Adley- Week2 DQ2 Initial Reply
Capital expenditures (CAPEX) are actual expenses incurred to purchase or maintain property assets. These cash outflows are capitalized on the balance sheet, shown as depreciable expenses on the income statement, and deducted over an IRS-specified term of 3-7 years. Explicitly regarding pro forma analysis, CAPEX are projected costs to maintain the asset in good repair, and a line-item section under improvements of the depreciation schedule, along with tenant improvements (TI). Moreover, CAPEX will vary year to year based on “wear and tear” and planned capital improvement projects, and can be calculated by a percentage of revenue, square foot, or unit. As a result, Linneman (2011) notes that “Forecasted cap ex reflects expectations about future outlays; forecasted depreciation reflects the application of depreciation rules to past outlays” (p. 54) …show more content…
When producing a NOI figure--adjusted to CAPEX--leasing and capital costs of tenant improvements, leasing commissions, and capital improvements are included. Regarding financial modelling, NOI is a key factor given is use to determine the capitalization rate (Cap Rate), an all-important measure in real estate. However, Cap Rate will differ depending on NOI, before or after reserves. Additionally, given that pro forma analysis is an attempt to model future NOI and cash flows, we are reminded that the process is “more art than science” (Pro Forma Analysis, 2003).
Reference:
Ernst & Morris. (n.d.). Example of cost segregation benefits. Retrieved from http://www.costseg.com /pdfs/ example_corporate.pdf
Linneman, P. (2004). Real estate finance & investments: Risks and opportunities. Philadelphia, PA: Linneman Associates.
Pro Forma Analysis. (2003, September, 12). University of North Carolina [PowerPoint]. Retrieved from http://public.kenan-flagler.unc.edu/faculty/ langm/course/ Pro_ Forma
Capital expenditures (CAPEX) are actual expenses incurred to purchase or maintain property assets. These cash outflows are capitalized on the balance sheet, shown as depreciable expenses on the income statement, and deducted over an IRS-specified term of 3-7 years. Explicitly regarding pro forma analysis, CAPEX are projected costs to maintain the asset in good repair, and a line-item section under improvements of the depreciation schedule, along with tenant improvements (TI). Moreover, CAPEX will vary year to year based on “wear and tear” and planned capital improvement projects, and can be calculated by a percentage of revenue, square foot, or unit. As a result, Linneman (2011) notes that “Forecasted cap ex reflects expectations about future outlays; forecasted depreciation reflects the application of depreciation rules to past outlays” (p. 54) …show more content…
When producing a NOI figure--adjusted to CAPEX--leasing and capital costs of tenant improvements, leasing commissions, and capital improvements are included. Regarding financial modelling, NOI is a key factor given is use to determine the capitalization rate (Cap Rate), an all-important measure in real estate. However, Cap Rate will differ depending on NOI, before or after reserves. Additionally, given that pro forma analysis is an attempt to model future NOI and cash flows, we are reminded that the process is “more art than science” (Pro Forma Analysis, 2003).
Reference:
Ernst & Morris. (n.d.). Example of cost segregation benefits. Retrieved from http://www.costseg.com /pdfs/ example_corporate.pdf
Linneman, P. (2004). Real estate finance & investments: Risks and opportunities. Philadelphia, PA: Linneman Associates.
Pro Forma Analysis. (2003, September, 12). University of North Carolina [PowerPoint]. Retrieved from http://public.kenan-flagler.unc.edu/faculty/ langm/course/ Pro_ Forma