Proforma Income Statement Learning Example
This represents an Office / Retail Commercial Real Estate Investment
The purpose of this cash flow analysis report is to learn how to understand a projection of cash flows that are anticipated to occur for a commercial real estate investment or development. This real estate cash flow projection has been produced by planEASe Software and of course the explanations of the terms and methods will be stated in a way that is correct to the planEASe terminology. For the most part the terms and methods described are standard, and should be useful when reading any commercial real estate cash flow projection. Just click the links on the left of the table for the article descriptions and videos.
| The Date of Acquisition | 01/01/2010 |
| The Price of the Property as listed | $3,300,000.00 |
| The Loan Amount anticipated at Acquisition | $2,299,653 - $22,997 (1 Point) = $2,276,656 |
| Which means the Down Payment | $1,023,344 |
|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|
|
| Gross Income | | | | | | |
| 201 Office | 120,000 | 123,600 | 141,419 | 145,338 | 149,698 | 154,189 |
| 102 Drug Store | 94,500 | 94,500 | 99,225 | 99,225 | 99,225 | 119,902 |
| 103 Beauty Salon | 32,238 | 32,964 | 33,953 | 34,119 | 34,219 | 35,246 |
| 104 Donuts | 29,000 | 29,522 | 32,252 | 33,220 | 34,217 | 35,242 |
| 105 Flowers | 14,500 | 14,500 | 15,500 | 16,696 | 17,110 | 17,623 |
|
|
| Base Rental Revenue | $290,238 | $295,086 | $322,349 | $328,597 | $334,468 | $362,201 |
| Percentage Rent | $4,000 | $4,280 | $4,566 | $4,857 | $5,154 | $5,457 |
| Total Reimbursements | $71,233 | $73,077 | $43,496 | $42,586 | $44,596 | $46,663 |
|
| Total Gross Income | $365,472 | $372,443 | $370,410 | $376,040 | $384,217 | $414,321 |
| Less: Vacancy & Credit Loss | 19,084 | 3,202 | 14,620 | 5,049 | 3,501 | 50,321 |
|
| Effective Income | $346,387 | $369,241 | $355,790 | $370,992 | $380,717 | $364,000 |
| Less: Operating Expenses | | | | | | |
| Maintenance | 11,400 | 11,742 | 12,094 | 12,457 | 12,831 | 13,216 |
| Insurance | 4,600 | 4,830 | 5,072 | 5,325 | 5,591 | 5,871 |
| Property Taxes | 33,000 | 33,660 | 34,333 | 35,020 | 35,720 | 36,435 |
| Security | 3,000 | 3,090 | 3,183 | 3,278 | 3,377 | 3,478 |
| Utilities | 3,400 | 3,502 | 3,607 | 3,715 | 3,827 | 3,942 |
| Management Fee | 14,000 | 14,420 | 14,853 | 15,298 | 15,757 | 16,230 |
|
| Total Operating Expenses | $69,400 | $71,244 | $73,141 | $75,094 | $77,103 | $79,170 |
|
| Net Operating Income | $276,987 | $297,997 | $282,649 | $295,898 | $303,614 | $284,830 |
| Less: Debt Service | | | | | | |
| Loan | 230,823 | 230,823 | 230,823 | 230,823 | 230,823 | 230,823 |
|
| Total Debt Service | $230,823 | $230,823 | $230,823 | $230,823 | $230,823 | $230,823 |
|
| Net Operating Cash Flow | $46,164 | $67,174 | $51,826 | $65,075 | $72,791 | $54,007 |
| Less: Capital Spending | | | | | | |
| Market TI's | 10,149 | 2,117 | 101,034 | 3,335 | 0 | 63,783 |
| Market Commissions | 5,019 | 994 | 11,264 | 1,567 | 0 | 23,442 |
|
| Total Capital Spending | $15,168 | $3,111 | $112,299 | $4,902 | $0 | $87,226 |
|
| Taxable Income and Taxes | | | | | | |
| (Losses Taken Currently) | | | | | | |
| Taxable Revenues | $346,387 | $369,241 | $355,790 | $370,992 | $380,717 | $364,000 |
| Less: Deducted Expenses | 69,400 | 71,244 | 73,141 | 75,094 | 77,103 | 79,170 |
| Less: Interest Expense | 182,216 | 178,181 | 173,812 | 169,080 | 163,956 | 158,406 |
| Less: Amortized Points | 1,150 | 1,150 | 1,150 | 1,150 | 1,150 | 1,150 |
| Less: Depreciation | 57,938 | 61,639 | 66,547 | 70,515 | 70,072 | 66,634 |
|
| Ordinary Income | $35,684 | $57,026 | $41,140 | $55,153 | $68,437 | $58,640 |
| Taxable Income | 35,684 | 57,026 | 41,140 | 55,153 | 68,437 | 58,640 |
| Taxes Due (- = Savings) | 14,809 | 23,666 | 17,073 | 22,888 | 28,401 | 24,336 |
|
| Cash Flow After Tax | $16,188 | $40,397 | ($77,545) | $37,285 | $44,390 | ($57,554) |
|
|
| Sale Proceeds: | | | | | | |
| Sale Value | $3,329,006 | $3,591,128 | $3,800,275 | $3,698,723 | $3,795,175 | $3,560,371 |
| Less: Sale Costs (7%) | 233,030 | 251,379 | 266,019 | 258,911 | 265,662 | 249,226 |
| Less: Loan Repayment | 2,164,359 | 2,113,745 | 2,141,394 | 2,079,651 | 2,012,784 | 1,940,367 |
| Sale Proceeds Before Tax | 931,617 | 1,226,005 | 1,392,862 | 1,360,161 | 1,516,729 | 1,370,778 |
| Less: Taxes due to Sale | (41,420) | 24,034 | 53,045 | 55,351 | 86,702 | 38,766 |
| Sale Proceeds After Tax | 973,037 | 1,201,970 | 1,339,817 | 1,304,811 | 1,430,026 | 1,332,012 |
|
| Ratio Analysis: | | | | | | |
| Profitability Ratios | | | | | | |
| Capitalization Rate | 8.39% | 9.03% | 8.57% | 8.97% | 9.20% | 8.63% |
| Adj. Capitalization Rate | 8.39% | 8.99% | 8.52% | 8.63% | 8.84% | 8.29% |
| Cash on Cash Before Tax | 4.51% | 6.56% | 5.06% | 6.36% | 7.11% | 5.28% |
| Adj. Cash on Cash Before Tax | 4.51% | 6.47% | 4.98% | 5.64% | 6.28% | 4.66% |
| Cash on Cash After Tax | 1.58% | 3.95% | (7.58%) | 3.64% | 4.34% | (5.62%) |
| Adj. Cash on Cash After Tax | 1.58% | 3.89% | (7.44%) | 3.23% | 3.83% | (4.97%) |
| Accounting RoR Before Tax | | 24.30% | 1.17% | 22.32% | | |
| Accounting RoR After Tax | | 21.68% | | 19.60% | | |
| Current RoR Before Tax | | 19.09% | 1.37% | 16.30% | | |
| Current RoR After Tax | | 14.83% | | 12.45% | | |
| Risk Ratios | | | | | | |
| Debt Coverage Ratio | 1.200 | 1.291 | 1.225 | 1.282 | 1.315 | 1.234 |
| Breakeven Occupancy | 82.1% | 81.1% | 82.1% | 81.4% | 80.1% | 74.8% |
| Loan Balance/Property Value | 65.0% | 58.9% | 56.3% | 56.2% | 53.0% | 54.5% |
| Assumption Ratios | | | | | | |
| NOI/Property Value | 8.32% | 8.30% | 7.44% | 8.00% | 8.00% | 8.00% |
| Gross Income Multiple | 9.11 | 9.64 | 10.26 | 9.84 | 9.88 | 8.59 |
| Operating Expense Ratio | 19.0% | 19.1% | 19.7% | 20.0% | 20.1% | 19.1% |
|
| Analysis Measures: | | | | | | |
| IRR Before Debt | 1.5% | 9.0% | 9.9% | 9.0% | 9.5% | 8.0% |
| IRR Before Tax | | 9.2% | 12.1% | 9.5% | 11.0% | 7.0% |
| IRR After Tax | | 6.5% | 8.8% | 6.6% | 7.8% | 4.6% |
| NPV Before Debt @10.00% | ($246,299) | ($54,097) | ($8,769) | ($106,089) | ($66,107) | ($273,216) |
| NPV Before Tax @10.00% | ($236,599) | ($16,136) | $56,761 | ($17,540) | $42,716 | ($146,603) |
| NPV After Tax @10.00% | ($233,929) | ($68,875) | ($32,053) | ($121,655) | ($95,859) | ($265,158) |
Written by
Michael Feakins, CCIM
of planEASe Software