Net Operating Income vs

6 Replies

I was looking at American Homes 4 Rent financial statements, and I see that for example in Dec 2014 the NOI shows $ 232,319* yet on their Consolidated Statements of Operations it shows "Net Loss" = $ (33,092)"

Are they really losing money (since Im not sure which number is true net)?  Seems the depreciation expense is a good portion of the expense.

Im new to investing so go slow  please ;)

* = (x1000)

http://investors.ah4r.com/Cache/1001195339.PDF?Y=&...

The loss you are seeing takes into consideration depreciation and other factors/expenses outside of what would be used to calculate NOI which is basically income less operating expenses.

So I should eliminate depreciation to see how profitable they are?

I guess the same would be true for my own properties too then right?

One more thing. I calculated that their "cap rate" would be at around 4% (and probably much less with financing)  

Core net operating income     $ 232,319

 Single-family properties, net    $5,710,671

It just doesnt sound very profitable. Considering how many properties these big companies are constantly buying in my area, its hard to compete and try to get 10-20% cap rates.  Even they do rehab as well as I, so no difference there on looking for the good deals to start with

Originally posted by @Eran Greenburg :

So I should eliminate depreciation to see how profitable they are?

I guess the same would be true for my own properties too then right?

NOI is one very simple metric used to gauge the strength of an investment. Its not that simple. You need to look a lot deeper. NOI is like a snapshot in time.

@Eran Greenburg getting 4% isn't bad considering how fast they bought their stuff. These Wall Street guys are looking for profits in the resell. Like a stock, total returns include appreciation when sold.

Originally posted by @Eran Greenburg :

I was looking at American Homes 4 Rent financial statements, and I see that for example in Dec 2014 the NOI shows $ 232,319* yet on their Consolidated Statements of Operations it shows "Net Loss" = $ (33,092)"

Are they really losing money (since Im not sure which number is true net)?  Seems the depreciation expense is a good portion of the expense.

Im new to investing so go slow  please ;)

* = (x1000)

http://investors.ah4r.com/Cache/1001195339.PDF?Y=&...

A negative net income on the income statement does not mean that in fact the company is loosing money. Depreciation, especially in real estate could and often is significant and is often used as a tax shield to lessen the tax burden.

In this case and for the referenced fiscal year, Total revenue = 398,874; Total expenses = 420,689 but 165,516 of the total expenses was just depreciation which does reduce the taxable income.

This is why the cash flow statement often helps give a better idea of how money is actually flowing through the company.