Distribution Waterfall Examples

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1 Tab: 80_20 LINK

2 Tab: 20% & 80_20 LINK
3 Tab: 20% After Principal & 80_20 LINK
4 Tab: IRR Hurdles LINK
5 Tab: RE Waterfall LINK

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Waterfall Calculation - 80/20 Split
TRANSACTION
Date
Capital Invested $ (10,000,000) 12/31/2020
Proceeds $ 30,000,000 12/31/2025
EQUITY PARTICIPANTS
GP
Limited Partners
EQUITY PARTICIPATION TERMS
Return of principal to Limited Partners plus an 8% cummulative return on principal.
Then 80 / 20 split between LP / GP.
IRR HURDLES
LP IRR Hurdle
Principal 0.0%
Preferred Return 8.0%
PROCEEDS REQUIRED TO ACHIEVE HURDLES
Proceeds Required
by LP for Hurdle
Principal 10,000,000
Principal + Preferred Return 14,693,281
WATERFALL
IRR Achieved 24.6%
First Distribution:
Limited Partners 14,693,281 100.0%

Proceeds Remaining 15,306,719

Second Distribution:
GP 3,061,344 20.0%
Limited Partners 12,245,375 80.0%
GRAND TOTAL PROCEEDS
GP 3,061,344 10.2%
Limited Partners 26,938,656 89.8%
TOTAL 30,000,000
COMMENTS

*Remaining Proceeds Split Pro Rata

*Remaining Proceeds Split Pro Rata

*Matches Transaction Proceeds

Waterfall Calculation - 20% Catch Up Followed by 80/20 Split
TRANSACTION
Date
Capital Invested $ (10,000,000) 12/31/2020
Proceeds $ 30,000,000 12/31/2025
EQUITY PARTICIPANTS
GP
Limited Partners
EQUITY PARTICIPATION TERMS
Return of principal to Limited Partners plus an 8% cummulative return on principal.
Then a 20% full catch for GP. (Equivalent to 20% of all distributions including and up to this step.)
Finally, an 80 / 20 split between LP / GP.
IRR HURDLES
LP IRR Hurdle
First 0.0%
Second 8.0%
PROCEEDS REQUIRED TO ACHIEVE HURDLES
Proceeds Required
by LP for Hurdle
First 10,000,000
Second 14,693,281
WATERFALL
IRR Achieved 24.6%
First Distribution:
Limited Partners 14,693,281 100.0%

Proceeds Remaining 15,306,719

Second Distribution:
GP 3,673,320 20.0%

Proceeds Remaining 11,633,399

Third Distribution:
GP 2,326,680 20.0%
Limited Partners 9,306,719 80.0%
Sub Total 11,633,399
GRAND TOTAL PROCEEDS
GP 6,000,000 20.0%
Limited Partners 24,000,000 80.0%
TOTAL 30,000,000
 COMMENTS

ng and up to this step.)

*20% Catch Up

*Remaining Proceeds Split Pro Rata

*Remaining Proceeds Split Pro Rata

*Matches Transaction Proceeds

Waterfall Calculation - 20% Catch Up After Principal and Pref. Followed by 80/20 Sp
TRANSACTION
Date
Capital Invested $ (10,000,000) 12/31/2020
Proceeds $ 30,000,000 12/31/2025
EQUITY PARTICIPANTS
GP
Limited Partners
EQUITY PARTICIPATION TERMS
1. Return of principal to Limited Partners.
2. Plus an 8% cummulative return on principal to Limited Partners.
3. Then a 20% full catch for GP equivalent to 20% of all distributions in steps 2 and 3.
4. Finally, an 80 / 20 split between LP / GP.
IRR HURDLES
LP IRR Hurdle
First 0.0%
Second 8.0%
PROCEEDS REQUIRED TO ACHIEVE HURDLES
Proceeds Required
by LP for Hurdle
First 10,000,000
Second 14,693,281
WATERFALL
IRR Achieved 24.6%
First Distribution:
Limited Partners 14,693,281 100.0%

Proceeds Remaining 15,306,719

Second Distribution:
GP 1,173,320 20.0%

Proceeds Remaining 14,133,399

Third Distribution:
GP 2,826,680 20.0%
Limited Partners 11,306,719 80.0%
Sub Total 14,133,399
GRAND TOTAL PROCEEDS
GP 4,000,000 13.3%
Limited Partners 26,000,000 86.7%
TOTAL 30,000,000
nd Pref. Followed by 80/20 Split
COMMENTS

ps 2 and 3.

*20% Catch Up

*Remaining Proceeds Split Pro Rata

*Remaining Proceeds Split Pro Rata

*Matches Transaction Proceeds

Waterfall Calculation for Three Equity Participants - Deal by Deal
TRANSACTION
Date
Capital Invested $ (10,000,000) 12/31/2020
Proceeds $ 30,000,000 12/31/2025
EQUITY PARTICIPANTS
Security Dollars Invested
Management Team Options $ -
Sponsor Promote Common / Options $ -
Limited Partners Preferred / Common $ 10,000,000
EQUITY PARTICIPATION TERMS
At specific IRR hurdles the Management Team and Sponsor Promote will have options that vest per the IRR Hurd
IRR hurdles calculated on total dollars invested.
IRR specified by hurdles must apply to Limited Partners capital.
IRR HURDLES
LP IRR Hurdle MGMT Equity Sponsor Equity
IRR Hurdle 1 0.0% 0% 0.0%
IRR Hurdle 2 8.0% 2.0% 8.0%
IRR Hurdle 3 12.0% 3.0% 10.0%
IRR Hurdle 4 16.0% 4.0% 14.0%
IRR Hurdle 5 17.0% 5.0% 15.0%
IRR Hurdle 6 18.0% 6.0% 16.0%
IRR Hurdle 7 19.0% 7.0% 18.0%
IRR Hurdle 8 20.0% 8.0% 20.0%
IRR HURDLES - RECALCULATED TO AVOID LP DILUTION
Proceeds Required Proceeds Required
by LP for Hurdle to Avoid LP Dilution
IRR Hurdle 1 10,000,000
IRR Hurdle 2 14,693,281
IRR Hurdle 3 17,623,417
IRR Hurdle 4 21,003,417
IRR Hurdle 5 21,924,480
IRR Hurdle 6 22,877,578
IRR Hurdle 7 23,863,537
IRR Hurdle 8 24,883,200
PROCEEDS RECEIVED AT NEW HURDLE RATES
New Hurdle Rates MGMT Proceeds Sponsor Proceeds
IRR Hurdle 1 0.0% NM NM
IRR Hurdle 2 10.3% 326,517 1,306,069
IRR Hurdle 3 15.2% 607,704 2,025,680
IRR Hurdle 4 20.7% 1,024,557 3,585,949
IRR Hurdle 5 22.3% 1,370,280 4,110,840
IRR Hurdle 6 24.0% 1,759,814 4,692,836
IRR Hurdle 7 26.1% 2,227,263 5,727,249
IRR Hurdle 8 28.2% 2,764,800 6,912,000

WATERFALL
IRR Achieved 24.6% IRR Hurdle 6
First Distribution:
Management Team 1,759,814 6.0%
Sponsor Promote 4,692,836 16.0%
Limited Partners 22,877,578 78.0%
Sub Total 29,330,228

Proceeds Remaining 669,772

Second Distribution:
Management Team 40,186 6.0%
Sponsor Promote 107,164 16.0%
Limited Partners 522,422 78.0%
Sub Total 669,772
GRAND TOTAL PROCEEDS
Management Team 1,800,000 6.0%
Sponsor Promote 4,800,000 16.0%
Limited Partners 23,400,000 78.0%
TOTAL 30,000,000
eal by Deal
COMMENTS

*Most likely a small sum contributed.

have options that vest per the IRR Hurdle schedule.

TOTAL
0%
10%
13%
18%
20%
22%
25%
28%

Proceeds Required Implied New Hurdle

to Avoid LP Dilution Rate to Vest
10,000,000 0.0%
16,325,868 10.3%
20,256,801 15.2%
25,613,923 20.7%
27,405,600 22.3%
29,330,228 24.0%
31,818,049 26.0%
34,560,000 28.1%

Limited Partners TOTAL

10,000,000 10,000,000
14,693,281 16,325,868
17,623,417 20,256,801
21,003,417 25,613,923
21,924,480 27,405,600
22,877,578 29,330,228
23,863,537 31,818,049
24,883,200 34,560,000

*Matches Hurdles Equity Participation

*Matches Hurdles Equity Participation
*Matches Hurdles Equity Participation

*Remaining Proceeds Split Pro Rata

*Remaining Proceeds Split Pro Rata
*Remaining Proceeds Split Pro Rata

*Matches Transaction Proceeds

Real Estate Waterfall Example Comments
Total Equity Amount %
GP $0 0.0%
LP $10,000,000 100.0%
Total Equity $10,000,000 100.0%
IRR Hurdles
LP / GP Split
IRR Hurdle LP GP
IRR Hurdle 1 8.0% 100.0% 0.0%
IRR Hurdle 2 12.5% 85.0% 15.0% NO CATCH UP
IRR Hurdle 3 15.0% 75.0% 25.0%
IRR Hurdle 4 17.5% 60.0% 40.0%
IRR Hurdle 5 20.0% 50.0% 50.0%
Cash Flows
Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Date 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21 31-Dec-22 31-Dec-23 31-Dec-24 31-Dec-25 31-Dec-26 31-Dec-27
Cash Flows (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 25,000,000 - - - -
IRR 20.72%
Hurdle 1 8.0%
Beg. Balance: LP Capital Account 10,000,000 10,300,000 10,624,000 10,726,249 10,834,348 10,701,096 - - - -
Preferred Return 800,000 824,000 852,249 858,100 866,748 856,088 - - - -
LP Cure - - - - - - - - - -
GP Cure - - - - - - - - - -
Distributions to LP 500,000 500,000 750,000 750,000 1,000,000 11,557,184 - - - -
End Balance: LP Capital Account 10,000,000 10,300,000 10,624,000 10,726,249 10,834,348 10,701,096 - - - - -
Distributions
LP 500,000 500,000 750,000 750,000 1,000,000 11,557,184 - - - -
GP - - - - - - - - - -
Total 500,000 500,000 750,000 750,000 1,000,000 11,557,184 - - - -
Cash Flow Remaining for Distribution - - - - - 13,442,816 - - - -
IRR Check 8.0% (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 11,557,184 - - - -
Hurdle 2 12.5%
Beg. Balance: LP Capital Account 10,000,000 10,750,000 11,593,750 12,296,939 13,084,057 13,719,564 - - - -
Hurdle 2 Return 1,250,000 1,343,750 1,453,189 1,537,117 1,635,507 1,714,945 - - - -
LP Cure - - - - - - - - - -
Prior Distributions to LP 500,000 500,000 750,000 750,000 1,000,000 11,557,184 - - - -
Distributions to LP - - - - - 3,877,325 - - - -
End Balance: LP Capital Account 10,000,000 10,750,000 11,593,750 12,296,939 13,084,057 13,719,564 - - - - -
Distributions
LP - - - - - 3,877,325 - - - -
GP - - - - - 684,234 - - - -
Total - - - - - 4,561,559 - - - -
Cash Flow Remaining for Distribution - - - - - 8,881,257 - - - -
IRR Check 12.5% (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 15,434,509 - - - -
Hurdle 3 15.0%
Beg. Balance: LP Capital Account 10,000,000 11,000,000 12,150,000 13,227,493 14,461,617 15,630,860 - - - -
Hurdle 3 Return 1,500,000 1,650,000 1,827,493 1,984,124 2,169,243 2,344,629 - - - -
LP Cure - - - - - - - - - -
Prior Distributions to LP 500,000 500,000 750,000 750,000 1,000,000 15,434,509 - - - -
Distributions to LP - - - - - 2,540,979 - - - -
End Balance: LP Capital Account 10,000,000 11,000,000 12,150,000 13,227,493 14,461,617 15,630,860 - - - - -
Distributions
LP - - - - - 2,540,979 - - - -
GP - - - - - 846,993 - - - -
Total - - - - - 3,387,973 - - - -
Cash Flow Remaining for Distribution - - - - - 5,493,284 - - - -
IRR Check 15.0% (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 17,975,489 - - - -
Hurdle 4 17.5%
Beg. Balance: LP Capital Account 10,000,000 11,250,000 12,718,750 14,200,629 15,935,739 17,724,494 - - - -
Hurdle 4 Return 1,750,000 1,968,750 2,231,879 2,485,110 2,788,754 3,101,786 - - - -
LP Cure - - - - - - - - - -
Prior Distributions to LP 500,000 500,000 750,000 750,000 1,000,000 17,975,489 - - - -
Distributions to LP - - - - - 2,850,792 - - - -
End Balance: LP Capital Account 10,000,000 11,250,000 12,718,750 14,200,629 15,935,739 17,724,494 - - - - -
Distributions
LP - - - - - 2,850,792 - - - -
GP - - - - - 1,900,528 - - - -
Total - - - - - 4,751,319 - - - -
Cash Flow Remaining for Distribution - - - - - 741,965 - - - - ADDED ROUND TO FORMULA (TO ZERO OUT).
IRR Check 17.5% (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 20,826,280 - - - -
Hurdle 5 20.0%
Beg. Balance: LP Capital Account 10,000,000 11,500,000 13,300,000 15,217,288 17,510,745 20,012,894 2,818,210 3,383,397 4,060,076 4,872,091
Hurdle 5 Return 2,000,000 2,300,000 2,667,288 3,043,458 3,502,149 4,002,579 565,186 676,679 812,015 974,418
LP Cure - - - - - - - - - -
Prior Distributions to LP 500,000 500,000 750,000 750,000 1,000,000 20,826,280 - - - -
Distributions to LP - - - - - 370,983 - - - -
End Balance: LP Capital Account 10,000,000 11,500,000 13,300,000 15,217,288 17,510,745 20,012,894 2,818,210 3,383,397 4,060,076 4,872,091 5,846,509
Distributions
LP - - - - - 370,983 - - - -
GP - - - - - 370,983 - - - -
Total - - - - - 741,965 - - - -
Cash Flow Remaining for Distribution - - - - - - - - - -
IRR Check 17.8% (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 21,197,263 - - - -
WATERFALL SUMMARY
PERIOD Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
LP Summary
Contributions (10,000,000) - - - - - - - - - -
Distributions 500,000 500,000 750,000 750,000 1,000,000 21,197,263 - - - -
Net (10,000,000) 500,000 500,000 750,000 750,000 1,000,000 21,197,263 - - - -
IRR 17.8%
MOIC 2.5x
GP Summary
Contributions - - - - - - - - - - -
Distributions - - - - - 3,802,737 - - - -
Net - - - - - - 3,802,737 - - - -
IRR NA
MOIC NA
Check (Should Zero Out) - - - - - - - - - -
Formula Explanation
8% Preferred Return 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Sum Invested 10,000,000 10,800,000 11,664,000 12,597,120
Preferred Return 8.0% 8.0% 8.0%
-or-
8% Preferred Return
12/31/2024 12/31/2025
13,604,890 14,693,281
8.0% 8.0%

14,693,281