depreciation from dispositions
• Forecast was already estimated in the dispositions section of the model
• Historical amounts can usually be found in the footnotes.

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Land under development


• Land must be purchased in order to develop properties
• REITs classify land that is under development in a separate asset category fromCIP and
Investments in Real Estate
• As this land reaches certain construction milestones, it is removed from this asset
category and reclassified into CIP
• Roll-forward logic: We have not
forecast either of
Land under development (BOP)
these items we’ll
Plus: New purchases of land do both shortly
Less: Reclassification into CIP
Equals: Land under development (EOP)

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Joint ventures (JV) and affiliate investments


• Equity method accounting is used for JVs/affiliate investments
• Affiliate investments refer to investments where the company has acertain level of
operational and strategic control, but not majority control (~20-50% control)
• JVs/affiliate investments measured at acquisition price, increasing each period by the
company’s proportionate share of the JV/affiliate net income (net of dividends)
• Income flows through retained earnings (there are circumstances where it would flow
through OCI instead)
• Roll-forward logic: Reflected on the I/S and management
Investments in JV/affiliates (BOP) provides guidance in our case study
Plus: Proportionate share in JV’s net income
In our case study, we assume no
Less: Dividends issued to company by JV/affiliate
dividends or sales in our JV
Less: Sales of JV/affiliate interests forecasts for simplicity
Equals: Investments in JV/affiliates (EOP)

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Accounts payable (A/P)


• We are going to forecast changes to the A/P account by using a historical ratio of A/P to
real estate expenses
• The underlying logic is the more real estate expense a REIT incurs, the higher their AP will
be as long as they can maintain historical credit terms
• An alternative (and common) approach would be to grow A/P with rental income
• Roll-forward logic:
Accounts payable (BOP)
Plus: Net increases to A/P
Equals: Accounts payable (EOP)

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Noncontrolling interests (NCI)


• In a REIT, NCI are primarily OP unit holders (see introduction) that have yet to redeem
their units into common stock
• The accounting for this ownership falls under consolidation method, whereby the REIT
consolidates the assets (and liabilities) owned by the NCI on the B/S, but records a NCI
equity account to reflect that there is equity in the consolidated business that is owned
by NCI (in addition to common shareholders)

Represents consolidated
assets/liabilities

Represents who owns them

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Noncontrolling interests (NCI)

Noncontrolling interest in income


• NCI is shown as an expense on the I/S
• This raises retained earnings
• With a corresponding increase to the NCI equity balance

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Noncontrolling interests (NCI)

NCI dividends
• Dividends to NCI are a reduction
on the C/F/S
• With a corresponding reduction to
the NCI equity balance

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Changes in redemption values of NCI


• The NCI account reflects changes in the value of the account
• Because NCI in REITs can convert to REIT common stock 1:1, the redemption value can be
marked up/down based on the REIT share price
• We do not model redemptions or changes in value of NCI in our case study

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Noncontrolling interests (NCI)


• Depending on the ownership level the NCI have in the subsidiary business/assets, such
interests are entitled to proportionate share of the subsidiary’s net income (NCI in
income) as well as any dividends paid out by the subsidiary
• Roll-forward logic:
Noncontrolling interests (BOP)
In our case
Plus: NCI in income (w/corresponding expense on the I/S) study, we
Less: Distributions (w/corresponding credit to cash) assume no
distributions /
Less: Redemptions (w/corresponding credit to common stock) redemptions /
Plus: Increase in value of NCI (w/corresponding debit to common stock) changes in
value
Equals: Noncontrolling interests (EOP)

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Common stock & APIC


• Roll-forward logic:
Management guidance
Common stock & APIC (BOP)
Plus: New common stock issuances (w/corresponding debit to cash)
Plus: Stock based compensation (w/corresponding credit to retained earnings)
Plus: Conversion of OP units to common stock (w/corresponding debit to NCI)
Less: Increase in redemption value of NCI (w/corresponding credit to NCI)
Equals: Common stock & APIC (EOP)
Assume none for Use
our case study historical
average

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Retained earnings
• Retained earnings captures all the past net income net of all the past common and
preferred dividends for a REIT
• Note that the net income that hits retained earnings is after NCI because retained
earnings balances capture earnings to common shareholders, after accounting for all
non-common equity claims against the business
• Roll-forward logic:
We’ll reference from our I/S forecast
Retained earnings balance (BOP)
Plus: Net income
Less: Common dividends We’ll reference using a payout ratio
assumption (we’ll discuss shortly)
Less: Preferred dividends
We’ll use historical guidance
Equals: Retained earnings balance (EOP)

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Retained earnings – common dividends


• By law, U.S. REITs are required to pay out at least 90 percent of taxable income to their
shareholders in the form of dividends.
• Most REITs, however, opt to pay out 100 percent or more.
• Taxable income is not a measure calculated in accordance with GAAP, and can differ
significantly from GAAP income calculations.
• Since we do not have access to taxable income data, we will use net income to common
shareholders as a proxy and will forecast common dividends by making an assumption
that 100% of net income will be distributed to shareholders via dividends
• Other approaches include calculate a payout as a % of funds from operations (FFO) as
opposed to net income
Retained earnings – preferred dividends
• Management gave use guidance for preferred stock dividends
• In the absence of guidance, we usually straight-line historical preferred dividends

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Debt (non-revolver)
• REITs finance large portions of their activities with debt (~25% for the average REIT)
• REITs typically provide disclosures about the future required maturities of current debt
outstanding, as well as about the cost of capital.
• Barring guidance otherwise, when forecasting, contractual maturities should be offset by
incremental borrowing to maintain a desired capital structure.
• Roll-forward logic:
Debt balance (BOP)
Less: Mandatory and discretionary principal pay down
Equals: Debt balance (EOP)

BRE explicitly
guides to $70m in
maturities with no
offsetting debt
issuance in 2013

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Debt (non-revolver)
• BRE’s primary debt instruments are unsecured notes and mortgage-backed debt
• BRE also can access a revolving credit line (which we will address later)
• BRE provides disclosures about future maturities
• Unlike in 2013, where we had specific guidance to the contrary, we assume that post-
2013 maturities will be offset by future borrowing

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Debt - secured (mortgages)


• Loans secured by real estate with a contractual amortization structure
• Fixed interest rate
Debt - unsecured notes
• Bullet maturity; fixed rate
Debt - revolving credit facility
• Typically floating rate tied to LIBOR with a spread
• Usually secured by assets like accounts receivable and inventories
• Usually carries restrictive covenants and various borrowing base and availability
constraints

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Debt - covenants
• BRE provides disclosures about debt compliance ratios
• Our model’s forecasts should comply with these ratios and throw up an error when
operating forecasts break these compliance ratios

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Modeling the
REIT Balance Sheet

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Investment in rental properties
Stabilized properties are usually classified as ‘Investments in Rental Properties’ or “Completed Properties’ on the B/S. Recall that we
forecast rental income from these properties already in the same store sales section as well as the acquisition section. The changes to this
asset during a period are:
Leave this blank for now
Stabilized Properties BOP
+ Developments Reclassified to Stabilized
+ Capital and rehabilitation expenditures 3. Reference any forecasts for acquisitions
+ Acquisitions into this schedule from the ‘acquisitions’
– Dispositions (at gross carrying value) section above as illustrated
= Stabilized properties EOP

2. Reference capex and rehab


expenditures into investments in rental
properties schedule as illustrated.

1. Management provides guidance for capital 4. Reference the book value impact of the elimination of disposed
expenditures and rehab expenditures. Back into these properties during the period. Switch the sign to reflect that
drivers using ‘% of rental income’ assumptions. dispositions reduce the asset carrying value.

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Construction in progress (CIP)


Refers to REITs properties that are currently under development. Since we have not forecast the ‘development’ section yet, we will also
skip the forecasting of this schedule for now.

Construction in progress BOP


+ Development spending
- Prior Developments moved to stabilized properties
+ Transfers to CIP from land under development
= Construction in progress EOP

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Using the disclosures provided on p.91 of BRE 10K, fill in the


historical balances as illustrated.

Estimate historical useful life; sanity check against range provided in p.41 of BRE 2012 10K

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2. Forecast depreciation as average PP&E balance (on an average basis during the
forecast period) divided by the useful life estimate

3. Reference from dispositions schedule 1. Use the last two years’ average useful
life estimate for your forecast

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Reference depreciation into the I/S


• Reverse the sign.
• Since depreciation from
discontinued operations is
captured in the discontinued
operations section of the I/S,
adjust the reference to exclude
that discontinued operations
depreciation as illustrated.

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Leave ‘’additions to land’ and ‘transfers to


CIP’ blank for now

Forecast JV investments in real estate by


growing prior period balance with current
period JV income

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Plug: EOP – BOP balance

1. Forecasting A/P and accrued expenses


• Real estate expenses are often the most likely drivers of a
REIT’s A/P and accrued expense balances. 2. Reference from ‘I/S’ and reverse the sign
• Accordingly, calculate ‘A/P and accrued expenses - EOP’ by:
• Straight-lining the prior period’s ‘A/P and accrued 3. Forecasting common stock/APIC
expenses’ balance as a % of RE expenses • Management guidance for $25m in new issuances
• Multiplying that % by the current period’s RE • In addition, grow balance by forecasts for stock based
expense forecast compensation (SBC is a credit to retained earnings and a debit to
common stock). We forecast by using the prior 3 years' average

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The retained earnings schedule


Before forecasting, we set up the relevant historical data

1. Dividends to common
shareholders – 2012 10K cash
flow statement

2. Reference net income from 3. Reference the “correct” net income into retained earnings:
income statement as illustrated Retained earnings goes up by net income to common, which
and calculate historical common represents net income AFTER preferred stock redemption related
dividends / net income. expenses, preferred dividends, common dividends.

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Reference the “correct” net income
Retained earnings goes up by net income to common, which represents net income AFTER preferred stock
redemption related expenses, preferred dividends, common dividends.

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Forecasting dividends
By law, U.S. REITs are required to pay out at least 90 percent of taxable income to their shareholders
in the form of dividends. Most REITs, however, opt to pay out 100 percent or more.

Taxable income is not a measure calculated in accordance with GAAP, and can differ significantly from
GAAP income calculations. Since we do not have access to taxable income data, we will use net
income to common shareholders as a proxy and will forecast common dividends by making an
assumption that 100% of net income will be distributed to shareholders via dividends

3. Calculate dividends as illustrated


2. Reference net income from the
income statement as illustrated

1. Input a dividend payout assumption

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Reference common dividends from area below and preferred dividends from I/S.
Switch the sign for both.

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BRE has unsecured notes and secured mortgage notes on its balance sheet

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Forecasting debt
The BRE supplement
provides disclosures about
the future maturities of
current debt outstanding.

However, you must be


careful about reflecting
these maturities in
forecasts, since BRE will
almost certainly be borrow
incrementally to offset the
maturities and maintain its
desired capital structure.

Barring guidance
otherwise, it is actually
safest to simply forecast a
straight-lining of debt
levels.

Guidance from BRE supplement -


$70m in maturities to be paid down
but no offsetting debt issuance in 2013

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3 We will not forecast the unsecured


line of credit until later. This debt
will be determined once we forecast
the cash flow statement and see
whether we have any cash shortfalls
/ surpluses requiring a draw

1 Reference historical balances from 2 Build a roll forward for BRE’s unsecured and
the balance sheet into the roll- mortgage loans payable, build the flexibility into
forward debt schedules the model to make additions or reductions to
this debt and reflect the 2012 principal pay
downs the company guided to as illustrated.

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• Reference all EOP balances from the supporting schedules into the consolidated B/S as illustrated.
• Where there are not supporting schedules, straight-line as illustrated.
• Cash and the unsecured line of credit are the only line left on the B/S.
• We turn to the cash flow statement next (B/S will not balance until the entire model is complete..

Straight-line
• Other assets
• Treasury stock
• Preferred stock

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Cash Flow
Statement &
Model Cleanup

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REIT Modeling

The cash flow statement (CFS)


• The CFS completes the three statement financial model
• As an analytical tool, the CFS provides insight that the I/S cannot – namely, how much cash a
company generates and from what activities
• While the I/S recognizes non-cash income (i.e. credit sales, write-ups) and expenses (i.e. D&A, credit
purchases), the CFS does not
• While this I/S is designed to provides insight to a company’s “true” profitability, it also requires
management judgment (i.e. useful life assumption) and is thus prone to manipulation
• On the CFS, non-cash items are ignored, making it less prone to manipulation (but still possible
through reclassifying operations vs. investing vs. financing activities)
• For example, ignoring the CFS and focusing exclusively on the I/S may lead an analyst to conclude
that a company is very profitable when in fact it is running out of cash, and vice versa
• Compare the I/S and CFS of a company increasingly reliant on questionable credit sales
• Compare the I/S and CFS of a company with significant D&A expenses from historical
investments

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Structure of the cash flow statement


• Under both U.S. GAAP and IFRS, companies have two options for reporting cash flows:
• Direct method
• Indirect method - virtually all choose the indirect method1
• Both approaches require cash flows to be classified into three components:
1. Cash from operations (CFO)
• How much cash did the company generate from operations during the period?
• Uses net income as a starting point and converts accrual-based net income into cash flow
from operations via a series of adjustments (i.e., non-cash and accrual)
2. Cash from investing activities (CFI)
• Capital expenditures / asset sales and purchases
3. Cash from financing activities (CFF)
• New borrowing / pay-down of debt
• New issuance of stock / share repurchases
• Issuance of dividends

1One important exception: Direct method is often used for analyzing companies under distress or bankruptcy

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Cash from operations (CFO)


• The CFO is the most difficult section of the CFS to understand
• CFO is a reconciliation; starts with net income and makes adjustments to arrive at CFO

Cash flow from operations


Net income
Starting point of cash flow statement when using indirect method
+ D&A
• Usually the second line in a CFS is the add back of D&A expense
• D&A expenses are embedded in various expense items on the I/S (primarily COGS and operating expenses) and thus
reduce net income
• These are non cash expenses, so to get from net income to cash from operations, the first step is usually to add back the
D&A expense to net income
- Increases in A/R, inventory, prepaid expenses, taxes payable, other current assets
• Increases in working capital asset balances during the period should be reflected as cash outflows
• Decreases in working capital asset balances during the period should be reflected as cash inflows
+ Increases in A/P, accrued expenses, other current liabilities
• Increases in working capital liability balances during the period should be reflected as cash inflows
• Decreases in working capital liability balances during the period should be reflected as cash outflows
- Gains on sale of assets
- Increases in deferred tax assets
+ Increases in deferred tax liabilities

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Cash from operations (CFO)


• The easiest way to understand CFO is to remember that it answers the question “how
much cash went into the company’s pocket as a result of operations?”

Simple Income Statement


Cash revenues 100
Cash expenses 80
Net income 20
How much cash goes in my pocket?
Simple CFS
Net income
Cash from operations

Net income would equal CFO if net income was


only comprised of cash income and expenses

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Cash from operations (CFO)


• The easiest way to understand CFO is to remember that it answers the question “how
much cash went into the company’s pocket as a result of operations?”

Simple Income Statement


Cash revenues 100
Cash expenses 80
D&A 10
Net income 10
How much cash goes in my pocket?
Simple CFS
Net income
D&A
Cash from operations

D&A must be added back to NI to arrive at cash

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Cash from operations (CFO)


• The easiest way to understand CFO is to remember that it answers the question “how
much cash went into the company’s pocket as a result of operations?”

Simple Income Statement • $92 in cash sales


Revenues 100 • $8 credit sales
Cash expenses 80
Accounts Receivable on B/S
D&A 10
Accounts receivable - BOP 0
Net income 10
Change in A/R during period
How much cash goes in my pocket?
Accounts receivable – EOP
Simple CFS
Net income Let’s generalize
D&A • Increases in A/R, inventory, prepaid expenses,
taxes payable, other current assets should be
- increase in A/R subtracted from net income to get to CFO
Cash from operations • Conversely, increases in A/P, accrued expenses,
other current liabilities should be added to net
income to get to CFO

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Cash from operations (CFO)


$92 in cash sales / $8 credit sales
Income Statement
Revenues 100 • $64 in cash purchases of inventory during period
• $16 credit purchases
Expenses 80
• No additional inventory was purchased
D&A 10
Net income 10 Accounts receivable on B/S
Accounts receivable – BOP 0
How much cash goes in my pocket?
Change in A/R during period
CFS
Accounts receivable – EOP
Net income
Inventory on B/S
D&A
Inventory – BOP 0
- increase in A/R
Change in inventory during period 0
- Increase in inventory
Inventory – EOP 0
+ increase in A/P
Accounts Payable on B/S
Cash from operations
Accounts payable – BOP 0
Change in A/P during period
Accounts payable – EOP

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Cash flow statement


• The impact on the CFS of changes in working capital assets and liabilities is an example of
a broader accounting concept:
• Increases in assets represent a usage of funds (cash outflow)
• A company buys inventory with cash
• Increases in liabilities and equity represents a source of funds (cash inflow)
• A company issues stock or debt and gets cash in return
• This relationship is critical to properly constructing financial models

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Modeling the CFS


• We are now going to forecast BRE’s cash flow statement
• In keeping with general modeling best practices, we will not input historical CFS results
• Unlike the B/S and I/S, the CFS is a reconciliation of year over year changes in the
B/S, so historical results are not necessary
• A practical limitation is that historical CFS results are notoriously challenging to
reconcile to forecasts (for example, the working capital changes do not exactly
match up to the year-over-year changes observed on the B/S

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Forecast every line in the C/F/S except for the line of credit.

Purchases of land have


yet to be forecast, but
we did already create
the roll-forward for it we
can create a formula
(which will show 0.000
until we make the
forecasts).
Same applies to
‘additions to CIP’

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Link the ending cash balance calculated below the C/F/S into the B/S as illustrated

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The Revolver,
Interest Expense,
and Circularity

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REIT Modeling

The revolving credit facility (revolver)


• Unlike term loans or bonds, a revolver is a form of financing that enables borrowers to
draw on the revolver when necessary and pay it down when desired
• In exchange for this flexibility, the facility is usually secured by a company’s most liquid
assets making borrowing costs relatively low
• Used primarily for financing short term changes in cash, as opposed to major investments
for which term loans, bonds, and equity capital are more appropriate
Modeling the revolver
• The revolver serves an important function in financial statement models
• The revolver, along with cash, act as the plugs in financial statement models to ensure
that resources = funding for those resources (A = L + E)
• When there is a cash shortfall, revolver balances rise after all existing cash balances
are used up
• When there is a cash surplus, cash balances rise after any existing revolver balances
are paid down

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Modeling the revolving credit line (revolver)


• BRE has a revolver available, but currently does not have an outstanding balance.
• BRE will presumably draw on the revolver when there is a shortfall so we must build this
logic into the model. Otherwise, a shortfall will show negative cash balances – a
nonsensical result.
BRE’s revolver terms

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Revolving credit line


• Roll-forward logic:
Revolving credit line balance (BOP)
Plus / (Less): Revolver draws / (pay-downs) current period
Equals: Revolving credit line balance (EOP)

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Funding surplus / (needs) prior to revolver


The amount of revolver borrowing (or paying down) during the period depends on the deficit
(or surplus) that the company faces during the period, which can be calculated as:
Cash (BOP)
Cash actually available on hand, BOP
Less: Minimum cash balance
Plus: Cash flows generated during the period
Equals: Funding surplus /(needs) prior to revolver

Cash from operations


Plus: Cash from investing activities
Plus: Cash from (non-revolver) financing activities

Assume BRE will never dip below $5m in cash;


use historical cash balances as a guide

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REIT Modeling
1. Cash (BOP)
Reference from
prior period EOP
balance on the
B/S

2. Calculate cash
flows (pre-
revolver)
• CFO + CFI +
CFI except the
revolver cash
flows
• Do NOT
include the
revolver cash
flow in this
calculation

3. Input
minimum cash
assumption

4. Calculate funding surplus (/needs) prior to revolver


• If positive number, represents cash available to pay down revolver
• If negative number, represents cash needed from revolver

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We have modeled a surplus of $160m in 2012; if we had a prior revolver balance we could have paid
down up to $160m of it. Since we do not have a prior balance, no revolver pay down is necessary.

Plug

Complete the revolver roll forward as illustrated


We need to use a MAX function to determine the proper change in revolver balance
1. When [prior period revolver balance – current period funding surplus] > 0
• Model outputs this result as the current end-of-period revolver balance
2. When [prior period revolver balance – current period funding surplus] < 0
• Revolver cannot be negative, so model just outputs 0

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Reference the EOP revolver balance to the B/S. The B/S is now complete

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Complete the C/F/S by referencing cash impact from revolver

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Interest expense
• Now that we have forecasted all the debt balances we turn to interest expense
• BRE provides interest rate disclosures for the various debt tranches:

Revolver interest rate Fees included in interest expense (we’ll discuss)


• While the revolver balance is currently 0, BRE discloses: Includes amortization of all fees associated with
• LIBOR + 120 bps rate all outstanding debt including an annual 20bps
• Guidance for LIBOR in range of 35 - 50 bps in 2012 facility fee on the total $750m commitment

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Capitalized interest
• Capitalized interest is interest from borrowing for developments, which is capitalized as
part of development spending on construction in progress instead of being expensed:
• Cash goes down
• CIP asset goes up
• BRE provides historical disclosures as well as guidance for future capitalized interest:

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Amortization of financing fees


• In accordance with accrual-based accounting, financing fees are capitalized and
subsequently amortized on the I/S (often via the interest expense line):
• When fee is paid initially
• Cash goes down
• Intangible asset goes up
• For each year over the life of the borrowing
• Retained earnings goes down (via financing fee amortization expense on the I/S)
• Intangible asset goes down
• BRE includes this amortization in interest expense on the I/S and discloses that 0.26% of
its weighted average interest rate of 5.39% was due to amortization of financing fees
Forecasting financing fee amortization
• Since it is a noncash amortization expense, many analysts exclude the fee amortization
from the I/S forecast, only forecasting cash interest expense; we will follow this practice

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Calculating interest expense


There are two ways that analysts calculate interest expense in financial models:
1. Interest expense = Interest rate assumption x average debt during period
2. Interest expense = Interest rate assumption x BOP debt
Advantages of using average debt
• More conceptually accurate than BOP
• Mitigates errors introduced by large changes in debt or cash during the period
Disadvantages of using average debt
• Creates a circularity in the model
• Circularities in models create instability (can be partially overcome with circuit breakers)

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Revolver
• Company expects
LIBOR of 35 to 50
bps plus a 120 bps
spread
• Toggle gives users
the ability to
calculate revolver
interest using
average or BOP
balances

Unsecured debt
• Use interest rates
provided by BRE
• Use average
balances for secured
and unsecured debt
since these do not
create a circularity
Secured debt
• Same as unsecured
debt

Fees from debt


Sum total debt and
multiply by BRE’s fee
rate assumption to
calculate financing fee
amortization

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Total interest expense


1. Add up all the interest expenses by tranche
2. Add an IF statement that outputs 0 instead of the interest expense
total if the circuit break toggle is set to “On”

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Arrive at the interest expense to be referenced into the I/S


Remove financing fees and capitalized interest to arrive at the interest expense
that will be referenced into the I/S

Calculate weighted average cost of debt


• Total interest expense / total debt
• Sanity check against guidance (BRE guides to 5.35-5.40%

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Link interest expense back to I/S – all 3 statements are now complete

Sanity check your forecast


• BRE guided to $68-$69m in interest expense (which includes financing
fee amortization)
• Since we exclude financing fee amortization from our forecast (and we
estimated financing fees to be ~$4.5m, we are exactly in line with
management guidance.

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Circular reference
• By linking interest expense into the I/S we have introduced a circular
reference
• A circularity in Excel is a calculation in a cell that depends on itself for the
answer (as opposed to depending on other cells)

Circularity due to interest expense

Debt levels Interest


(average) expense

Cash
Net
surplus/
Income
Deficit

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REIT Modeling

Interest expense circularity


• Current period revolver interest expense is calculated as [interest rate * average
of BOP and EOP debt balances]
• Interest expense reduces net income
• CFO thus gets reduced (lower net income yields lower cash flows)
• Thus debt levels increase (lower cash flows = less cash for revolver pay-down)
• Higher revolver debt = higher revolver interest expense
• Total interest expense increases
• Net income is reduced…and on and on.
• This process of iteration occurs over and over again, until steady-state levels are
reached

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REIT Modeling

The problem with circularity The BOP approach avoids a circularity


• Although we introduced circularity • This instability is why some
knowingly, generally speaking, circularity advocate the BOP debt approach
in Excel is bad over the average debt approach for
• Makes Excel unstable – models sometimes calculating interest expense in the
just “blow up” for no reason (i.e., you’ll FSM (and BOP cash for calculating
interest income)
see #DIV/0! and #REF! errors everywhere)
• There is always a tradeoff - for
• Trying to fix the error is time consuming companies that have substantial
and frustrating changes in debt levels during the
– Once a model blows up, analysts must year, this “shortcut” will reduce the
identify the initial source of the quality of the model because it will
circularity and “zero it out” in order to not capture these changes in the
flush out the short circuit interest expense
– It is easy to forget the source of a • The circularity approach remains
circularity in a giant model, so the the most common in financial
models
exercise can become very frustrating

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REIT Modeling

Iteration settings
• By default, Excel treats circularity as an error, so it will alert you when a
circularity exists, as long as you have iterations unselected
• If you are placing a circularity in your model, you must enable iterations so
that Excel knows to run the iterations instead of producing an error

Enable iterations when placing circularities intentionally in your model


• In Excel 07/10/13: Go to Excel Options > Formulas > Enable Iterative Calculation
• In Excel 2003: Go to Tools > Options > Calculation > Select Iteration
• In Mac Excel: Go to Excel>Preferences (⌘ + ,)>Calculation > Select Iteration

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REIT Modeling

Salvation: Modeling a circuit breaker


• When the analysts determine that an INTENTIONAL circularity is warranted,
they should ALWAYS insert a circuit breaker to easily fix the model when it
blows up
• Building a circuit breaker toggle
• Create an input cell somewhere in the model where the user can type “On” or
“Off”

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REIT Modeling

Salvation: Modeling a circuit breaker


• Build an IF statement into the interest expense calculation and tie it to the
dropdown menu, such that when a user selects “On” from the dropdown, it
tells Excel to automatically place zeros instead of the relevant interest expense
formula
• This will “break” the circularity and the errors are flushed out
• Then, the user can input “Off” again which will replace the zeros with the
proper interest expense formula

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Modeling Future
Developments

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REIT Modeling

Developments – Migration through the B/S


• REITs engage in the development of properties
• Real estate assets first get capitalized as land under development, and then migrate to
construction in progress, and once complete end up as completed properties.

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Developments – Migration through the B/S


• Here is how two projects cycle through the B/S:
• Project 1: $200m land costs / $50m construction costs, land bought in 2013,
construction done in 2014, completed 2015
• Project 2: $50m land costs / $10m construction costs, land bought in 2014,
construction done in 2015, completed 2016

2013 2014 2015 2016


Cash (200) (100) (10)
Land under development 200 (150) (50)
Construction in progress 250 (190) (60)
Completed properties 250 60

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Developments - Modeling NOI and revenue


• Make a $ spend and cap rate assumption: Input assumption for future $ spend on
developments, an estimated cap rate, and the estimated NOI margin. This enables you
to back into impact of dispositions on NOI and revenue
• Use management guidance or historical patterns for cap rates and $ spend
• NOI haircut: NOI in the first year(s) is often lower because newly developed
properties are still in “lease-up” phase, so reflect an initial period discount to NOI
• Cumulative impact: Just like with acquisitions and dispositions, model a cumulative
revenue/NOI impact

2013 2014 2015 2016


Completed properties $200 $100 $300 $200
Cap rate forecast 5% 5% 5% 5%
NOI year 1 haircut 80% 80% 80% 80%
Cumulative NOI $8 $10+$4 $15+12 $30+$8
NOI margin 20% 20% 20% 20%
Cumulative revenue $40 $70 $135 $190

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Developments – our case study


• Development pipeline disclosures are a typical part of a public REIT’s disclosures:

Certificates of occupancy (CO)


• Represents estimated quarter in
which first and final certificates of
occupancy will be received.
• Projects generally receive phased
COs during the final 6-12 months of
construction.
• Properties transition to ‘Completed
Property’ upon receipt of ‘Final CO’

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We lay out all the properties that BRE lists as developments


• Two stages of developments: Land under development (LUD) and construction in progress (CIP)
• Insert their estimated total costs, costs already incurred, # of units
• For LUD, estimated cost for each property was not explicitly disclosed. Instead a total LUD cost was listed.
• Assume the same cost per unit for each property to arrive at a per property cost estimate

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We make an assumption on the portion of remaining spending that will be


classified as LUV (vs. CIP). BRE doesn’t provide explicit guidance on this (assume
all take place in 2013).

We make an assumption about when properties


transition from LUD and CIP to Completed Properties.

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Total 2013 spending on LUD

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REIT Modeling

For each LUD property, determine when it will be


reclassified into CIP as illustrated

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For each CIP property, determine how much spending will


take place per period as illustrated (see next slide for
instructions on calculating the % development by period

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We create a formula to capture how CIP spending is


spread across multiple periods. For example, $73.8m in
Mission Bay CIP spending is expected to be spread out
over two years.

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Model the reclassification from CIP to completed Property as illustrated

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REIT Modeling

Model the reclassification from CIP to completed Property as illustrated

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Calculate cumulative NOI from developments


• Per BRE’s Q4 2011 call: “The projects we have under construction, the current returns are in the low to mid-5s
with the stabilized returns in the high 6s and to low 7s.”
• We’ll incorporate a 7% stabilized cap rate
• We’ll also Incorporate an NOI haircut of 90% in the first year (WSP assumption)
• Model the cumulative impact to NOI as illustrated

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Reference NOI from CIP developments from the ‘developments’ tab as illustrated

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2. Complete the investments in rental properties schedule by


referencing the ‘developments reclassified from CIP’ (switch
the sign)

1. Complete the CIP roll-forward by referencing the three remaining line


items from the ‘developments’ tab as illustrated

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REIT Modeling

2. Complete the land under development roll-forward by


referencing the ‘Transfers to CIP from land under
development’ as illustrated (switch the sign)

1. Reference the ‘additions’ line items from the ‘developments’ tab as illustrated

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EBITDA, FFO,
Core FFO, and CAD

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REIT Modeling
EBITDA
• Although less widely used in real estate, EBITDA is a ubiquitous measure of profitability
that attempts to arrive at core operating profitability without the major noncash
distortion of D&A
• We will calculate EBITDA as:
NOI (operating income + nonrecurring expenses + depreciation expense)
Less: corporate level G&A expenses
Plus (optional) : JV income and other income
Equals: EBITDA from continuing operations
Plus: EBITDA from discontinued operations
Equals: EBITDA
• Primary challenge is that it is inconsistently calculated across industries and companies.
• Reliance on real estate specific profitability metrics like FFO and AFFO (see next slides)
have led to less usage of EBITDA than in other industries

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Funds from operations (FFO)
A real estate specific metric for cash generated from operations:
Net income to common (calculated in accordance with US GAAP)
Plus: Depreciation from continuing, discontinued operations and JVs
Less: Gain on sale
Plus : Noncontrolling interest expense
Less: Cash distributions to noncontrolling interests
Equals: FFO
• FFO, developed by NAREIT, is an attempt to reconcile accounting (GAAP) net income to a
consistent measure of profit specifically tailored for analysis of REITs
• Most REITs adhere to NAREIT’s definition and provide FFO reconciliations in their filings
• The big difference is the EBITDA attempts to capture profitability from operations, while
FFO is levered and captures the affect of taxes and preferred dividends
• Though often misunderstood, FFO is not designed to be a measure of cash flow because it
excludes working capital, capital expenditures and other cash flow adjustments

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Funds from operations (FFO)
• Because of the importance of
FFO as an industry metric, REITs
usually disclose FFO in their
filings despite that it is a non-
GAAP metric.
• From p. 35 of BRE’s 2012 10K:

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Funds from operations (FFO)
• And management almost always provides guidance for FFO
• Per the BRE 2012 supplement:

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Company-specific funds from operations (“Core” FFO)
Many REITs find the NAREIT-defined FFO of limited use because it does not allow for the
exclusion of certain non-recurring items. For example, BRE management wants us to exclude:
• Non-operating asset impairment and valuation allowance expenses
• Property acquisition costs and pursuit cost write-offs (other expenses);
• Gains and losses from early debt extinguishment
• Prepayment penalties and preferred share redemptions
• Executive level severance costs
• Gains and losses on the sales of non-operating assets

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Adjusted FFO (AFFO) – aka Cash Available for Distribution (CAD)
• There has been an effort to create some consistency around the adjusted FFO calculation.
• The most common adjusted definition is often called cash available for distribution (CAD):
FFO + nonrecurring items (Core FFO described previously)
Less: Capital expenditures
Equals: Adjusted FFO (CAD)
• The big difference between CAD and the official FFO definition is that CAD removes
nonrecurring items and removes capital expenditures
• While NAREIT recognizes that many analysts add to the official definition of FFO in this
way, it is not an officially recognized metric by NAREIT

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REIT Modeling
Adjusted FFO (AFFO) – aka Cash Available for Distribution (CAD)
• Like many REITs, BRE also provides a core FFO disclosure
• Historical Core FFO from page 35 of BRE’s 2012 10K:

• And also provides some guidance for future core FFO (per the 2012 supplement):

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Calculating EBITDA

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Calculating EBITDA

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Calculating FFO

Reference both gains on sales from


dispositions and equity investments
(both on the I/S) Reference from I/S

Reference from
discontinued ops section

Guidance per BRE


supplement;
historicals per 10K

Reference from the I/S


Noncontrolling (minority) interests
We add back noncontrolling (minority) interest expense but subtract cash
distributions to minority interests. We forecast 0 distributions going forward but we
could have also straight-lined prior period distributions barring guidance.

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REIT Modeling
Calculating Core FFO

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REIT Valuation Modeling

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REIT Modeling

Valuation
• Analysts value REITs using three approaches
• Net asset value (“NAV”)
• Discounted cash flow (“DCF”)
• Dividend discount model (“DDM”)
• Multiples
• Equity value / FFO
• Equity value / AFFO

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REIT Modeling

The NAV approach


• For companies operating in industries like technology, retail, consumer,
industrials, healthcare, etc., the values of the assets that sit on their balance
sheets do not have efficient markets from which to draw valuations.
• As a result, a valuation focus is on cash flow or income based approaches, like
the DCF or Comparable Company Analysis.
• Those trying to value REITs, however, benefit from the relatively liquid and
transparent private real estate markets which can provide much insight into the
fair market value of assets comprising a REIT’s portfolio.
• As a result, the NAV is often favored in REIT valuation because it relies on
market prices in real estate markets to determine value.

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REIT Modeling

The NAV approach


• The NAV approach is a way to calculate balance sheet equity where the primary
real estate assets are not valued at historical cost, but rather at fair market
value, by taking the NOI generated from those real estate assets, and dividing it
by an assumed cap rate.
• The NAV-derived equity value is compared against the public market
capitalization of the REIT
• After accounting for potentially justifiable discounts or premiums to NAV,
conclusions about whether the REIT’s share price is overvalued or undervalued
can then be made.

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REIT Modeling

The NAV approach


• Below we outline the steps required to perform a NAV valuation:
Step 1: Value the FMV (fair market value) of the NOI-generating real estate assets
• Take the NOI generated from the real estate portfolio (usually on a 1-year
forward basis) and divide by an estimated “cumulative” cap rate, or when
feasible, by a more detailed appraisal.
• This is the most important assumption in the NAV.
• When the information is available (usually it isn’t), use distinct cap rates
and NOIs for each region, property type, or even by individual properties.
Step 2: Capital expenditures
• REITs must make regular capital investments in their existing properties, which
is not captured in NOI.
• Adjust NOI down to reflect ongoing “maintenance” required capex.
• Capex is sometimes left out entirely or grossly underestimated in the NAV.

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REIT Modeling

The NAV approach


Step 3: Value the FMV of income that isn’t included in NOI
• Income streams not included in NOI like management fees
and ancillary income also create value. They are not
reflected on GAAP balance sheets, so should be added here.
• Typically this is done by applying a cap rate (which can be
different from the rate used to value the NOI-generating real
estate) to the income. Double-counting
Do not capture
• For JV income, using the NOI/cap rate approach is common, expenses that are
but since a balance sheet book value exists, an alternative is already reflected
to just use the book value, and adjust by a premium. in the book
values of
Step 4: Adjust the value down to reflect corporate overhead liabilities (like
accrued expenses
• The negative impact to valuation of non-property-level REIT and accounts
payable), or you’ll
expenses needs to be captured. be double
counting
• The common approach is to divide overhead by the cap rate

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REIT Modeling

The NAV approach


Step 5. Add any other REIT assets like cash and CIP
• Use their balance sheet book value, and adjust by a premium
(or more rarely a discount) as deemed appropriate to reflect
market values
Step 6. Subtract REIT liabilities and non common equity claims
like debt and preferred stock to arrive at NAV
• Liabilities, just like assets, need to be reflected at FMV. Double-
Practitioners often use book value for liabilities because of counting
presumed small difference between book and fair value If OP units are
included in the
• Proceed at your own risk – for the NAV to be useful as a share count, do
valuation tool, ALL elements must reflect fair value. not reduce NAV
by the value of
• For example, not marking debt to market can result in an noncontrolling
interests
incorrect NAV during periods of rapidly changing credit
environments.

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REIT Modeling

The NAV approach


Step 7: Divide by diluted shares (and any OP units) to arrive at the NAV per
share and compare to the current share price

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REIT Modeling

The cap rate


• The most important assumption in the NAV; wrong cap rate = Wrong NAV
• In real estate, a transparent and liquid private market makes it much easier
to find comparable properties (with therefore similar growth, returns and
cost of capital profiles)
How do professionals come up with a cap rate?
• Understanding the REIT and comparable REIT properties through extensive
property visits
• Relationships with local real estate brokers and access to extensive real
estate databases
• Just like with traditional multiples, there are many variables that can distort
the comparison of properties using this metric, including:
• Timing of NOI (LTM or forward)
• Precise calculation – is the separation between real estate expenses,
G&A expenses, and maintenance capex consistent across all properties

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REIT Modeling

Nominal vs. economic cap rate


Cap rate Definition
Cap rate NOI / Property value
(aka nominal or core) • Where NOI is usually on a one year forward basis
• When people say cap rate, they are usually referring to the nominal
cap rate
• Some analysts use an NOI that excludes corporate overhead to take
into account the negative impact of corporate overhead, which is
otherwise not captured.
Economic cap rate Economic NOI (NOI - maintenance capex) / Property value
(also called market • A better way to compare cap rates across firms because it represents
cap rate for hotels and yields after taking a charge for capex (normal but capitalized expenses
apartments) like carpets for apartments, TVs and drapes in hotels, etc.)
• REITs with higher required maintenance capex costs should logically
be valued lower than REITs that do the same with less.
• Economic cap rates take this potential difference into account.
• Using nominal cap rates to back into FV of RE assets implicitly
assumes all the companies you are comparing have the same capex
cost profile.

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REIT Modeling

• You have built a fully integrated, dynamic real estate model along with a NAV valuation
• While different REITs present data slightly differently, this model as it stands can be used
to model most companies with just a few adjustments

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REIT Modeling

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