Underwritten NCF

1

GROSS RENTAL INCOME per Item 1 in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

2

PLUS

Medicaid income (does not include Medicare, which is included in Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income).

3

PLUS

Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income – actual trailing 12-month collections for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units (if 12-month collections are not available, then actual trailing 6-month collections (annualized)).¹

4

PLUS

To the extent deducted as an operating expense, rents for other non-revenue units (e.g., model units deducted in the “model apartment” operating expense in the “general and administrative” category, or actual rent from employee units deducted in the “employee” operating expense in the “payroll and benefits” category).

EQUALS

GROSS POTENTIAL RENT (GPR)

5

MINUS

Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).²

6

MINUS

Concessions – the aggregate amount of forgone residential rental income from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.²

7

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.²

EQUALS

NET RENTAL INCOME (NRI)¹

1 Skilled Nursing income must not be grossed up to 100% before the 20% deduction is applied.  An additional 20% is taken off the Skilled Nursing income.

2 The total of Items 5, 6, and 7 must equal the greater of:

• the difference between the trailing 3-month net rental collections (annualized) and the GPR; or
• the following percentages:
  • Independent Living:  if the percentage of Independent Living units is greater than 50%, then use 5% of GPR.
  • Assisted Living (60 total units or more):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 5% of GPR.
  • Assisted Living (less than 60 total units):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 10% of GPR.
  • Alzheimer’s/Dementia Care:  if the percentage of Alzheimer’s/Dementia Care units is 100%, then use 10% of GPR.
  • Skilled Nursing units:  use 20% of collections based on the trailing period used in determining Skilled Nursing income in Item 3.

You must determine if NRI declined per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and adjust Underwritten NRI as required.

CALCULATION OF ASSISTED LIVING SERVICE INCOME AND OTHER INCOME

8

PLUS

Trailing 12-month nursing/medical income (includes Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  service income).

9

PLUS

Trailing 12-month ancillary income attributable to Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units, if applicable.

10

PLUS

Trailing 12-month other income for second resident fees, meals, tray service, laundry, special transportation, community fees, parking revenue, and any other income.

CALCULATION OF NET ENTRANCE FEE INCOME

11

PLUS

Net entrance fee income associated with CCRCsCCRCsSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. – resident entrance fee collections minus entrance fee refunds, but not more than the annualized average of the trailing 60-months of net entrance fee income.

CALCULATION OF COMMERCIAL INCOME

12

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

13

MINUS

10% of the actual commercial space income.³

14

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.³

EQUALS

EFFECTIVE GROSS INCOME (EGI)

3 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.

CALCULATION OF OPERATING EXPENSES

15

MINUS

Line-by-line stabilized operating expenses.

Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations, not affected by a

• lease-up,
• rehabilitation, or
• other short-term positive or negative factors. 

Non-recurring, extraordinary operating expenses must not be included.

You must assess:

• past operating history;
• the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
• all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
• the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (in the case of an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. ).

You must:

• analyze historical operations at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; and
• apply an appropriate increase over the prior year’s operations in determining an estimate.

16

MINUS

PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management fee equal to the greatest of:

• 5% of EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. ;
• actual property management fee, including any known contractual fee increases occurring over the next 24 months; or
• Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

17

MINUS

Real estate taxes per Item 17(b) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

18

MINUS

Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

19

MINUS

Room expense – housekeeping, if applicable.

20

MINUS

Meals expense, if applicable.

21

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

22

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part III, Chapter 5: Seniors Housing Properties, Section 505: Replacement Reserve.

EQUALS

UNDERWRITTEN NCF