Session 13 - Alternative Investments

Question 1

Real Estate NOI

Answer 1

Rental Income if fully occupied
+ other income
- vacancy and collection loss
- operating expenses

Question 2

Capitalization Rate (Private RE)

Answer 2

= discount rate - growth rate

Question 3

Capitalization Rate (Public)

Answer 3

= NOI / property value

This is the market required rate of return

Question 4

Private RE Value

Answer 4

= NOI (year 1) / capitalization rate

Question 5

Gross Income Multiplier

Answer 5

= sales price / gross income

value = gross income x gross income multiplier

Question 6

Debt Service Coverage Ratio (DSCR)

Answer 6

= first-year NOI / debt service ratio

Question 7

Property Value

Answer 7

= NOI / Capitalization rate

Question 8

Funds From Operations (FFO)

Answer 8

Popular measure of the continuing operating income of a REIT or REOC

Accounting net earnings
+ Depreciation expense
+ Deferred tax expenses
- Gains from sales of property + debt restructure
+ Losses from sales of property + debt restructure

Question 9

Adjusted Funds from Operations (AFFO)

Answer 9

Funds from operations (FFO)

• Non-cash (straight-line) rent adjustments
• Recurring maintenance-type cap ex and leasing commissions

Question 10

NCREIF Property Index (NPI) Calculation

Answer 10

= [NOI - capex + (end market value - beg market value)] / beg market value