REIT Operating Model, Part 3, Developments and Redevelopments. One of the major drivers of REIT growth is development of new properties and the redevelopment of existing properties. REITs can only develop properties under the restructure if they're developing them as revenue producing assets, they cannot be developed exclusively for sale. In this model, we have revenue coming from development properties as well as redevelopment properties but there are some complexities. If we scroll down to the bottom, we can take a look at them.

Here we have an assumption for development starts per year. We also know that, on average, it takes three years for this company to develop a project, meaning that projects from three years ago are just coming online today to produce revenues. The waterfall in rows 110 to 118 just map out how the development is spread across the three years and how it comes online. We're assuming that the development spending in a given year starts at the beginning of the year, but that is just one of the many complications in modeling this kind of revenue stream. To make this more easy to understand, row 120 tells us all we really need to know, which is that development starts from two years ago. Three, if you go back to the beginning of the first year are just coming online today. Therefore, what we need to do is go back to the beginning of 1, 2, 3 full years ago. Again, this is assuming that the development spending starts in the beginning of that first year.

Now, this 188, 143 is the same as the sum of these three years which means that the spending started three years ago and is coming on little by little, but again, that is just to map out the waterfall in more detail. To calculate the NOI from completed deliveries, we have an assumption for a pre-stabilized yield on the cost of completed deliveries. Now, this assumption is different than a cap rate. It is not a cap rate, so we don't need to use the cap rate in the asset value from the previous year. We can actually take the assumption from the current year, which is the 6%, and multiply it by the cost of the completed deliveries, and now we can copy those two across, and we can see that the cost of completed deliveries is actually tracking the annual development spending starts from three full years prior.

Now we have to back into the revenues, and we do that by taking the NOI margin, which has a 50% assumption and dividing the NOI by the NOI margin, which effectively grosses up the NOI to the revenue number.

If we look below at the redevelopment of properties, again, these are existing properties that are being redeveloped, we have the same exact situation. So the cost of the completed redevelopments is gonna be equal to what is effectively three full years. We're gonna go back two years, but it's assuming again the beginning of the year, which is when development starts, and that's also equal to the 43,651 of the waterfall, and you can have a look at these formulas on your own. They're a little bit complicated to go over in this kind of setting. We also have the NOI from the completed redevelopments being driven by this pre-stabilized yield assumption. I'll copy both of those over, and then once again, I need to gross up using my NOI margin, and I have completed revenues and yields. The last thing I have to do is at the very top, I need to go ahead and link my property development revenue and redevelopment revenues to what I've just completed now. So here's my development revenue, here is my redevelopment revenue, copy those both over, and again, I have to back into the costs by subtracting out the NOI.