How to Determine the Value of a Storage Property from Financial Reports. Presented by: Joe Linsalata

Transcription

1 How to Determine the Value of a Storage Property from Financial Reports Presented by: Joe Linsalata

2 Building your Proforma Use an Excel spreadsheet or an equivalent Always use formulas, stay away from constants Double check your proforma from top to bottom, especially when adding new line items How to Organize your Proforma Income- List by line item, i.e. rental income, truck rental, locks and box sales, billboard, etc. Expenses- List line by line. For the time being accept the seller s expenses other than property taxes and insurance Calculating your Net Operating Income (NOI): (total income minus total expenses) Plugging in your cap rate-noi divided by the cap rate that you ve chosen, Example: $90,000 (NOI).09 (a 9 cap rate) = $1,000,000 (possible purchase price/value) Talk with appraisers and brokers who specialize in selfstorage properties to determine a cap rate for the property you re considering. Ask them if they have any sale comparables that they can send you.

3 How to organize your Proforma continued Include an expense per square foot calculation and price per square foot calculation Including the value of additional or undeveloped land- Calculating your sub-purchase price and your purchase price (Estimate the value of the additional land and subtract from possible purchase price. Calculate your cap rate on sub purchase price) Additional Calculations: Cash on cash return (NOI debt service = cash flow, cash flow down payment=cash on cash returnusually a fraction that you can turn into a percentage figure) Cash on cash return with principle reduction factored in (same as above, but with the principle reduction added to the cash flow-best to obtain a loan amortization schedule)

4 Footnotes- Explain and mark any expenses that are estimated or not on previous year s expense statement. Factors that Influence CAP Rates and Pricing Age of property-the newer the better Occupancy and occupancy history Area occupancy vs. economic occupancy Financing Assumable or Seller financing Type of construction Size of market area-bigger is better Industry cap rates and comparable sales Percentage of climate controlled units Surrounding market occupancy Additional or undeveloped land Lender s cap rates and analysis

5 Gathering the Necessary Reports (These are reports you will need to request from the Owner/Seller) Previous year and current income and expense statement Trailing 12 months income (month by month if possible) Current site summary or management reports (should have Year to Date figures) Occupancy Reports Most current tax statement and assessed value Analyzing and Adjusting the Income Best income figure is trailing 12 months Compare income on P & L with management or site summary report Make allowances, i.e. if facility is still in lease-up or has a recently hired manager. You may want to go with trailing 6 or even 3 month income and annualize it

6 Analyzing and Adjusting the Expenses Expenses to Eliminate Depreciation Interest Payments Mortgage Payments Expenses you want to Scrutinize Travel Professional and Accounting Fees Legal fees Property taxes Adjustments and Inclusions Payroll-set high enough so you can hire the best people and a relief manager Third party management fees- Include if facility has more than 300 units Repairs and Maintenance - Get list for previous 24 months and income tax schedule E from tax return Credit card fees-may be in bank statement rather than income and expense

7 Advertising-Get a professional opinion Working with the Seller or Listing Broker Send the Seller an electronic copy of the proforma even if you re meeting in person; he/she may need to pass it to a partner. Listen intently to the Seller s objections and try not to be argumentative Be reserved, curb your enthusiasm; don t let on if you absolutely love the facility. In a polite way, point out the negatives and problems with the seller s expenses and the facility. Conclusion The Seller may have a bottom line price that he/she wants for the facility and may not give a darn what you have come up with in your Proforma, but if you have done your proforma correctly you will know what the facility is worth to you. That knowledge could be worth its weight in gold.