Real Estate

Question 1

Net operating income

Answer 1

Rental income if fully occupied
\+ other income
= potential gross income
- vacancy and collection loss
= effective gross income
- operating expenses
= net operating income

Question 2

Capitalization rate

Answer 2

Applied to first year NOI; if NOI and value is expected to grow at a constant rate, the cap rate is lower than the discount rate:
Cap rate = discount rate - growth rate
Growth is implicitly included in cap rate
Cap rate = NOI1/value

Question 3

Debt service coverage ratio

Answer 3

First year NOI / debt service
Debt service (loan payment) includes interest and principal, if required

Question 4

Loan to value ratio

Answer 4

Loan amount / appraisal value

Question 5

Equity dividend rate

Answer 5

First year cash flow / equity
Measures the cash return on the amount of cash invested.
Only covers one period.

Question 6

Funds from operations

Answer 6

Accounting net earnings
+ dep exp
+ deferred tax exp
- gains from sales of property and debt restructuring
+/- losses from sales of property and debt restructuring
= FFO

Question 7

NAV/share

Answer 7

= (cash NOI / cap rate) + cash and accts rec - debt and other liabilities = net asset value