Rockport VAL's Modeling Options to Adjust the Net Operating Income in the Reversion Year
Rockport VAL allows users to modify the Net Operating Income (NOI) in the reversion year in the following ways:
1. Select a different residual value year to capitalize.
2. Override the Net Operating Income (NOI) by entering one of the following options:
Dollar Amount - “$ amount
Dollars per Square Foot or Dollars per Room amount “$/SF” or “$/Room
Percentage Change - “% Change”
3. “Adjust Occupancy” AND “Exclude/Include Free Rent.
#1 and #2 above are straightforward and self-explanatory.
#3 is more iterative and calculation intensive. Follow VAL's methodology using the “Adjust Occupancy” feature below:
How the “Adjust Occupancy” feature in VAL is used to calculate the Net Operating Income in the Revision:
VAL adjusts occupancy to 100% by excluding “Downtime Vacancy” and either including or excluding “Free Rent” depending on user selection. If “Free Rent” is excluded, “Free Rent” is “added-back”.
If Free Rent is included, VAL recalculates the aggregate Free Rent modeled during the 12 months of the residual value year. The combination of the above assumptions impact “Base Rental Income”.
VAL recalculates % line expenses (e.g. Management Fee) and variable expenses to iterate the property’s operating expenses based on 100% occupancy, therefore, truly grossing up the occupancy.
Miscellaneous income is adjusted to 100% occupancy for any variable miscellaneous income items. The combination of #1, #2, and #3 will impact Total Potential Gross Income.
VAL will iterate recovery income by applying the Expense Recovery method assigned in the Rollover Assumptions to all the tenants including the “modeled” vacant tenants.
VAL adjusts the calculated “vacancy loss” either up or down based on the “Adjust Occupancy” percentage specific to the NOI Adj. screen after considering the “vacancy loss” assumption on the Vacancy & Collection Loss screen.
For example, if a property is 100% occupied in the residual value year and the user modeled a 10% vacancy loss AND specified “Adjust Occupancy” to 85%, the Adjusted Cash Flow for “vacancy loss” will result in an 85% economic occupancy.
NOI is recalculated and is equal to the difference between Effective Gross Income (EGI) and Expenses.
VAL provides a display of unadjusted cash flows versus adjusted cash flow at the individual line item so that a user can follow the logic and math.
VAL applies the residual value i.e., Exit Cap to the recalculated residual value Net Operating Income to derive the residual value.