Underwritten NCF

1

GROSS RENTAL INCOME – actual rents in place for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12).

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 resulting 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:  include 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 202: 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 occupied commercial space (and parking revenue for commercial spaces, if applicable).

13

MINUS

10% of the actual commercial income.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

14

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’s 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 BorrowerBorrowerPerson who is the obligor per the Note. ’s budget (in the case of an acquisition).

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.

15

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 202: Income Analysis and the applicable products and features in Part III. ;
• actual property management fee (exclude any portion of a non-arm’s-length property management fee that is subordinated to the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. ); or
• market property management fee.

16

MINUS

Real estate taxes based on the greatest of:

• actual future tax bill(s) covering a full calendar year;
• prior full year’s taxes multiplied by 103% (the 3% trending is not required for trailing 12-month or year-to-date annualized expenses); or
• in California, the greater of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount or the assessed value, multiplied by the millage rate, plus any special assessments.

You must consider any automatic tax reassessment upon acquisition in the next 12-month period.

If 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). has real estate tax abatements, exemptions, or deferrals, they must:

• be in effect at closing, per written documentation from the state or local tax assessor; and
• survive a foreclosure on the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, or deferral benefit (i.e., it is tied to 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 not the owner).

16

continued

If the timeframe for the real estate tax abatement, exemption, or deferral is shorter than the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. term, you must consider

• a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ),
• an amortization schedule that accommodates the elimination of the abatement, or
• providing clear justification and support in the refinance analysis.

If 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). is located in New York City and subject to the J-51 Tax Incentive Program where the BorrowerBorrowerPerson who is the obligor per the Note. has decontrolled rent-stabilized units (a Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. ), you must adjust the current rents to reflect no rent decontrol benefits:

• Calculate the base rent as the rent amount per unit before the Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. date.
• Use the base rent for each applicable unit to determine the Gross Rental Income.
• Increase the base rent by the appropriate percentage allowed under New York City Rent Stabilization laws per annum through the present rent roll date.

17

MINUS

Insurance equal to:

• the quoted expense, for insurance policies with a bona fide written quote from a reputable broker for a new 12-month policy; or
• 110% of the current expense, for insurance policies with a remaining term less than 6 months.

18

MINUS

Room expense – housekeeping, if applicable.

19

MINUS

Meals expense, if applicable.

20

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 202: Income Analysis.

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

21

MINUS

Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. expense per Part III, Chapter 5: Seniors Housing Properties, Section 505: Replacement Reserve.

EQUALS

UNDERWRITTEN NCF