Cash Flow Analysis Flashcards

When Argus Enterprise calculates the 'Rollover Probability' for an expiring tenant, a lower probability of renewal results in:

Answer: Increased downtime and leasing cost assumptions applied to the space

A lower renewal probability increases the likelihood Argus models the space as going vacant, triggering downtime, re-leasing costs, and TI allowances in the cash flow.

In a DCF analysis within Argus, the 'Reversion Value' at the end of the hold period is typically calculated by:

Answer: Dividing the terminal year NOI by the terminal capitalization rate

Reversion value is calculated by dividing the NOI of the year following the end of the hold period (terminal NOI) by the terminal cap rate.

A cash flow model for a Class A office shows 'Free Rent' concessions reducing early-year income. How does Argus typically account for straight-line rent adjustments for GAAP reporting?

Answer: Argus only models cash rent received each period, ignoring GAAP adjustments

Argus models actual cash flows — it deducts free rent in the months it occurs and does not perform GAAP straight-line rent adjustments, which are handled outside the model.

Which metric does an analyst most commonly use to compare unleveraged property performance across markets when reviewing an Argus cash flow?

Answer: Going-In Cap Rate (NOI / Purchase Price)

The going-in cap rate (Year 1 NOI divided by acquisition price) is the standard benchmark for comparing unleveraged income yield across properties and markets.

In Argus, 'Contractual Rent Steps' for an existing tenant are best entered using which feature?

Answer: Lease-level rent schedule with specific step dates and amounts

Lease-level rent schedules allow analysts to enter specific dollar amounts or percentage increases at defined future dates, exactly replicating contractual step provisions.

When a large anchor tenant vacates in Year 3 of an Argus model, the most significant near-term cash flow impact beyond lost rent is typically:

Answer: Co-tenancy clause rent reductions triggered by other tenants

Many retail leases contain co-tenancy clauses that allow inline tenants to pay reduced rent or terminate if an anchor leaves, compounding the revenue loss well beyond the anchor's own rent.

In Argus Enterprise, the 'Inflation' or 'General Vacancy' tab applies a global vacancy factor that is separate from lease-specific vacancy. This factor is intended to capture:

Answer: Structural vacancy from unleased space between tenant rollovers at stabilization

General vacancy applies a portfolio-level haircut to stabilized occupancy, reflecting that even a fully leased building rarely achieves 100% economic occupancy at all times.