Definition of Historical Net Operating Income


Historical Net Operating Income means, for any period, calculated on an annualized basis, (a) Gross Income from Operations during the applicable period minus (b) the sum of all Operating Expenses during the applicable period, provided that Operating Expenses (Hotel Component) shall be calculated as of the most recently ended twelve (12) month period and the Operating Expenses (Commercial Component) shall be calculated as of the most recently ended three (3) month period, annualized. For purposes of this calculation, any applicable percentage rental revenue and Gross Income from Hotel Operations included within Gross Income from Operations shall be based upon the most recently ended 12-month period and any applicable percentage rental revenue and Gross Income from Commercial Operations included within Gross Income from Operations shall be based upon the most recently ended 3-month period, annualized, and in either case shall not take into account (i) straight-lining of rents, (ii) extraordinary revenues (including, but not limited to lease termination payments), (iii) rental from tenants in bankruptcy, (iv) rental from tenants in monetary default for thirty (30) days or more under their Leases, or (v) rental from tenants with Leases expiring within six (6) months of the applicable test date. In addition, the Operating Expenses taken into account shall include, without duplication, (i) annualized insurance premiums, (ii) annualized real estate taxes, (iii) the sum of (A) capital expenses at an imputed annual rate of $0.50 per rentable square foot of the Commercial Component allocable to the applicable period and (B) capital expenses at an imputed annual rate of four percent (4.00%) of Gross Income from Hotel Operations, (iv) property management fees (in the amount equal to the greater of (1) management fees actually paid during the applicable period (including actual management fees paid under the Hotel Management Agreement for the most recently ended twelve (12) month period) and (2) an imputed rate of three percent (3.00%) of annualized Gross Income from Commercial Operations plus three percent (3.00%) of annualized Gross Income from Hotel Operations (including any incentive fees payable thereunder)), (v) any franchise fees paid, if applicable, and (vi) a deemed vacancy on the Commercial Component equal to the greater of the actual vacancy or five percent (5.00%). Historical Net Operating Income shall in no event include extraordinary non-recurring revenues or expenses or any debt service payable with respect to the Loans.

Examples of Historical Net Operating Income in a sentence

The underwriter computes a Historical Net Operating Income, which is the actual net operating income the property has generated in previous years, excluding non-recurring or extraordinary items or non-property related items.
For example, if a prior year's operating statement included significant investment income that was attributable to a borrower's investments rather than the property's operations, such income would be eliminated from revenue in computing Historical Net Operating Income.
Historical Net Operating Income To understand a property's cash generation ability, an underwriter first reviews net operating income during prior periods.