Self Storage Acquisition Example

Transcription

1 Property Information Self Storage Acquisition Example Project Assumptions Acquisition Assumptions Property Name Self Storage Acquisition Example Project Type Acquisition Location Dallas, TX Acquisition Cost $3,300,000 Property Use Self Storage Other Costs $0 Units $0 Analysis Year Begin 2015 Acquisition Cost $3,300,000 Annual Inflation Rate 3.0% Due Diligence/Closing Costs 1.00% $33,000 Unleveraged Acquisition Cost $3,333,000 Initial Loan Origination Fee 1.00% $24,998 Leveraged Acquisition Cost $3,357,998 Initial Capital Structure Tax Assumptions Debt: (LTV) 75.0% $2,499,750 Ordinary Income Marginal Tax Rate 35.0% Equity $858,248 Capital Gains Tax Rate 20.0% Total $3,357,998 Cost Recovery Recapture Tax Rate 25.0% Desired Equity Return (Discount Rate) 8.0% Cost Recovery Assumptions Developer Equity 10.0% $85,825 Assessed Value of Land 20% JV Partner Preferred Equity 90.0% $772,423 Assessed Value of Improvements 80% Please refer to the Equity Investor Returns worksheet for waterfall information. Cost Recovery Method Straight Line Useful Life 39 C.R. 1st & Last Years (11.5 months) 2.457% C.R. Interim Years (12 Months) 2.564% Debt Structure Assumptions Interest Only Loan Amortizing Debt Service Will there be an Interest Only Period? No Amortization Type American Loan Amount $2,499,750 Amortizing Loan Amount $2,499,750 Interest Expense Included in Budget Term (Months) 120 Term (Months) 0 Amortization (Months) 240 Rate 0.00% Start Rate 5.50% Origination Fee 0.00% Origination Fee 1.00% Funding Status Fund Up Exit Fee 0.00% Fully Funded by Month: 0 Rate Type Fixed Action at Maturity: Amortize Loan Balance Grow Rate 0.00% every 1 years Minimum DSCR 1.25x Maximum LTV 75.0% Based on Cap Rate of 9.00% in year 1 Loan is limited based on LTV. Sale Assumptions Year of Sale 5 Terminal Value Calculation Method Cap Rate Cost of Sale 5.0% Exit Cap Rate 9.00%

2 Self Storage Acquisition Example Unit Mix Unit Type Length Width Number of Units % Unit SF Total SF Monthly Rental Rate $ PSF Total Monthly Rent Ambient % ,480 $100 $0.71 $13,200 Climate Controlled % ,250 $125 $1.00 $44,250 Total % ,730 $118 $0.92 $57,450

3 Schedule of Prospective Cash Flows Period Operating Income Inflation 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Base Rental Revenue 689, , , , , , , , , , ,496 Other Potential Gross Revenue Less: Concessions (58,000) (59,740) (61,532) (63,378) (65,280) (67,238) (69,255) (71,333) (73,473) (75,677) (77,947) Total Other Potential Gross Revenue (58,000) (59,740) (61,532) (63,378) (65,280) (67,238) (69,255) (71,333) (73,473) (75,677) (77,947) Total Potential Gross Revenue 631, , , , , , , , , , ,549 General Vacancy Rate 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Vacancy & Collection Loss (94,710) (97,551) (100,478) (103,492) (106,597) (109,795) (113,089) (116,481) (119,976) (123,575) (127,282) Other Income Miscellaneous 20,000 20,600 21,218 21,855 22,510 23,185 23,881 24,597 25,335 26,095 26,878 Total Other Income 20,000 20,600 21,218 21,855 22,510 23,185 23,881 24,597 25,335 26,095 26,878 Effective Gross Income 556, , , , , , , , , , ,145 Operating Expenses Inflation 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Property Management Fee 3.0% 16,701 17,202 17,718 18,249 18,797 19,361 19,942 20,540 21,156 21,791 22,444 Ad Valorem Taxes 120, , , , , , , , , , ,270 Insurance 10,000 10,300 10,609 10,927 11,255 11,593 11,941 12,299 12,668 13,048 13,439 Utilities 22,000 22,660 23,340 24,040 24,761 25,504 26,269 27,057 27,869 28,705 29,566 Repairs & Maintenance 5,000 5,150 5,305 5,464 5,628 5,796 5,970 6,149 6,334 6,524 6,720 Marketing 15,000 15,450 15,914 16,391 16,883 17,389 17,911 18,448 19,002 19,572 20,159 Payroll 60,000 61,800 63,654 65,564 67,531 69,556 71,643 73,792 76,006 78,286 80,635 Total Operating Expenses $248,701 $256,162 $263,847 $271,762 $279,915 $288,312 $296,962 $305,870 $315,047 $324,498 $334,233 Operating Reserves Cap Ex Reserves 25,000 25,750 26,523 27,318 28,138 28,982 29,851 30,747 31,669 32,619 33,598 Replacement Reserves Total Reserves $25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851 $30,747 $31,669 $32,619 $33,598 Net Operating Income $282,989 $291,479 $300,223 $309,230 $318,507 $328,062 $337,904 $348,041 $358,482 $369,237 $380,314

4 Schedule of Prospective Cash Flows Period Net Operating Income 282, , , , , , , , , ,237 Debt Service Interest 135, , , , , Principal 70,622 74,606 78,814 83,260 87, Total Debt Service 206, , , , , Cash Flow After Debt Service 76,644 85,133 93, , , , , , , ,237 Capital Expenses Replacement Reserve Expenses Capital Expenditures Total Capital Expenses Expenses Paid from Reserves Less: Cap Ex Paid from Reserves Less: User Defined Paid from Reserves Net Capital Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Return of Reserve Funds , Cash Flow Before Taxes $76,644 $85,133 $93,878 $102,884 $244,890 $328,062 $337,904 $348,041 $358,482 $369,237 Tax Liability* Cost Recovery Improvements 65,513 68,366 68,366 68,366 65, Loan Costs Amortization 2,500 2,500 2,500 2,500 2, Taxable Income 104, , , , , , , , , ,856 Tax Liability (Savings) at 35% 36,488 40,118 44,922 49,909 56, , , , , ,650 Cash Flow After Taxes 40,155 45,015 48,956 52, , , , , , ,587 *Does not include Capital Expenses as they are often subject to separate tax treatment. This pro forma does not constitute tax advice. Please consult a professional tax advisor Reserve Account Balances Period Cap Ex Reserve Beginning Balance 0 25,000 50,750 77, , , , , , ,978 Contributions 25,000 25,750 26,523 27,318 28,138 28,982 29,851 30,747 31,669 32,619 Expenses Paid Ending Balance 25,000 50,750 77, , , , , , , ,597 Replacement Reserves Beginning Balance Contributions Expenses Paid Ending Balance Total Reserve Balances 25,000 50,750 77, , , , , , , ,597

5 Loan to Value Debt Yied Value Self Storage Acquisition Example Project Return Summary Summary Sale Analysis Cash Flows IRR & Present Value Units 486 Acquisition Price $3,300,000 Before Tax After Tax Unleveraged IRR 10.2% Acquisition Price $3,300,000 Per Unit $6,790 Operating Cash Flows $603,429 $375,908 Unleveraged PV at 8% $3,641,400 Other Costs $57,998 Sale Price $3,645,135 Net Sale Proceeds $1,358,385 $1,248,378 Leveraged IRR 20.4% Equity $858,248 Per Unit $7,500 Total Cash Flow $1,961,815 $1,624,286 Leveraged PV at 8% $3,885,000 Debt $2,499,750 Appreciation 10.5% Profit $1,103,567 $766,039 After Tax IRR (Leveraged) 14.6% LTV 75% Avg. App/Year 2.1% Equity Multiple 1.29x 0.89x After Tax PV at 8% $3,631,400 Annual Income Projections Net Operating Income Cash Flow After Taxes Debt Serivce Debt vs. Equity Mortgage Balance (EOY) Equity (EOY) $350,000 $4,000,000 $300,000 $3,500,000 $250,000 $3,000,000 $200,000 $150,000 $100,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $50,000 $500,000 $0 $0 Debt Service Coverage Ratio Annual Cash on Cash Return 1.75x Before Tax Cash on Cash After Tax Cash on Cash 25% 1.50x 20% 1.25x 15% 1.00x 10% 0.75x 5% 0.50x 0% Break Even Occupancy Loan to Value & Debt Yield After Tax Pre Tax *Excludes Capital Expenses LTV Debt Yield 78% 80% 16% 76% 70% 14% 74% 72% 70% 68% 66% 64% 60% 50% 40% 30% 20% 12% 10% 8% 6% 4% 62% 10% 2% 60% 0% 0% This pro forma does not constitute tax advice. Please consult a professional tax advisor.

6 Summary & Ratios Operating Summary Effective Gross Income 556, , , , ,559 Operating Expenses (248,701) (256,162) (263,847) (271,762) (279,915) Operating Reserves (25,000) (25,750) (26,523) (27,318) (28,138) Net Operating Income 282, , , , ,507 Less: Debt Service (206,346) (206,346) (206,346) (206,346) (206,346) Cash Flow After Debt Service 76,644 85,133 93, , ,161 Return of Reserve Funds 132,728 Sale Price Based on 9% Exit Cap Rate 3,645,135 Less: Mortgage Balance (2,104,493) Less: Cost of Sale (182,257) Cash Flow Before Taxes 76,644 85,133 93, ,884 1,603,275 Less: Taxes (36,488) (40,118) (44,922) (49,909) (166,092) Cash Flow After Taxes 40,155 45,015 48,956 52,976 1,437,183 Value Summary Cap Rate Based on Acquisition Cost 8.43% 8.68% 8.94% 9.21% 9.49% Value Based on 9% Exit Cap Rate 3,238,655 3,335,815 3,435,889 3,538,966 3,645,135 Mortgage Balance (EOY) 2,429,128 2,354,523 2,275,709 2,192,449 2,104,493 Equity (EOY) 809, ,292 1,160,181 1,346,517 1,540,642 Operating Ratios Net Income Multiplier* Operating Expense Ratio 45% 45% 45% 45% 45% Cash on Cash Return (Pre Tax) 8.9% 9.9% 10.9% 12.0% 13.1% Cash on Cash Return (Post Tax) 4.7% 5.2% 5.7% 6.2% 22.0% *Based on Acquisition Cost Lender Ratios Loan to Value Ratio 75% 71% 66% 62% 58% Debt to Equity Ratio Debt Service Coverage Ratio 1.37x 1.41x 1.45x 1.50x 1.54x Break Even Occupancy (Pre Tax) 70% 69% 68% 67% 66% Break Even Occupancy (Post Tax) 75% 75% 75% 74% 74% Debt Yield 11.6% 12.4% 13.2% 14.1% 15.1% Performance Summary over 5 Years Pre Tax Post Tax Initial Equity (858,248) (858,248) Operating Cash Flows 603, ,908 Net Reversion Proceeds 1,358,385 1,248,378 Net Cash Flow 1,103, ,039 Net Present Value at 8% 527, ,451 Leveraged IRR 20.4% 14.6% This pro forma does not constitute tax advice. Please consult a professional tax advisor.

7 Unlevered Returns Net Operating Income 282, , , , ,507 Less: Capital Expenses Return of Reserve Funds ,728 Operating Cash Flow 282, , , , ,235 Reversion Cash Flow ,645,135 Less: Cost of Sale (182,257) Net Cash Flow (3,333,000) 282, , , ,230 3,914,114 Cash on Cash Return 8.5% 8.7% 9.0% 9.3% 117.4% Net Cash Flow $1,765,035 Net Present Value at 8% $308,424 Unleveraged IRR 10.2% Avg. Operating Cash on Cash 9.8% Avg. Cash on Cash 30.6% Unleveraged PV at 8% (Rounded $100's) $3,641,400 Per Unit $7,493 Levered Cash Flow Net Operating Income 282, , , , ,507 Refinance Proceeds Less: Debt Service (206,346) (206,346) (206,346) (206,346) (206,346) Less: Mortgage Origination Fee Cash Flow After Debt Service 76,644 85,133 93, , ,161 Less: Capital Expenses Return of Reserve Funds ,728 Distributable Cash Flow 76,644 85,133 93, , ,890 Reversion Cash Flow ,645,135 Less: Cost of Sale (182,257) Less: Mortgage Balance (2,104,493) Less: Mortgage Exit Fee Net Cash Flow (858,248) 76,644 85,133 93, ,884 1,603,275 Cash on Cash Return 8.9% 9.9% 10.9% 12.0% 186.8% Net Leveraged Cash Flow $1,103,567 Net Present Value at 8% $527,016 Leveraged IRR 20.4% Avg. Operating Cash on Cash 14.1% Avg. Cash on Cash 45.7% Present Value of Cash Flows at 8% $1,385,263 Plus: Original Loan Amount $2,499,750 Total Leveraged Present Value $3,885,013 Rounded ($100's) $3,885,000 Per Unit $7,994 After Tax Returns Project Return Details Basis Calculation Basis at Acquisition ,333,000 + Capital Additions Cost Recovery (Depreciation) Taken (336,126) Adjusted Basis at Sale ,996,874 Capital Gain Calculation Sale Price ,645,135 Less Cost of Sale (182,257) Less Adjusted Basis at Sale (2,996,874) Gain (Loss) ,005 Straight Line Cost Recovery (Limited to Gain) ,126 Capital Gain from Appreciation ,878 Unamortized Loan Fees (Costs) Sale Proceeds Calculation Sale Price ,645,135 Less Cost of Sale (182,257) Less Mortgage Exit Fee Less Mortgage Balance (2,104,493) Sale Proceeds Before Tax ,358,385 Less Tax on Ordinary Income at 35% Less Tax on Cost Recovery Recapture at 25% (84,032) Less Tax on Capital Gain at 20% (25,976) Sale Proceeds After Tax ,248,378 Proceeds After Taxes Cash Flow Before Taxes 76,644 85,133 93, , ,890 Less: Annual Operating Tax Liability (36,488) (40,118) (44,922) (49,909) (56,085) Cash Flow After Taxes 40,155 45,015 48,956 52, ,805 Sale Proceeds After Taxes ,248,378 Annual Proceeds After Taxes (858,248) 40,155 45,015 48,956 52,976 1,437,183 Cash on Cash Return 4.7% 5.2% 5.7% 6.2% 167.5% Net Cash Flows $766,039 Net Present Value at 8% $273,451 Effective Tax Rate 28.3% After Tax Leveraged IRR 14.6% Avg. Operating Cash on Cash 8.8% Avg. Cash on Cash 37.9% Present Value of Cash Flows at 8% $1,131,699 Plus: Original Loan Amount $2,499,750 Total After Tax Leveraged Present Value $3,631,449 Rounded ($100's) $3,631,400 Per Unit $7,472 This pro forma does not constitute tax advice. Please consult a professional tax advisor.

8 Interest Only Loan Loan Amortization Schedule Amortizing Loan Loan Amount - Loan Amount $2,499,750 Term - Term 120 Rate - Amortization 240 Funding Status - Rate 5.50% Rate Type Fixed Annual Summary Year Loan Type Effective Rate Beginning Balance Interest Principal Total Payments Ending Balance 1 Amortizing 5.50% 2,499, ,724 70, ,346 2,429,128 2 Amortizing 5.50% 2,429, ,740 74, ,346 2,354,523 3 Amortizing 5.50% 2,354, ,532 78, ,346 2,275,709 4 Amortizing 5.50% 2,275, ,086 83, ,346 2,192,449 5 Amortizing 5.50% 2,192, ,389 87, ,346 2,104,493 Total 5.50% - 636, ,257 1,031,728 - Annual Interest vs. Principal Interest Principal 160, , , ,000 80,000 60,000 40,000 20,000 0

9 Sources & Uses Period - Total Sources Of Capital Debt Proceeds 2,499, ,499,750 Equity Contributions 858, ,248 Net Operating Income - 282, , , , ,507 1,502,429 Return of Reserve Funds , ,728 Gross Proceeds from Sale ,645,135 3,645,135 Total Sources Of Capital 3,357, , , , ,230 4,096,370 8,638,290 Uses Of Capital Acquisition Price 3,300, ,300,000 Costs and Fees 57, , ,254 Mortgage Balance ,104,493 2,104,493 Annual Interest Expense - 135, , , , , ,471 Annual Principal Paydown - 70,622 74,606 78,814 83,260 87, ,257 Operating Tax Liability - 36,488 40,118 44,922 49,909 56, ,521 Cost Recovery Tax Liability ,032 84,032 Capital Gains Tax Liability ,976 25,976 Equity Returns - 40,155 45,015 48,956 52,976 1,437,183 1,624,286 Total Uses Of Capital 3,357, , , , ,230 4,096,370 8,638,290

10 Pre-Tax Equity Investor Returns Cash Flow Distribution Equity Investor 100% Basis Rate Developer Split 90% Split Equity Investor Developer Initial Equity Contribution 90.0% 10.0% 80% Preferred Return -24.4% - Preferred Return Cash on Cash 8.0% 100.0% 0.0% 70% Hurdle % 1.9% Hurdle 1 IRR 10.0% 90.0% 10.0% 60% Hurdle % 6.9% Hurdle 2 IRR 12.0% 80.0% 20.0% 50% Hurdle % 14.2% Hurdle 3 IRR 14.0% 70.0% 30.0% 40% Final 18.5% 32.5% Final Split 60.0% 40.0% 30% 20% 10% 0% Cash Flow Waterfall Summary Period Pre-Tax Net Cash Flow (858,248) 76,644 85,133 93, ,884 1,603, Equity Investor Cash Flow Paid at Preferred Return (772,423) 61,794 61,794 61,794 61,794 61, Cash Flow Paid at Hurdle 1-13,365 21,006 28,876 36, , Cash Flow Paid at Hurdle , Cash Flow Paid at Hurdle , Cash Flow Paid at Final Split , Total Cash Flow to Equity Investor (772,423) 75,159 82,799 90,669 98,775 1,273, Annual Cash on Cash 9.7% 10.7% 11.7% 12.8% 164.9% 0.0% 0.0% 0.0% 0.0% 0.0% Net Cash Flow $848,741 IRR 18.5% Average Annual Cash on Cash Return 42.0% Developer Cash Flow Paid at Preferred Return (85,825) Cash Flow Paid at Hurdle 1-1,485 2,334 3,208 4,109 82, Cash Flow Paid at Hurdle , Cash Flow Paid at Hurdle , Cash Flow Paid at Final Split , Total Cash Flow to Developer (85,825) 1,485 2,334 3,208 4, , Annual Cash on Cash 1.7% 2.7% 3.7% 4.8% 383.9% 0.0% 0.0% 0.0% 0.0% 0.0% Net Cash Flow $254,826 IRR 32.5% Average Annual Cash on Cash Return 79.4% Annual Cash Flow Waterrfall Summary Equity Investor Developer This pro forma does not constitute tax advice. Please consult a professional tax advisor.

11 Holding Period Sensitivity Analysis These charts show the project's perfomanced based on Disposition year. They assume continued financing regardless of term. IRR Based on Hold Period 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Project Level -12.7% 9.8% 16.7% 19.3% 20.4% 20.8% 20.9% 20.8% 20.6% 20.4% NPV Based on Hold Period $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 ($200,000) ($400,000) Project Level at 8% ($164,507) $27,524 $206,190 $372,407 $527,027 $670,844 $804,595 $928,969 $1,044,603 $1,152,095 Average Annual Cash on Cash Return Based on Hold Period 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Project Level 87.3% 59.8% 51.3% 47.6% 45.7% 44.8% 44.5% 44.6% 44.9% 45.4%