property financials verbiage
Not a wholly important topic..but coming from IBD into REPE investment, I always hear "property financials". Why do people in the industry always say "property financials", which is technically impossible since a property is an asset and cannot have its own IS/BS/CF and instead why not say "property company financials" since every property is put into an LLC/LP or other legal entity that can produce financials when the asset is operated. It kind of irritates me since I like being correct on the verbiage, but just curious what others in the industry think? I mean in other industries such as cruise line companies, you don't say "ship financials"...you'd say "cruise line company financials"...
To play devil's advocate, there could be an LLC that owns multiple properties.
Because the property is evaluated individually on it's performance/investment merit. In a cruise line business, they don't look at each ship's capacity. They may look at things like 'our alaska cruise occupancy is down this year' or 'our european line is up 20% YOY, but they don't segment it by ship because the revenue isn't isolated to a specific ship. Similar with airlines. Similarly, when you're buying a flight ticket, you don't say 'Oh shit, that flight's on a 737, I really wanted a 757, sorry.' You're going to say something like 'Well I hate LAX airport so I want to fly into Long Beach' or 'I don't want to wake up at the asscrack of dawn, so I don't want the 8 AM international flight, I'll go with the 10 AM.'
With real estate, it's very easy (and important) to identify revenue and income on an asset basis, and since most transactions in real estate are single asset vs. a larger portfolio sale/entity level deal, people dig into the property itself. No one cares how so-and-so LLC operated the property, they care whether or not the property performed well on it's own, and whether or not it could do so on a go-forward basis. For example, maybe the current ownership is paying themselves a management fee that's like 200% of what a market rate would be. This would obviously throw the property balance sheet and CF statement out of wack, which is why really all you want to see are the property level cash flows/income statements, because some of those line items will be variable, while others (like property taxes, utilities, etc.) will generally be pretty static.
You're being way too nit-picky classifying the term 'financials'. It doesn't have to mean the 3 accounting statements, it can mean a lot of different things. P&L, accounts receivable statements, historical operating statements, rent roll, CAM Rec, etc.
I agree with what you're saying that in CRE it's analysis at the asset level versus in a standard corporation you can be analyzing multiple assets to generate revenue...but again to be correct in your statement "..a property balance sheet"..a property (a building) cannot have a balance sheet..it's an asset on a balance sheet and the balance sheet is held under say an LLC that's a single asset entity that owns the building. P&L, BS, CF rent roll, AR/AP aging etc are also schedules of an LLC that holds a simple fee title interest in the building, not the building itself..or am I mistaken here?
So you are saying you're agreeing with me but then immediately disagreeing with me with the rest of your response..... Which is fine, but don't try to placate me just saying that you're agreeing with me when you aren't.
In my view, you're mistaken, although others may feel differently. In my experience, even if a REOC/Investment Manager/REIT, etc. owns a building under a separate LLC, they don't do a balance sheet for each building. This is coming from someone who's bought every single deal in my career under a separate/freestanding LLC, and not once have we done a 'balance sheet' on each building. It's done at the portfolio level. What I'm saying is what you're asking for doesn't usually exist, and even if it did, no one is going to get as bent out of shape as you are if someone says 'financials' when asking for DD in escrow. If someone from Blackstone or Ivanhoe Cambridge or Carlyle asks me for that for a deal we are doing (which has happened many times), I'm not going to think less of them because they weren't 'preftigious' or 'pedigreed' enough to clarify that by 'financials' they didn't mean IS/BS/CF. The only real reason that owners use the LLC per building is for liability purposes. If they get sued, they only want the lawsuit to impact that property/building profit center, not expose the rest of the fund. There are also groups that don't do that, and simply have it all in a fund, and have accounting systems set up that just bifurcate the P&L's, rent rolls, etc automatically within their system using some sort of coding system.
This is not that big of a deal, I'm advising you that you want to learn not to think this way about this kind of stuff or you're going to struggle to climb the ladder in this industry. If you're getting hung up on this level of minutiae, you're missing the forest my man.
I'm basically just referring to this:
https://www.investopedia.com/terms/p/propco.asp
You're saying you disagree with the above?
Bruh
Are you implying that a company (Corporation, LLC, LP) cannot be listed as an asset on another company’s balance sheet? What about a property being an asset makes it unable to have financials (P&L, BS, CF)?
What kind of post is this?
dumbest argument of 2019 so far, well done
.#whocares
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