EBITDA is your new best friend!
It’s all there in front of you, everything you asked for: three years of operating results, account detail sheets, and audit certifications, received 10 minutes into the appeal hearing (and 10 months after you requested this material).
Recording of proceedings has begun, and official decisions will be made based on the most lucid presentation of these data to the hearing examiner. No problem, you are an Assessment Professional – capable of miracles!
The reams of evidence are intended to obfuscate your case – but a pretty reliable shortcut exists. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is usually stated near the end of an operating statement. This can greatly simplify delivery of your next miracle.
EBITDA is the bottom line for realty enterprises; it closely equates to Net Operating Income (NOI). Usually, the calculation for EBITDA only lacks an allocation for replacement reserves, so a pretty reliable NOI can be quickly calculated by decreasing EBITDA by reserves.
As the “taxes” in EBITDA refer only to income tax, real estate taxes have been expensed in its calculation, so adding them back to NOI allows you to employ a loaded cap rate if you choose to.
Decreasing EBITDA by a reserves allowance works well on most property types (hotels, apartments, self storage, retail, office). This technique is not applicable for properties that involve significant sales of services, such as assisted living facilities and nursing homes. For real property valuation, it must arise from provision of realty services.
EBITDA… an odd name, but a true friend.