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Change the Investment Name 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, which brings up a Dialog for changing it (as well as the other items in the APOD Report if you have the Reporting Extension).
Lease Forecasting Projecting leases for existing and new leases generally requires you to itemize the components of the lease in several Revenue Pages. The general capability to keep in mind is that these pages allow you to place any amount at any time in your forecast. Therefore, there is no lease which cannot be forecast with the system, although some complicated leases may be arduous unless you simplify.
For example, this table shows a lease calling for a fixed $50,000 for three years (Base Rent) followed by $70,000 for five years (& Renewal) with annual COL adjustments. A percentage rent clause calls for 2% of all sales in excess of $1,000,000, and sales are currently running $1,500,000 annually. To forecast this, we take 2% of $1.5m, or $30,000 annually, and let it grow with inflation (& Percent) and then subtract out the base 2% of $1m ($20,000) with & Less Base. Note that all pages are tied to specific dates (as is the lease itself) so that the dates will not change when the Acquisition Date is changed. This example is derived from the Thrifty lease in the shops.ru Assumption Set, which you may want to examine. The four revenue pages for this lease are added together under the name Thrifty in the Detail Analysis, Income Statements and Annual Statements due to the “&” used as the first character of the Page Title of the last three pages. With the addition of the Reimbursements Dialog in Version 11, the Percentage Rent clause is better handled there.
Expense Pass-throughs Project the expense as both a revenue and an expense. Then set up a negative revenue page for any base amount which is not passed through, and the revenue side is left with the remainder to be received from the tenant(s). With the addition of the Reimbursements Dialog in Version 11, Pass-throughs, or reimbursements, are better handled there.
Import NOI If you use other software to forecast revenues or Net Operating Income (NOI), you can take the total forecast into planEASe by specifying a series of one year revenue pages for the total amounts, thereby allowing you to use that forecast in a total investment analysis. Entry of NOI is facilitated by using Edit/Add Con- tinuation Page. Enter the first page as shown, then use Edit/Add Continuation Page twice to add the following pages. You can then easily edit the Annual
Revenue on the added pages. Using the W (and/or M) keys to post the changes facilitates this because the cursor stays in the same assumption on the next or previous page.
Variable Growth Rates Variable Growth Rates are planned using the Continuation Page capabil- ity (denoted by a Revenue or Ex- pense Start Date of minus one). For such a page, the starting amount may be specified by entering a dollar or percentage amount, which causes that amount to be used in the calculations. If, however, you specify a zero amount for a Continuation Page, planEASe uses the ending amount from the previous page as the starting amount, which allows you to vary such items as the Growth Rate, Growth Method, Vacancy Rate and/or Management Fee during the life of the Revenue/Expense. In this table, Variable revenue grows at 3% more than the inflation rate for two years, then 1% more than the inflation rate for the two following years, then at exactly the Inflation Rate afterwards. You may also plan Variable Vacancy Rates using the same technique. You may freely mix Growth Methods in the Continuation Pages as well. The three pages for this revenue are added together under the name Variable in the Detail Analysis, APOD, and Income and Annual Statements due to the “&” used as the first character of the Page Title for the last two pages.
Entry of Variable is facilitated by using Edit/Add Continuation Page. Enter the first page as shown, then use Edit/Add Continuation Page twice to add the following pages. You can then easily edit the Revenue Growth Rates and Revenue Periods on the added pages. Using the W (and/or M) keys to post the changes facilitates this because the cursor stays in the same assumption on the next or previous page.
Goal Seeking Sensitivity Analysis can (and should) be used for goal-seeking. For example, to find the purchase price that gives you a 20% after tax rate of return, run a Sensitivity Analysis on purchase price giving a range wide enough to assure the results will “cross” 20%. You can pick the approximate answer off the graph if you want, or rerun the analysis with smaller steps to get the exact answer. Once you have that answer, change the purchase price to that value at the Assumption Edit Screen and run whatever reports you want.
Amounts as a % of Price All the Multiple Page Types allow you to enter a percentage of purchase price as the page amount. Use this with discretion. In general, you should enter the amount in the same manner in which you are thinking about it. In other words, if you are thinking that you will borrow 80% of the purchase price, then the Loan Amount should be entered as 80. Conversely, if you are thinking that you will borrow $800,000 even though you may offer $900,000 for the property, then the Loan Amount should be entered as $800,000. There are two reasons to enter assumptions in this way. First, when you enter a change to the purchase price, you may not have to change the Multiple Page Type amount assumption. The second reason is to avoid dependencies for Sensitivity and Risk Analysis. If you vary the purchase price in these processes, the Multiple Page Type amount either will or will not vary with the changes depending on whether you specified a percentage or an amount (respectively).
Chart of Accounts You may want to set up Assumption Set “templates” for particular kinds of property. This is like a “Chart of Accounts” where there is always an Expense Page for Pool Maintenance, for instance. Rather than re-entering similar pages for each property of this kind, you simply request Edit/Transfer Pages, use the OpenSourceFile option to open your template Assumption Set, and drag and drop your standard expenses, leases, loans, et cetera from the template to your current Assumption Set. This saves a lot of time.
Tax deduction with no corresponding cash flow To generate a $50,000 tax deduction in July 2001 with no corresponding cash flow (perhaps a charitable deduction for the facade of an historic property?), set up these two expense pages. Since the first page is tax deductible and the second is not, the cash flows from the two pages cancel each other out. This leaves no cash flow in total, but the deduction from the first page remains.
Original Issue Discount Implied Interest To generate the tax deductions for Original Issue Discount Implied Interest on a note where there is zero interest but you want to deduct the amount of interest that would be due if the note bore a 9% interest rate, set up two loan pages. The first page is the note with a 9% interest rate. The second page is for the same note, but with a negative Loan Amount of the same amount, and a negative 9% interest rate. The cash flows from the two notes cancel out due to the negative amount in the second loan. Since a negative interest rate generates no interest deductions, the interest deductions from the first note remain.
Breakeven Analysis Breakeven Analyses are easily performed before debt and before and after tax simply by setting the appropriate Present Value Discount Rate to zero and running a Sensitivity Analysis on the concerned assumption looking for the assumption value corresponding to a zero Net Present Value. For instance, you might run the General Credit Loss & Vacancy Factor against Net Present Value Before Tax to find the Vacancy Factor at which you make zero profit. Remember, a zero discount rate simply values all future cash flows at their nominal value rather than discounting them, so the Net Present Value in such a case is simply Profit.
A level of sophistication above that might call for setting the Present Value Discount Rate to 15% in the same analysis to find the Vacancy Factor which would yield a 15% IRR. (Remember, the IRR is defined as the Present Value Discount Rate at which the NPV is zero, so all you have to do is look for the Vacancy Factor causing a zero Net Present Value).
Note Discounting Enter an Acquisition Date, a Holding Period equal to or greater than the life of the loan, and the loan itself as one or more loan pages with negative Loan Amounts (you use negative amounts to make the Debt Service amounts into positive cash flows). Finally, set the Present Value Discount Rate Before Tax to the required yield, enter the Loan Amount as a negative Price of Property, and run Basic Analysis. The negative Price of Property cancels the negative loan draw at the buy time, and you are left with just the future payments and principal repayment in the Cash Flow Before Tax (as positive cash flows). The Net Present Value Before Tax then, is the loan price to give the required yield. Nothing restricts you to a single loan obviously, so you can use the same technique to value an entire portfolio.
Varying the Present Value Discount Rate in a Sensitivity Analysis against the Loan’s Net Present Value, gives an impressive graph showing the loan price to give various yields. If you want a client report showing the discounting process determining the NPV, use File/Import Cash Flows in Cash Flow Analysis in the Financial Utilities to generate the NPV Verification Report. Examples of Assumption Sets for Note Discounting are included on your planEASe distribution disk under the names note.ru and notes.ru (for multiple loans). If you are using this capability extensively, or for complex loans, you may want to consider the added accuracy and visibility you get with our planEASe Monthly Extension .
Lease-by-Lease Analysis We include Assumption Sets for the lease by lease analysis of the Sample Shopping Center and the Redondo Professional Building with your planEASe under the names shops.ru and offices.ru.
Date Entry All dates in your planEASe Assumption Sets must be entered as MM.YY where MM is the month, and YY is the year and they are separated by a decimal point. Thus 4.01 means the fourth month (April) of 2001.
Any Depreciation, Loan, Revenue or Expense may start on any date you wish. If you enter a date of 0.00 for any of these pages, the Start Date defaults to the Acquisition Date. Try to use this date default of 0.00 for Start Dates when appropriate, rather than entering the actual date. If you do, whenever you change the Acquisition Date, all Multiple Page Type pages with 0.00 dates automatically adjust to start on the new Acquisition Date, and you avoid having to remember to change all the dates. This discipline also assures you of not making mistakes by failing to change dates.
Time is a continuum in planEASe. If you include cash flows that begin before the Acquisition Date, the system knows it, and only includes the cash flows which affect the time during the holding period. Likewise, if you include pages that start after the Holding Period ends, the system senses that as well, and ignores the page. Why would you include such cash flows? One very good reason... if you vary the Holding Period in Sensitivity or Risk Analysis, the Revenues, Expenses, etc. to cover those Holding Periods had better be in the Assumption Set or you’re going to have some very strange results indeed!!
Land Acquisition This Land Depreciation Page makes a Capital Expenditure of $200,000 in July 2001 with no depreciation (Enter a zero (0) Depreciable Life). This type of Depreciation Page can be used for the acquisition of any non-depreciable capital asset. The Depreciation Assumptions not shown here are irrelevant in this case
Development/Capital Spending Capital Spending is indicated by entering a Depreciation Page with a Depreciation Start Date occurring after the Acquisition Date. New Build- ing and the following Depreciation Pages depreci- ate $210,000 starting in March of 2005 over 27.5 years by the Straight Line Method. The $210,000 Capital Expenditure is spent as $100,000 in 2003, $80,000 in 2004, and $30,000 in 2005. The three depreciation pages for this development are added together under the name New Building in the Detail Analysis, Income Statements and Annual Statements due to the “&” used as the first character of the Page Title of the last two pages.
Partnership / LLC Fee Planning Planning Fees is pretty simple with one major exception: the tax treatment of the fee when the tax code specifies that the particular fee must be “amortized” These fees are always planned with two pages: a One-Time Capital Fee Fee Page with Fee Tax Deductible set to No takes care of planning the cash flow for the fee, and a Depreciation Page for the Fee Amount takes care of the amortization. In such cases, there are two possibilities: either the fee is added to the basis of the property or not.
! Fees that add to basis are functionally equivalent to Capital Expenditures. They are typically paid at the Acquisition Date. If this is the case, they should be planned as two pages: A One-Time Capital Fee Fee page for the Fee Amount, Fee Tax Deductible of Not Deducted and Fee Date of 0.00 (at Acquisition) adds the amount to the Investment and Sale item at the Buy and therefore accounts both for the cash expenditure of the amount and the addition to the property basis, but does not generate the tax deduction for the fee. A Depreciation page for the amount, using straight-line over the amortization period with a Depreciation Start Date of at Acquisition takes care of the tax deduction.
In the case that such a fee is paid after the Acquisition Date, it should be planned as a Capital Expenditure with a Depreciation Page rather than as a Fee.
! Fees that do not add to basis and are paid at the Acquisition Date are planned as above, except use a One-Time Expensed Fee Fee Type, instead of One-Time Capital Fee. Fees paid after the Acquisition Date are planned with two pages: A One-Time Expensed Fee Fee Page for the Fee Amount, Fee Tax Deductible of Not Deducted, and Fee Date when paid adds the Fee Amount to the Operating Expense column at the Fee Date accounting for the cash expenditure. A Depreciation (amortization) Page with Depreciation Start Date of the Fee Date and a negative Depreciation Life takes care of the deduction for the Fee Amount.
Tenant Improvements Thrifty TI makes a $10,000 Tenant Improvement in July 2004. According to our understanding of the 1993 tax revision, tenant improvements should be amortized over a 39 year life rather than the life of the lease, as shown here. In 1996, the tax law was changed to allow tenant improvements to be written off at the expiration of the lease that caused them. The Recapture Method of -7.50 used here assures that the remaining unamor- tized amount is written off at the end of 7.5 years or the end of the Holding Period, whichever is first.
The Economic Stimulus Bill signed into law in March 2002 allows certain (significantly restricted) Tenant Improvements to qualify for an immediate 30% depreciation deduction, with the remaining 70% to be depreciated over the normal 39 year life as under previous law. The allowance of this treatment expires at the end of 2004 in the Bill. To implement this treatment in version 10.02 and beyond, for a $10,000 TI incurred in March 2003 for a 7.5 year lease, add two Deprecia- tion Pages as shown. In the 2003 Tax Bill, the 30% allowance was increased to 50%
Partial Loan Payments are caused when you assume an existing loan in the middle of a payment period or sell the property after a loan payment has been made but before the next payment is due. In such cases planEASe automatically computes and pays an interest-only payment for the period involved. For instance, if you assume an existing quarterly payment amortizing loan on 1.02 and the loan started on 2.01, the last quarterly payment would have been made on November 1, 2001. planEASe assumes the loan value outstanding as of that payment, making the internal assumption that the seller would make an interest-only payment in escrow to cover the two months involved. Continuing with the same example, if you planned on selling on April 15, 2004, planEASe knows that you made the last payment on February 1, 2004, and computes an interest-only payment at the end of the loan to cover the 2.5 months due.
Split Down Payments are treated as exactly what they really are: Zero interest loans from the seller. Use Interest-Only Loans, and remember that the Loan Period can be fractional, so you can put the second and third (and so on) installments in any month you want.
Compensating Balances / Reserves and/or Deposit Reserves are handled as negative loans. A negative loan is simply a loan with a negative Loan Amount, representing a loan from the property buyer to a third party (the bank in these cases). If the required balances earn interest, plan the negative “loan” with an interest rate... otherwise it’s a zero interest rate loan.
Variable Rate/Payment Loans are entered using multiple loan pages, one defining each interest rate and/or payment amount involved. Here are some examples. Remember that the Loan Period can be fractional years, so each step can be any number of months you want.
Variable 1 shows the entry of a 30 year variable rate loan for $100,000 with 3 payment/rate changes forecast 6 months apart, where the payment is to be computed as amortizing over the remaining life of the loan. We use the Monthly Payments, Amortizing Loan Type so that planEASe computes the payments for us, using the Original Loan Period for the amortization period. The step length in this case is specified by the Balloon Payment Due where the step ends prior to the end of the Original Loan Period. Note that the Balloon Payment Due is None in the last step so that the loan will continue throughout the Holding Period. The four pages for this loan are added together under the name Variable 1 in the Detail Analysis, APOD, and Income and Annual Statements due to the “&” used as the first character of the Page Title for the last three pages.
Entry of this loan requires that you enter the Variable1 loan page as shown, choose Edit/Add Continuation Page 3 times to add the remaining 3 pages, change the Loan Interest Rate on the 3 added pages to the values shown, and finally change the Balloon Payment Due to None on the last page. All other values are automatically entered by the Edit/Add Continuation Page menu option.
Variable 2 shows a variable rate loan with stipu- lated (contractual) payments. This is a new $100,000 loan taken at Acquisition and paid $900/mo at 12% interest for 12 months, $1000/mo for 12 months at 13%, and $1300/mo at 14% thereafter. Because the payment for the first two steps is less than the interest due, this loan amor- tizes negatively for the first 24 months until the $1300 payment is in effect. The Variable Loan Type allows you to plan variable rate loans with one or more negatively amortizing steps. The final step is entered as 28 years, but the loan fully amortizes before that time (and planEASe handles that properly automatically. This loan has been saved in the Loan Amortization module of the Financial Utilities as WSAMPLE, if you want to play with it. The three pages for this loan are added together under the name Variable 2 in the Detail Analysis, APOD, and Income and Annual Statements due to the “&” used as the first character of the Page Title for the last two pages.
In planning this loan, you might use the payment constant capability of the Payment Override. Numbers less than 25 entered in the Payment Override are interpreted as a % of the Loan Amount, so for a $100,000 Loan Amount, Payment Overrides of 1,300.00 and 1.30 are equivalent. The advantage of using the payment constant is that the payments will automatically be scaled to the Loan Amount if you change it.
In using the Continuation Page capability, you may freely mix Loan Types, so step 1 might have monthly payments, step 2 quarterly payments, and step 3 monthly payments again. For another loan, Step 1 might be Monthly Payments, Amortizing with a Balloon Payment Due, and Step 2 might be Quarterly Payments, Interest Only, not that such a loan would be usual.
Free Rent is easily handled within Market Profiles but you may wish to handle it directly in some cases (where Market Profiles perhaps are not needed). This table shows how to plan normal rent ($120,000 per year) and then use a SubPage to subtract three months (.25 Years) at the beginning of the lease as Free Rent. Be sure to use the same Revenue Growth Method and Rate on both pages so the amounts mirror each other for the period of the Free Rent. There are other examples in the owner.ru and tenant.ru Assumption Sets shipped with planEASe.