70 70

Reconstructing the
Reconstructing the
Operating History
Operating History
LDM GROUP
LDM GROUP
Franklin Templeton Asset Group
Franklin Templeton Asset Group
71 71
Overview of Operating
Overview of Operating
Statement
Statement

Concerned with actual cash

Concerned with actual cash
flows into and out of investor
flows into and out of investor

s
s
funds
funds

Present cash inflows and

Present cash inflows and
outflows from operations and
outflows from operations and
extend the presentation to
extend the presentation to
include non
include non
-
-
operating cash
operating cash
flows such as those from debt
flows such as those from debt
service, income taxes and
service, income taxes and
capital expenditures
capital expenditures
72 72
Table 5.1
Table 5.1
73 73
Overview of Operating
Overview of Operating
Statement
Statement

Potential gross rent

Potential gross rent

amount of
amount of
rental revenue a property would
rental revenue a property would
generate with no vacancies
generate with no vacancies

Operating expenses
Operating expenses

include all
include all
cash expenditures required to
cash expenditures required to
maintain and operate the property
maintain and operate the property
so as to generate the gross rent
so as to generate the gross rent

Net operating income

Net operating income

the
the
difference between effective gross
difference between effective gross
income and operating expenses
income and operating expenses

Debt service
Debt service

consequence of
consequence of
using borrowed money to acquire
using borrowed money to acquire
property
property

After
After
-
-
tax cash flow= bottom line
tax cash flow= bottom line

the amount of cash remaining at

the amount of cash remaining at
the end of the reporting period
the end of the reporting period
74 74
Estimating Ability to
Estimating Ability to
Command Rent
Command Rent

History of recent operations

History of recent operations

Verify records of comparable

Verify records of comparable
properties
properties

Estimate recent gross income

Estimate recent gross income
through research
through research

Find comparable properties

Find comparable properties

Define market area

Define market area

Identify properties that

Identify properties that
prospective tenants would
prospective tenants would
consider as close substitutes
consider as close substitutes
75 75
Figure 5.1
Figure 5.1
76 76
Figure 5.2
Figure 5.2
77 77
Estimating Operating
Estimating Operating
Expenses
Expenses

Subject property
Subject property

s operating
s operating
history
history

Recent expense history of

Recent expense history of
comparable properties
comparable properties

Published compendiums of
Published compendiums of
similar properties as
similar properties as
benchmarks
benchmarks
78 78
Table 5.2
Table 5.2
79 79
Table 5.3
Table 5.3
80 80
Table 5.4
Table 5.4
81 81
Table 5.5
Table 5.5
82 82
Table 5.6
Table 5.6