Glossary of Terms

There is some terminology used in this manual that may not be familiar to you. Hopefully the following explanations will be of help.

Assumption Clipboard The Assumption Clipboard is an area of memory that holds the Assumption Page displayed when you last used the Cut Page or Copy Page Edit Menu Options. This Assumption Page may be pasted into the Assumption Page List in front of the currently highlighted Assumption Page by using the Paste Page Menu Option, so long as the page on the clipboard is the same Page Type as the highlighted/displayed page.

Assumption Set An Assumption Set is the assumption values and names you enter for a particular property. It also includes your specifications for the Income and Annual Statements and APOD. You can create, and save as many Assumption Sets as you want for later recall and use with planEASe.

An Assumption Set is like a “Rolodex” full of Assumption Pages (cards), displayed in the Assumption Page List. In the Real Estate Investment Analysis , the first two cards are always named “Investment” and “Investor”. Following these pages are, in order, as many Depreciation, Loan, Revenue and Expense cards as you need to describe the investment’s characteristics.

Common Size Statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and the changing relationship between financial statement items. In the planEASe Common Size Statement, all items in each year's income statement can be presented as a percentage of either Gross or Net Sales.

Continuation Page allows you to plan multi-step loans, revenues and expenses. A Continuation Page is denoted by a Revenue/Expense Start Date or Loan Origination Date of minus one (-1.00), which you can think of as “look back one page and start this Loan / Revenue / Expense when that one ended”. Expressed another way, use a Continuation Page whenever you want to say “and then”, as in “the vacancy rate will be 10% for the first two years and then will be 5%”.

The Start Date of a Continuation Page must be minus one (-1). When you add a Continuation Page, the Start Date is automatically set to minus one, but if you change it to something else, planEASe will NOT continue to treat it as a Continuation Page.

The ending date of a page affects the computation of the ensuing page Start Date. A planEASe Loan, Revenue or Expense must start at the beginning of a month. This is typically no problem when your steps are 1 year or.75 years, but what about an eight month step that lasts for.6666667 years? The answer is to enter the Loan, Revenue or Expense Period as.6666667 or.6666666. Any step that is “close” to a month cut-off such as this results in correct computations. Entering.66 does not work, causing the ensuing step to start a month early.

Continuation Pages using Annual Growth have a first step of twelve months, and start at the ending value of the last step. Thus if the previous page used Annual Growth and the growth step on that page has not occurred (as can be the case with fractional time periods), the next step carries the old amount forward for another 12 months.

General Page Type planEASe Assumption Sets are made up of two Page Types: General and Multiple. General Pages are always the first pages in the Assumption Set. For the Real Estate Investment Analysis , the General Pages are “Investment” and “Investor”. For the Limited Partnership / LLC Investment Analysis they are “Investment”, “Limited Partner”, “Partnership / Group” and “Distribution”. There can only be one of each General Page in an Assumption Set, whereas you may include as many Multiple Page Type Pages as you want. (see also Multiple Page Type in this Glossary)

Grid All the reports you see on screen (and some other objects as well) are Grids. Grids behave like stupid spreadsheets... they don’t have any formulas or brains inside them, but you can click anywhere on them and edit the text or numbers shown there just as you would with your favorite spreadsheet. Any edits you perform are reflected in the printed report based on the Grid, but do not affect any Assumptions and are not retained after you close the spoke containing the Grid.

Horizontal Report (and View) In Basic and Detail Analysis you may choose between Horizontal and Vertical View. Horizontal View is so named because time (years or months) runs horizontally across the top of the grid in that view, whereas in Vertical View time runs vertically down the side of the grid. Reports that show the Horizontal View grid are called Horizontal Reports. Horizontal Reports may be printed in either Portrait or Landscape Orientation.

Hub planEASe uses a spoke/hub architecture discussed in the Menu Bar description on page 5

Investment Name is the name that you enter for the investment in the Assumption Set Specifications Dialog when you request New Assumptions from the File Menu. The Investment Name is always shown in the Status Bar at the bottom of the screen. You may change the Investment Name at any time by clicking on it (in the Status Bar), which brings up a Dialog for changing it (as well as the other items in the APOD Report if you have the Reporting Extension).

Measure is a number produced by planEASe which tells you how attractive the cash flows from the investment are. The measures used by planEASe are the Net Present Values (NPV), Internal Rates of Return (IRR), Modified Internal Rates of Return (MIRR) and Capital Accumulations (CpA).

Capital Accumulation (CpA) The Capital Accumulation (CpA) of an investment is defined as the Future Value (at the end of the Holding Period, reinvested at the Reinvestment Rate) of all positive cash flows from an investment, less the NPV of all negative cash flows discounted to the Acquisition Date at the Safe Rate. The CpA, then, measures the Net Future Value of the additional money that the investor would end up with at the end of the Holding Period. This measure is referred to as the Net Future Value (NFV) of an investment in much of the financial literature.

Modified Internal Rate of Return (MIRR) The Modified Internal Rate of Return (MIRR) of an investment is defined as the Present Value Discount Rate that makes the Net Present Value of the Investment equal to zero when all positive future cash flows have been reinvested until the end of the Holding Period at the Reinvestment Rate, and all negative future cash flows have been funded at the Acquisition Date at the Safe Rate.

You may think of the MIRR as the annual Interest Rate or Yield (compounded annually) that the investment is paying you over the Holding Period. Naturally, the higher the yield, the better the

investment. There is a more complete discussion of the Modified Internal Rate of Return in the Discounted Cash Flow Appendix.

Internal Rate of Return (IRR) The Internal Rate of Return (IRR) of an investment is defined as the Present Value Discount Rate that makes the Net Present Value of the Investment equal to zero.

You may think of the IRR as the annual Interest Rate or Yield (compounded annually) that the investment is paying you over the Holding Period. Naturally, the higher the yield, the better the investment. There is a more complete discussion of the Internal Rate of Return in the Discounted Cash Flow Appendix.

Lender Yield Lender Yield is the Rate of Return (IRR or MIRR, depending on the Model being used) on the Total Debt Service for the property or investment. It is computed by reversing the sign of the Debt Service (to look at it from the Lenders’ perspective where the draw is an outflow and the debt service and repay is an inflow) and computing returns as normal on the reversed cash flows.

Lender Yield is shown in the Loan Participation Dialog, and is available as a measure in Sensitivity and Risk Analysis, as well as being available for import in Cash Flow Analysis. Lender Yield includes all loans in the Assumption Set. If you want to show or compute the Lender Yield for an individual loan, you must set the Loan Amount for the other loans to zero.

Net Present Value (NPV) The Present Value (at i%) of a future cash flow (cf) to be received n years from today is defined as the amount you would have to deposit today (drawing an i% interest rate compounded yearly) to accumulate cf dollars in n years. The interest rate used in this calculation is called the Present Value Discount Rate.

The Net Present Value (NPV) of an investment is the sum of the Present Values of all future cash flows, less the initial amount invested. There is a more complete discussion of Net Present Value in the Discounted Cash Flow Appendix.

Model A planEASe Model is comprised the names, sizes, and other characteristics of the assumptions and reports produced by the system, and the actual program containing the equations to process the assumption values into cash flow forecasts. There are two models available for the Real Estate Investment Analysis , designated as RUI (using IRR’s) and RUM (using MIRR’s). Likewise, there are four models available for the optional Limited Partnership / LLC Investment Analysis , designated as RPI (LP using IRR’s), RPM (LP using MIRR’s) RPR (LLC using IRR’s), and RPF (LLC using MIRR’s). Additionally the model for Installment Sale Analysis is available as RSA. The model designation for the model currently in use is shown in the Status Bar at the bottom of the screen.

Multiple Page Type Each planEASe model contains several assumption Page Types for which you may enter as many assumption pages as you want, such as Depreciation, Loans, Revenues, and Expenses. These are Multiple Page Types, and their use allows you to choose how detailed you want your analysis to be. (see also General Page Type and Page SubType in this Glossary)

Page SubType Each Multiple Page Type in planEASe, (Depreciation, Loan, Revenue, Expense, and, in the Partnership / LLC Models, Fee and Funding) may have one or more Page SubTypes associated with it. Several Page SubTypes are currently available. See the Assumption Descriptions for the RU Model Series for a full discussion of these assumption pages and their usage.

planEASe Date Dates are entered into planEASe Assumption Sets denoted as the numerical month (1-12) and the last two digits of the year. Thus an assumption value of 4.01 means April 1, 2001. Dates entered in planEASe are interpreted with a century turn of 70. That is, 1.69 is interpreted as 1 January 2069 and 1.70 is interpreted as 1 January 1970.

Ratio Analysis is a section included in the ProForma Income Statement and Annual Statements containing some or all of the following measures of goodness for the investment:

Capitalization Rate is Net Operating Income divided by the Price of Property at Acquisition.

Adj Capitalization Rate is Net Operating Income divided by the Price of Property at Acquisition adjusted for additional investments and dispositions made since acquisition.

Cash on Cash Before Tax is Net Operating Cash Flow divided by Initial Equity.

Adj Cash on Cash Before Tax is Net Operating Cash Flow divided by Initial Equity adjusted both for additional investments and dispositions made since acquisition, and for additional loans and loan repayments since acquisition.

Cash on Cash After Tax is Net Operating Cash Flow less Taxes Due divided by Initial Equity.

Adj Cash on Cash After Tax is Net Operating Cash Flow less Taxes Due divided by Initial Equity adjusted both for additional investments and dispositions made since acquisition, and for additional loans and loan repayments since acquisition.

Accounting Rate of Return Before Tax is Net Operating Cash Flow plus Equity Buildup plus Appreciation divided by Initial Equity.

Accounting Rate of Return After Tax is Net Operating Cash Flow After Tax plus Equity Buildup plus Appreciation divided by Initial Equity.

Current Rate of Return Before Tax is Net Operating Cash Flow plus the year’s increase in Sale Proceeds Before Tax divided by beginning Sale Proceeds Before Tax. This ratio measures the annual percentage increase in the current invested capital, and is useful for deciding when to sell or refinance when you are not concerned with tax (such as in an exchange).

Current Rate of Return After Tax is Net Operating Cash Flow After Tax plus the year’s increase in Sale Proceeds After Tax divided by beginning Sale Proceeds After Tax. This ratio measures the annual percentage increase in the current invested capital, and is useful for deciding when to sell or refinance when the transaction will be taxed.

Debt Coverage Ratio is the Net Operating Income divided by Debt Service, measuring the margin of safety for the lender in assuring that money will be available to service his loan.

Breakeven Occupancy is the Total Operating Expenses plus Debt Service all divided by Total Gross Income, expressing the percentage occupancy necessary to pay for the expenses and debt service.

Loan Balance/Property Value is the Loan Repayment amount divided by the Sale Value (both measured at the beginning of the year). This ratio measures the margin of safety for the lender’s principal.

NOI/Property Value is the Net Operating Income divided by the Sale Value. This ratio is also known as the overall capitalization rate, which tests the assumption for the appreciation of the property.

Gross Income Multiple is the Sale Value divided by the Gross Income, also testing the assumption for the appreciation of the property.

Operating Expense Ratio is the Total Operating Expenses divided by the Gross Income, which tests the reality of the total expense amount, as well as the expense growth rate. Notice that this ratio is better presented in the Common Size report which shows the same ratio for each of the individual expenses as well as the total.

Spoke planEASe uses a spoke/hub architecture discussed in the Menu Bar description on page 5.

Vertical Report (and View) In Basic and Detail Analysis you may choose between Horizontal and Vertical View. Vertical View is so named because time (years or months) runs vertically down the side of the grid in that view, whereas in Horizontal View time runs horizontally across the top of the grid. Reports that show the Vertical View grid are called Vertical Reports. Vertical Reports may be printed in either Portrait or Landscape Orientation.