Liabilities and Equity

We owe vendors, Cooperators and lenders

Equity (what we owe Cooperators when they leave):

Shares don’t generally change

Paid in capital grows:

New Cooperators pay assessment

Mortgage is amortized

Accum deficit is net operation of the property since inception

Income Statement

• Reports how a property performed during the period(s) presented
• That results in either a profit or loss (Net before other items)
• Can be on the Cash Basis
  • How much revenue was actually received
  • What items were paid
• Accrual Basis

• How much revenue was earned (Amount we were entitled to)
• What costs were incurred

Income Statement-Revenue

• Income from Cooperators
• Portion to amortize mortgage
• Allocation to capital
• Abatements
• Other revenue
• Commercial and professional rents 

Fluctuates with sale vacancies

Can verify per room charge times number of rooms

Mortgage amortization is an addition to cooperator basis

If allocation, reduces taxable income funds Long Term capital

Abatements are required to be given to Cooperators

Surcharge revenue seems to be declining

Other income opportunity to minimize per room increases

Income Statement-Expenses

• Repairs and maintenance
• Labor and its overhead
• Real estate taxes
• Utilities
• Insurance
• Other

As buildings age the need for Repairs tends to grow

Less items can be repaired internally

Labor is union scale, benefits rising double digit

Only residential is subject to shelter rent regulations

Commercial/professional seem to continue swift rises

Other City charges grow many times inflation rate

Fuel oil versus Gas

Interruptible service

Severity of 2013/14 winter

Benefit for budgeting to lock in certain number of gallons even if not less costly

Insurance rates up 10%, Workman’s comp varies and rising

Plan on increases of 3.5% per year

Internal controls over inventory can create significant savings

As paying staff to do work that saves bringing in a contractor

Income Statement-Net operations and other items

• Excess before other items
• Other items 
  • Allocation of monthly charges to capital
  • Nonpayers happen
  • Mortgage prepayment penalty is deductible in year paid
  • Depreciation and amortization
• Net deficiency is simply an accounting item 

Required to comply with accounting standards but usually 

Statement of Cash Flows

• Reports on the company’s cash movements during the period(s)
• Three Sections:
  • From Operations
  • From Investments (fixed assets)
  • From Financing (debt and treasury units).

Notes to the Financial statements

• Provides more detailed information about the financial statements
• Significant Accounting Policies
  • Nature of Organization
  • Use of Estimates 
  • Cash Equivalents
• Concentrations
• Related Party Transactions
• Mortgage Payable
  • Shows next five years of principal
• Commitments & Contingencies
• Special Assessment 
• Rental Income
  • Shows next five years of minimum lease payments
• Future Major Repairs and Replacements
• Subsequent Events

Other Items

• There may be details in supplemental schedules

Working With the total Numbers 

• Current Assets vs. Current Liabilities
  • Compare current assets to current liabilities 
    • Looks at ability to pay bills in the next year
• Net Income vs. Net Income before other items/depreciation
  • Year versus year
  • Year versus budget
• Is there cash flow from operations?
  • Are operations throwing off enough cash or is a carry charge increase called for
• Supplemental Cash Flow
  • Evaluate improvements payable
    • Highlights unpaid bills on major repairs and replacements

Payroll as Percentage of Net Maintenance

• Informational
  • Indicates what portion of maintenance is locked up by payroll costs

Real Estate Tax as Percentage of Net Maintenance

• Informational
  • Indicates what portion of maintenance is locked up by real estate taxes

One Other Item

• Watch the Funding
  • Every item funded- reserves, special assessment, real estate tax, water and sewer- should be segregated
  • Should not spend excess elsewhere unless absolutely sure why excess exists

Key Metrics

Key Metrics-Cash Per Unit

• Benchmark
  • $2,000 minimum suggested level
  • $5,000 healthy
  • $10,000 extraordinary

Key Metrics-Debt Per Unit

• Benchmark
  • $40,000-$50,000 (Manhattan)
  • $30,000-$40,000 (Other Boroughs)

Key Metrics-Deductible Portion of Maintenance

• Benchmark
  • 40%, 60% is getting high

Key Metrics

• What to do with this information:
  • Use guidelines provided
  • Benchmark to the averages
    • CNYC Study- shown on per room basis
    • Czarnowski & Beer LLP Study- approximate benchmark numbers for a variety of metrics

One Last Thing

• Financial statements “present fairly, in all material respects”
• Audit does not check every penny!

Questions?