A.CRE

Trailing Twelve Months

Also referred to as a T12 or TTM, the Trailing Twelve Months is a reflection of a properties last 12 months’ financial performance. The report shows actual historical data rather than forward looking estimates (typically presented by the broker) in the OM, thereby helping the investor make a more informed valuation of the property.

Putting ‘Trailing Twelve Months’ in Context

Context: DesertGate Developments, a well-known real estate developer specializing in the revitalization of underperforming properties, recently acquired Tempe Gateway Center, a power center located in Tempe, Arizona. The property spans 250,000 square feet, primarily housing big-box retailers and several smaller stores. However, the center has been experiencing declining foot traffic and tenant turnover, making it a prime candidate for redevelopment.

Scenario: Upon acquisition, DesertGate Developments planned a significant redevelopment to transform the center into a modern mixed-use hub with retail, entertainment, and office spaces, aiming to attract higher footfall and increase tenant stability. To secure financing and partnership investments for this ambitious project, DesertGate needed to present a compelling case based on solid financial data.

Use of T12: The firm relied on the T12 financials of Tempe Gateway Center to:

  • Assess Financial Health: By reviewing the center’s T12 financial statements, DesertGate analyzed the rental income, operating expenses, and net operating income (NOI) over the past year. This analysis helped identify financial trends, such as decreasing rental income due to tenant vacancies.
  • Valuation Before Redevelopment: Using the T12 data, the firm calculated the current cap rate based on the NOI and the purchase price, which helped establish a baseline value before redevelopment.
  • Loan Procurement: For the redevelopment funding, lenders required the T12 financials to evaluate the center’s pre-redevelopment performance and gauge the risk associated with their investment.
  • Investor Confidence: DesertGate used the T12 to demonstrate to potential investors the center’s performance stability or potential, supporting projections of increased value post-redevelopment.

Calculations:

  • NOI from T12: The total rental income in the T12 was $2 million, with operating expenses of $800,000, resulting in an NOI of $1.2 million.
  • Cap Rate Calculation: Assuming a purchase price of $15 million, the cap rate based on T12 NOI would be calculated as:

Cap Rate = (NOI / Purchase Price) × 100 = (1,200,000 / 15,000,000) × 100 = 8%

Outcome: Armed with the T12 data and the redevelopment plan, DesertGate successfully secured the necessary financing and began the redevelopment process, aiming to reposition Tempe Gateway Center as a vibrant, high-traffic destination in the region.

This hypothetical scenario highlights the importance of the T12 financial metric in real estate investment and redevelopment, providing a clear, historical financial snapshot that aids in decision-making, securing financing, and pitching to investors.

Frequently Asked Questions about Trailing Twelve Months (T12 or TTM) in Real Estate

T12, or Trailing Twelve Months, is “a reflection of a property’s last 12 months’ financial performance.” It includes actual historical financial data, not future projections.

The T12 “helps the investor make a more informed valuation of the property” by presenting real historical performance data instead of broker-provided forward-looking estimates.

DesertGate Developments used the T12 to assess financial health, calculate cap rate, support loan applications, and build investor confidence during the acquisition and planned redevelopment of Tempe Gateway Center.

The T12 showed $2 million in rental income and $800,000 in operating expenses, resulting in a Net Operating Income (NOI) of $1.2 million.

Using the formula: Cap Rate = (NOI / Purchase Price) × 100, the cap rate was:
(1,200,000 / 15,000,000) × 100 = 8%

Lenders required the T12 to “evaluate the center’s pre-redevelopment performance and gauge the risk associated with their investment.”

DesertGate used the T12 to “demonstrate to potential investors the center’s performance stability or potential,” supporting projections of increased value after redevelopment.

You can explore glossary entries such as Residual Pro Forma, TTM, and Últimos doce meses listed in the Related Content section of the blog post.

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