How To Read Financial Reports Like A Boss
- Ten15 Capital
- Mar 1, 2022
- 3 min read
Updated: Apr 16, 2022
In the world of finance, there are tons of reports for measuring the performance of an asset. For us in the Multifamily Syndication world, we are not any different. True Real Estate Investments, like what we provide, are to be treated seriously and with transparency. As your Asset Manager, it is my duty to provide you with financial analysis. The question is, how do you know what you're looking at?
Ten15 Capital provides quarterly reports on all our assets to our investors. We design the releases to follow the calendar, so everyone knows when to expect these reports. However, what you receive is actually a condensed version of all of the data that we are constantly mining. Monitoring the Business Plan and overall performance of the asset requires faithful dedication of the metrics.
Ever received financial reporting that look like Wall Street analysis? You can't even make heads or tails of the data. This is bad. When presenting financial statements to our investors, there are structures in place that we always follow. For example:
The format should be consistent. We use the same formats for all properties and from one period to another.
The format should be the most informative to the investor. It should be easy to read and zero in on important information, yet perform detailed analysis.
Doesn't include unnecessary data. Our finished statement package provides the investor the correct data points to make good judgments on their investment.
The format should be efficient and readily labeled so the investor could quickly find the metric they are looking for.
Let's boss-up! What are financial reports?
Financial statements reveal the status, progress and control of a business. To understand what financial reports are, first we need a brief overview of accounting. As Asset Managers, we're scientists and mathematicians before we are landlords. To be effective at what we do, we need to have a thorough understanding of basic accounting and bookkeeping principles. Let's take-on the two foundations: the first is the Double-Entry Bookkeeping and the second is the General Ledger.
The most common method of accounting is what's called Double-Entry Bookkeeping. In the double-entry system, each accounting transaction has two sides where transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. Visualize a table with two columns. A debit is an entry made to the left side of an account, and a credit is an entry made to the right side.
The record that summarizes all business operations is the General Ledger. Every entry is logged in this ledger. Often times, businesses like ours create sub-categories such as "Rental Income," "Marketing," "Repairs," etc. From the ledger, all reports are ultimately made. The General Ledger contains every transaction made, and the financial statements are reports that express information summarized from the General Ledger.
Below is a list of reports that your Asset Managers create from the General Ledger and mine through to assess the performance. Keep in mind that although there are repeated information, every report serves it's own utility for assessing the property. Sometimes we're looking for ratios, trends or anomalies, and it has to be scoured against different metrics in order to find these.
Each of the statements has a distinct function, and ultimately, all of these functions are interrelated.
Below is a list of the typical reports we as Asset Managers are constantly reviewing:
Weekly Property Management Reports
Monthly Property Management Reports (end-of-month)
Status Summary
Income Statements/Profit & Loss (T-12, T-6, T3, etc.)
Balance Sheet
Accounts Payable Aging Analysis
Accounts Receivable Aging Analysis
Box Score
Trial Balance
General Ledger
Rent Roll
1. Weekly Property Management Reports
The first report we'll tackle is the weekly PM report. In this weekly snapshot from the Property Manger, they are highlighting a couple of key metrics that we are specifically targeting and is typically condensed to a few pages. This is typically the conversation-starter for our weekly calls and we then deep-dive into any section that may need attention. Let's look at each segment at a time.
Occupancy Projections. This section details out the current occupancy percentage for the property and projects out what the occupancy will be in 30-days and what it will be in 60-days. This is useful to track occupancy rates, especially during renovations. Monthly Leasing Results. Here we are tracking how many people inquired about availability, as well as how many actually applied and how many were approved. Vacancy. This is the section where we track the vacancies and non-performing units. Current Delinquency. The total amount outstanding for collections for the month. Income. Here we are tracking the expected income versus the actual collected. Notes and Comments. This is the section where our Property Manager would give some brief commentary around needs and activity. Manager Follow-Up Needs. Here is where we track specific tasks that we asked the Property Manager to perform.
2. Monthly Property Management Reports (End of the Month - EOM Report)
3. Status Summary
4. Income Statements (T-12, T-6, T3, etc.) (P&L Statement)
5. Balance Sheet
6. Accounts Payable Aging Analysis
7. Accounts Receivable Aging Analysis
8. Box Score
9. Trial Balance
10. General Ledger
11. Rent Roll
Below are some of our favorite financial ratios that we create using all of the above data.
Pari-Passu = LP Split / GP Split
Net Operating Income (NOI) = Total Net Income - Total Expenses
Cash Flow = Total Net Income - Total Expenses - Debt Service
Pro-Rata = Your Investment Amount / Total Investment
Cash on Cash Ratio = Annual Pro Rata Return / Your Investment Amount
Debt Yield Ratio = NOI / Mortgage Principal
Debt Coverage Ratio = NOI / Annual Debt Service
Break-Even Vacancy = (Total Expenses + Debt Services) / Total Net Income
Equity Multiple = Total Return On Investment / Initial Investment
Gross Rent Multiplier = Purchase Price / Gross Scheduled Income
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We are Ten15 Capital, and we are innovating the world of real estate investing via apartment complexes. We create lucrative opportunities via syndication or joint venture projects.
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