An operating statement is a property's record of income and expenses over a period, used to calculate net operating income. It lists every revenue line and every operating cost, then subtracts total expenses from total income to arrive at NOI. The operating statement is the primary document lenders, appraisers, and buyers use to judge a property's actual performance.
What Is Included in an Operating Statement?
An operating statement is organized into three parts: income, operating expenses, and the net operating income that results. Per HelloData and AcquiOS, the income section lists rent and other revenue such as parking and fees, the expense section lists costs such as taxes, insurance, utilities, repairs, and management, and NOI is income minus expenses.
The most common form is the T-12, a trailing twelve months operating statement showing actual income and expenses month by month for the preceding year with annual totals. Per HelloData, the T-12 is the standard document lenders, appraisers, and investors use to evaluate historical operating performance.
Section | Contents |
Income | Rental income, parking, storage, laundry, fees, reimbursements |
Operating expenses | Property taxes, insurance, utilities, repairs, management, payroll |
Net operating income | Total income minus total operating expenses |
Below the line | Debt service, capital expenditures, and depreciation, excluded from NOI |
One rule separates a clean operating statement from a misleading one: debt service, capital expenditures, and depreciation sit below the NOI line and are excluded from operating expenses. Including them understates NOI and value.
Why the Operating Statement Matters
The operating statement matters because it is the evidence behind every number in a deal. Value under the income approach is NOI divided by a cap rate, and the operating statement is where NOI comes from. A buyer who trusts a seller's summary without the underlying statement is buying an assertion, not a property.
The document also reveals trends a single-year total hides. A month-by-month T-12 shows a spike in repairs, a seasonal utility swing, or a mid-year rent increase that an annual figure smooths away. Per Tactica RES, requesting the T-12 rather than a summary pro forma is a basic protection against income that exists only on paper.
This is why underwriting normalizes the operating statement before trusting it. Analysts strip out non-recurring items, add back owner-paid costs a new owner would incur, and confirm expenses reflect real operations. A normalized operating statement is the foundation of a defensible valuation.
Example
A small multifamily property reports a trailing twelve months operating statement using representative figures. Rental income and other income form the top of the statement, operating expenses are listed and totaled beneath it, and net operating income is the difference between the two. The table below shows that structure line by line.
Line | Category | Amount |
Rental income | Income | $520,000 |
Other income (parking, laundry) | Income | $30,000 |
Total income | Income | $550,000 |
Property taxes | Expense | ($62,000) |
Insurance | Expense | ($18,000) |
Utilities | Expense | ($40,000) |
Repairs and maintenance | Expense | ($35,000) |
Management (4% of income) | Expense | ($22,000) |
Total operating expenses | Expense | ($177,000) |
Net operating income | Result | $373,000 |
Net operating income is $550,000 minus $177,000, or $373,000. Note what is absent: no mortgage payment, no roof replacement, no depreciation. Those belong below the NOI line, so the operating statement isolates the property's operating performance from how it is financed or capitalized.
Variations and Edge Cases
Operating statements differ by period and by who prepared them. A T-12 shows trailing actuals, a T-3 annualizes the most recent three months to catch recent momentum, and a seller-prepared statement may omit or reclassify costs a new owner will face.
Variant | What it shows |
T-12 | Actual income and expenses for the trailing twelve months |
T-3 or T-1 annualized | Recent months annualized to reflect current run rate |
Seller pro forma | Projected, not actual; treat as a claim, not evidence |
Normalized statement | Adjusted for non-recurring items and market expenses |
Management-fee omission | Owner-managed properties may report zero management cost |
The recurring error is accepting a statement that omits a management fee or property tax reassessment a new owner will incur. Adjusting for those before deriving NOI is the difference between real performance and a favorable presentation.
Operating Statement vs Pro Forma
An operating statement is often confused with a pro forma, but they describe different time frames. An operating statement records actual income and expenses that already occurred, typically over a trailing twelve months. A pro forma projects future income and expenses under assumptions about occupancy, rent growth, and expenses.
The difference is history versus forecast. An operating statement is evidence of what the property did; a pro forma is a claim about what it could do. Underwriting weighs the operating statement heavily and treats the pro forma with skepticism, because assumptions are easy to make and actuals are not.
Frequently Asked Questions
What is included in an operating statement?An operating statement includes all property income, all operating expenses, and the net operating income that results. Income covers rent and other revenue; expenses cover taxes, insurance, utilities, repairs, and management. Debt service and capital expenditures are excluded.
Is an operating statement the same as a T-12?A T-12 is a specific operating statement covering the trailing twelve months, shown month by month. All T-12s are operating statements, but an operating statement can also cover a single month, three months annualized, or a projected period.
Does an operating statement include the mortgage payment?No. An operating statement excludes debt service, capital expenditures, and depreciation. These sit below the net operating income line, so NOI reflects the property's operations independent of how it is financed.
Related Terms
Net Operating Income
T-12
Operating Expenses
Effective Gross Income
Pro Forma