Loan/Interest Sensitivity Planning

This use case explains how to plan and stress test loan and interest rate scenarios for real estate assets and portfolios using Model Reef.

You will:

• Represent loans and facilities as Liability variables.

• Link debt drawdowns and repayments to property cashflows or project costs.

• Model fixed and floating rate structures, margins and amortisation.

• Test sensitivity to changes in interest rates, covenants and leverage.

Model Reef is not a trading or hedging platform. It provides a planning view of how funding structures and rate paths affect profit, cash and valuation.

When to use this pattern

Use this pattern when:

• Real estate assets or portfolios are meaningfully leveraged.

• You need to understand sensitivity of cashflows and covenants to interest rate changes.

• You are comparing different funding structures, such as fixed versus floating, amortising versus interest only or multiple tranches.

• You want lenders and investors to see funding risk within the same model as asset cashflows.

It is typically applied on top of:

• Property Cash Flow (Rental or Lease)

• Development Feasibility Model

• Multi Property Portfolio Reporting

Architecture overview

Loan and interest sensitivity planning uses:

1. Loan representation

   • Liability variables for each facility or tranche.

   • Drawdown schedules or utilisation rules.

   • Amortisation and bullet repayment profiles.

2. Interest rate structure

   • Base rate curves or drivers.

   • Margins per facility.

   • Fixed versus floating proportions.

   • Interest capitalisation rules where applicable.

3. Covenants and metrics

   • Interest cover ratios.

   • Debt service cover ratios.

   • Loan to value and loan to cost metrics.

4. Scenarios and stress tests

   • Different interest rate paths.

   • Alternative leverage and repayment structures.

   • Breach and remedy analysis in reporting views.

1

Create loan variables per facility

For each property or portfolio level facility, create Liability variables, for example:

• Debt - Senior Loan - Office A

• Debt - Portfolio Facility

• Debt - Mezzanine Loan - Development Project B

Specify in each:

• Opening balance or initial draw.

• Maximum facility limit (stored as a driver).

• Drawdown timing (linked to acquisition or project spending).

• Amortisation schedule (for example straight line or annuity).

• Bullet repayment at maturity where applicable.

This defines the nominal debt profile before interest and rate structure are applied.

2

Build interest rate and margin drivers

In the Data Library, create drivers for:

• Base Rate Curve per currency or scenario, for example one driver per period.

• Margin per Facility, representing lender margin over base.

• Fixed Rate Share if part of the exposure is fixed via swaps or fixed rate loans.

Compute an effective rate per facility, for example:

• Effective Interest Rate = Base Rate × Floating Share + Fixed Rate × Fixed Share + Margin.

You can represent multiple scenarios by storing different rate curves and selecting the appropriate one per scenario model.

3

Link interest to loan balances and cashflows

Within each debt variable, configure:

• Interest calculation based on opening or average balance per period.

• Whether interest is expensed or capitalised (for example during development).

• Payment timing (monthly, quarterly or semi annually).

Model Reef will then:

• Record interest expense in P&L.

• Adjust loan balances if interest is capitalised.

• Show interest paid in the Cashflow Statement and Cash Waterfall.

• Reflect accrued but unpaid interest in Balance Sheet liabilities.

This links interest behaviour directly to both asset cashflows and funding decisions.

4

Compute covenants and coverage ratios

Using variables or report formulas, compute metrics such as:

• Interest Cover Ratio (ICR) = EBITDA or NOI ÷ Interest Expense.

• Debt Service Cover Ratio (DSCR) = Cash Available for Debt Service ÷ Debt Service.

• Loan to Value Ratio (LVR) = Debt ÷ Property Value.

• Loan to Cost (LTC) = Debt ÷ Total Project Cost for developments.

You can display these metrics per asset, per facility and at portfolio level, and compare them to covenant thresholds stored as drivers.

Highlight periods where ratios fall below target levels to support risk monitoring.

5

Build sensitivity and scenario views

Clone the model into scenario models that represent different interest and leverage environments, for example:

• Base case interest rate path.

• Upward shocks (for example plus 100 basis points or more).

• Reduced or increased leverage.

• Alternative amortisation structures.

In each scenario, adjust:

• Base rate curves.

• Facility margins and fixed versus floating shares.

• Drawdown and repayment schedules.

• Any associated changes in asset cashflows, such as slowed development or altered capex.

Compare scenarios using:

• Interest expense and cash interest over time.

• DSCR, ICR and LVR versus covenant thresholds.

• Equity cashflows and valuation metrics from the Valuation Engine.

• Breach risk and headroom analysis.

6

Integrate with portfolio and investor reporting

Because loans are represented as standard Liability variables:

• P&L, Balance Sheet, Cashflow and Cash Waterfall already include interest and debt flows.

• Portfolio level reports can show both asset level and funding level performance.

• Investor and lender packs can be generated directly from the same model.

Use dashboards to show:

• Debt maturity profiles and repayment schedules.

• Interest cost by facility and in total.

• Key covenant ratios and whether they are in or out of range.

• Sensitivity charts for rate and leverage changes.

Check your work

• Loan balances and terms reconcile to facility documentation and existing debt schedules.

• Base rate and margin assumptions reflect current and expected market conditions.

• Coverage ratios behave sensibly when you stress interest or cash generation.

• Scenario results make sense in the context of lender and investor conversations.

Troubleshooting

Interest cost jumps unexpectedly between periods

Review drawdowns, amortisation and rate changes in the same periods, and confirm that timing of rate resets is correctly represented.

Covenant ratios do not match external models

Ensure you are using the same definition of EBITDA, NOI and debt service as lenders and auditors, and adjust the formulas accordingly.

Model feels complex for a small amount of debt

Simplify by modelling one blended facility instead of multiple tranches, and only add tranches where it is necessary for decision making.

Related guides

• Build a Valuation Sensitivity Model

• Build a Synergy & Integration Model

• Equity Distribution Logic

• Selecting Drivers in Sidebar