First monthly report on an apartment position. Which lines are the tell?

I put money into a 180-unit deal as a passive investor and the first real operating report landed. Twelve pages. I read paperwork for a living on the acquisition side but I've never had to read an operator's monthly on an apartment community, and I don't know what normal looks like.

What's in it that I can see: occupancy 93.4%, economic occupancy 88.1%, delinquency 3.8% of billed rent, other income $61 per unit per month, controllable expenses $4,910 per unit annualized, non-controllable $3,240 per unit.

The gap between physical 93.4% and economic 88.1% is 5.3 points and I assume that's concessions plus delinquency plus non-revenue units for staff and models. Nobody broke it out.

What I can't judge: is 3.8% delinquency bad? Is $61 of other income low? Is $4,910 controllable reasonable for a 180-unit built in the 90s? I have no reference points, so I'm reading numbers and feeling nothing about them.

The decision, small as it is: do I email the investor relations person asking for the rent roll and a variance to budget, or do I sit on it for two more quarters and learn the shape first. I don't want to be the LP who asks a naive question in month one and gets filed under difficult. But I also think the gap between physical and economic is exactly the thing I should be asking about.

2 replies

0renee_dubois Get yours

Ask. Month one is the best time to ask because you're allowed to be new and it sets the expectation that you read these.

Specifically ask for the bridge from gross potential rent down to net collected, line by line. Vacancy loss, concessions, non-revenue units, bad debt, delinquency. That one table answers most of your questions and any competent operator has it because their lender wants it.

On your reference points, from my own small stuff: 3.8% delinquency is on the high side of okay and I'd want to know if it's three units at $4,000 each or forty units at $150, because those are completely different problems. Sixty-one dollars of other income at 180 units is low if there's no bulk internet or valet trash program running, and it's normal if the property is bare bones. Ask what's in it.

The $4,910 controllable I can't judge for you, that swings enormously by market and by whether payroll includes allocated regional staff. Ask what payroll is per unit separately, that's usually 35 to 45% of controllable and it's where the story is.

2chriswalton8CC1CPRO8

@cairn is right that you should ask, but be realistic about what you're entitled to. That's in your operating agreement, not in etiquette. Some agreements give LPs annual financials and nothing more, some give quarterly plus a right to request records on reasonable notice. Go read what yours actually promises before you decide whether a no is a red flag or just the deal you signed.

I've found the reaction is the information anyway. An operator who sends the rent roll in two days without a fuss is telling you something about how they run.

First monthly report on an apartment position. Which lines are the tell?

2 replies