REIT operating model, part two, acquisitions. Similar to the previous section, we're going to go down below to the detail and we have a section here for acquisitions of new properties. So basically what we have here is we have some assumptions. We have acquisitions of properties and dollar amount. We have the cap rate on acquired properties and then we also have an assumption for the net operating income margin on those properties. So we're going to use our cap rate and the dollar value of the properties to calculate the incremental NOI. Now we have to remember that when calculating cap rate and NOI, we always use the forward NOI. So if we're calculating the NOI in the first projected year, as we are, what we're going to have to do is use the previous year's value of the building and the cap rate to do so. So it's going to be cap rate times the property value and that gives us the incremental NOI from those properties purchased in that year. And now we can copy that across.

The incremental annual revenue, we're going to have to gross up from the net operating income. So that's going to be the incremental NOI divided by the NOI margin. That gives us the incremental annual revenue.

Now, when it comes time to put these numbers into the top of the model, we have to keep in mind that we are talking about incremental revenue and incremental net operating income. So we have an assumption here, which basically says that as each acquisition property comes on, it remains an acquisition property for three years before stabilizing, at which point it would move into one of the other revenue categories. Now, we can't get too complicated about this in this model but what we are going to assume is that the revenue and operating income from the acquisition properties are going to be inclusive of the three of the two previous years plus the current year for a total of three. So when we go up to the top, revenue from acquired properties, that is going to be the sum of these three years. And when we copy that across, the columns shift, so we have in each year, we have the three previous years and we have to do the same thing now for the property expenses. But we have to remember again that we forecast by net operating income so we have to back into the property expenses. So it's going to be the acquired cumulative revenue minus, and now we have to make sure that we get the three previous years of incremental NOI.

And we'll copy that across as well. And we can see once again that we have the revenues from the section above, less the sum of the three previous years' operating income to give us the acquired property expenses.