Financial statements are primarily used to establish:

Financial statements play a crucial role in evaluating the performance and financial health of real estate investments. In this context, they are specifically utilized to calculate Net Operating Income (NOI), which is a key indicator for property investors and real estate professionals.

NOI represents the total revenue generated from the property, specifically through rental income and other revenues, minus all necessary operating expenses (but excluding debt service, taxes, and capital expenditures). By analyzing the financial statements, stakeholders can derive the NOI, providing insight into the property’s profitability and operational efficiency. It is a reliable measure that helps in assessing how well a property generates income relative to its operating costs without consideration of financing costs or tax implications.

While the total revenue, market value, and rental income trends are important metrics in real estate analysis, they do not capture the comprehensive operational performance in the same way that NOI does. Total revenue is merely the gross dollars received from tenants, while market value and rental income trends focus on value and income growth over time. Thus, establishing NOI through financial statements serves as a fundamental basis for broader financial assessments, investment decisions, and value appraisals in the real estate sector.