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Numbers and narratives

A guide to reporting in property management

By <i>Journal of Property Management</i>

Thriving properties share much in common, not the least of which is a well-established process for creating accurate and thorough reports on all aspects of the property. These standardized reports serve as a common language for conveying the health of a given property to all its stakeholders, whether they be owners, investors, lenders, or the on-site management team.

From late rent payments to a building’s water usage, most aspects of property management are reflected in a report of one kind or another. And the person with the complete bird’s eye view of a building’s operation is the property manager.

“The keywords in reporting for me are always ‘big picture,’” says Brad Abel, CPM, a vice president for Colliers International, AMO, in New Hampshire, who oversees a portfolio of retail, industrial, office, and medical properties throughout New England. “As managers, we’re looking at all of the different parts of the property operations puzzle, like accounting, financing, consulting, maintenance, or brokerage. It’s the property management team that’s trying to analyze the overall performance of a property and clearly communicate these findings.”

Internal vs. external

Even the most robust reporting process begins internally by collecting information captured in various statements or documents that together help shine a light on a property’s operations.

Brad Abel, CPM

Some of the most common internal reports for property managers include rent rolls, balance sheets, income statements, vacancy reports, delinquency or aged payables reports, aged receivables, and variance reports. Reviewing these reports monthly is critical for managers to effectively monitor and optimize the performance of their properties, Abel says.

One particularly integral report is the budget comparison worksheet, which compares the income or cash flow statement against the set budget for the same period. Keeping a close eye on this report allows managers to quickly identify and respond to any variances.

“Proper internal reporting allows the property manager to identify budget variances and adjust their management strategy if they recognize that operations are going in a different direction than originally budgeted and planned,” says Chad Venne, CPM, managing partner with Ballast Real Estate Partners in Milwaukee. “It also helps managers communicate more effectively with their owners and investors by providing them with up-to-date information about how a property is performing.”

The internal reporting is typically analyzed by an asset manager or senior property manager on a quarterly basis. The reports are simplified and condensed before being sent out externally to stakeholders such as investors, owners, and lenders.

For management companies that also own the properties, owners analyze all internal reports and are generally very involved throughout the whole process. “For a third-party management company, the property manager is that critical person who then conveys all the data to the client in their external reports,” Abel says.

Abel and Venne agree that external reports should show how efficiently the property is being run, or how your team plans to get operations back on track if there are currently operational challenges.

Chad Venne, CPM

“Primarily, what we’d like to show in our external reports is that there’s growth in net operating income year-over-year,” Venne says. “The goal is to be able to show investors that we’re running the building more efficiently and increasing the property’s value. If for some reason we are not achieving our goals, we want to be able to explain the contributing factors and how we plan to address them.”

Managers may also need to send their reports to the IRS, local municipal tax entities, or lenders.

Everything’s financial

The most common financial statements aren’t the only reports that can capture what’s impacting a property’s bottom line. Many nonfinancial reports contribute to understanding a property’s financial health, including tenant surveys, which track existing tenant satisfaction, and leasing activity reports, which gauge interest in the property.

“Leasing activity reports allow us to keep our finger on the pulse of the market and demand for our properties,” Venne says. They also help his team confirm that they’re effectively spending their marketing dollars. “If we’re studying where and how people are hearing about us, and it’s different than where we’re focusing our efforts, we could be misallocating marketing dollars or missing opportunities to be more strategic in targeting tenants.”

Other types of reports can be necessary in order for buildings to achieve and maintain LEED or ENERGY STAR® certification. Abel’s team includes support personnel who chart utility trends. “On a monthly basis, we can see whether or not there’s extra water or other utilities being used in a property that shouldn’t be,” Abel says. “That might indicate a simple leak underground in a sprinkler pipe, or it could be something else entirely. This is not only wasteful but can also become very expensive.”

Abel also advises managers to utilize these energy and water use summaries to attract prospective tenants who are environmentally conscious.

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Pandemic impact

The unpredictable nature of the past two years is changing how some reports are being used by managers. Two notable reports in this regard are the income/cash flow statement, which assists with 12-month forecasting, and the aged receivables/delinquency report, which identifies tenants who are behind on making rent payments.

“We’ve been looking more closely at aged receivables since the start of the pandemic because it’s had such major financial implications for both owners and residents,” Venne says. “During the first months of the pandemic, we were faced with record unemployment, and tenants who’d always been in good standing found themselves in situations where they couldn’t pay rent.”

To work with those in need, Venne’s team began using the delinquency reports to identify which tenants may have had COVID-19 hardships and direct them to any emergency rental assistance programs available to them.

The pandemic also impacted the reliability of historical operating data. “The pandemic caused so many anomalies that I can’t rely on 2020 or 2021 data to produce accurate predictions for 2022 and 2023,” Venne says.

Because apartment communities became more than just a home during the pandemic, serving as virtual offices or schools for residents’ children, they absorbed heavier use and operating costs. Budgets were also strained due to supply chain issues and escalated purchasing costs. Venne says what was once a two-day wait for something like a new air conditioning unit or appliance became an eight- to 12-week delay in many cases.

“If we were able to find items in stock, we’d buy three, even if we only needed one, knowing we’d use them eventually,” Venne says. “It changed the way we were managing the cash flow of our properties because we had to outlay cash ahead of when we actually needed it.”

Venne says that by being able to review both their own internal reporting and larger macroeconomic trends, his team is now more vigilant in their budgeting. For example, rather than assuming operating expenses are going to grow uniformly based on historical trends, they’re drilling down on each line item of the budget and adjusting them individually based on recent trends. In some cases, expenses that typically grew 2% to 3% annually are now growing 7% to 10%. “If you’re not also clued in to what’s happening with the economy as a whole, you can easily end up completely mismanaging the expenses of your property,” he says.

Report automation

The pandemic also prompted more property managers to adopt digital technologies for leasing and rent collection, and managers benefited from the automatic reports and data they generate. Venne says one advantage of this is that property managers are able to focus more on high-level analytics rather than getting bogged down by simple administrative tasks. “The automation allows us to quickly analyze how a property is doing and then make the necessary adjustments,” he says.

For example, with rent collection software cutting down on transaction time, managers can now log in and see in real-time who has paid and who hasn’t, rather than waiting several days for that data to be delivered.

But the immediate accessibility to data can have its downsides, too.

“Information can become available to our clients before we’ve even had a chance to review and make sense of it,” Abel says. “Sometimes the information is captured so quickly that you’re caught off guard by a tenant’s questions about something you haven’t even seen yet.”

Venne says managers can also be at risk of going on autopilot and not consistently “digging into the minutiae of an important process.” A perfect example is when automatic electronic billing continues making regular utility payments for a recently sold property or a now-empty office building. Situations like this can slip under the radar and gradually bleed money.

“If the process becomes too automated, those errors can go unnoticed for long periods and can have a big impact on the financial performance of a property,” Venne says.

Venne expects that automation will likely make some entry-level jobs that have traditionally supported manual reporting processes obsolete. “Real estate professionals will have to come into the market with more value and critical-thinking skills because some of this periodic data processing will happen automatically,” he says.

Communicating effectively

Clearly understanding an owner’s goals and objectives will help make the reporting process more beneficial for both the owner and the manager. Venne says it is important to summarize the information reflected by the reports and determine the right amount of information shared with the external stakeholders.

“Sometimes, if you provide too much information, stakeholders can get unnecessarily caught in the weeds looking at something that they might not realize is a normal operating procedure,” Venne says.

On the flip side, managers should never withhold disappointing information out of concern for delivering the message. A commitment to transparency and ethics is vital, Venne says.

“It’s always difficult to deliver challenging news,” Venne says. “But that situation becomes even more dire when you catch someone off guard or could’ve talked through a solution but avoided addressing a difficult subject.”

Abel tells property managers that, along with always remaining transparent, they should also remember that a report isn’t only about data.

“The numbers are obviously important, but there’s more to it than that,” Abel says. “The report is also providing a narrative. There are so many important relationships between tenants, vendors, and others connected with the property that make it successful. Don’t forget the art of reporting.”

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Journal of Property Management

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