BOMA BOMA Financial Management & Reporting 2 — Questions and Answers
Question 1: What is a 'variance report' in property management financial reporting?
- A report showing differences between budgeted and actual financial performance (Correct answer)
- A document explaining changes in property value over time
- A lender's report comparing properties in the same market
- A tax document showing depreciation differences
Correct answer: A report showing differences between budgeted and actual financial performance
A variance report compares budgeted figures to actual results, highlighting positive or negative differences that require management attention or explanation.
Question 2: What is a 'capital expenditure' (CapEx) as distinguished from an operating expense in building management?
- Any expense over $1,000 automatically classified as capital
- An investment in a long-lived asset that extends useful life or adds value, capitalized and depreciated over time (Correct answer)
- Monthly recurring maintenance costs regardless of amount
- Any expense paid by the property owner rather than tenants
Correct answer: An investment in a long-lived asset that extends useful life or adds value, capitalized and depreciated over time
CapEx refers to spending on assets that extend a building's useful life, improve functionality, or add value (like roof replacement or HVAC systems), which are capitalized on the balance sheet and depreciated over time.
Question 3: What financial statement shows a property's assets, liabilities, and equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Operating statement
Correct answer: Balance sheet
The balance sheet (or statement of financial position) provides a snapshot of a property's or company's financial position at a specific date, listing all assets, liabilities, and owner's equity.
Question 4: In property management, what does 'economic occupancy' measure compared to 'physical occupancy'?
- Physical occupancy measures leased space while economic occupancy measures space actually in use by tenants
- Economic occupancy measures rent actually collected as a percentage of potential rent while physical occupancy measures percentage of space that is leased (Correct answer)
- Economic occupancy counts only paying tenants while physical occupancy counts all occupants including unauthorized ones
- They measure the same thing but are used in different regions of the US
Correct answer: Economic occupancy measures rent actually collected as a percentage of potential rent while physical occupancy measures percentage of space that is leased
Physical occupancy is the percentage of total space that is leased, while economic occupancy measures actual rent collected as a percentage of potential gross rent, accounting for concessions and delinquencies.
Question 5: What is the purpose of a 'replacement reserve' in a property's operating budget?
- A reserve to replace non-performing tenants
- Funds set aside to cover future major capital expenditures like roof replacement or HVAC systems (Correct answer)
- A contingency fund for unexpected legal costs
- Money reserved for tenant improvement allowances on new leases
Correct answer: Funds set aside to cover future major capital expenditures like roof replacement or HVAC systems
A replacement reserve is money set aside annually to fund future major capital replacements, ensuring sufficient funds are available when major building systems or components reach end of life.
Question 6: What does 'gross potential rent' (GPR) represent in a property's financial analysis?
- The average rent per square foot achieved in comparable buildings
- The total rental income a property would generate if 100% leased at current market rates with no vacancies (Correct answer)
- The rent collected after deducting management fees
- The rent income adjusted for operating expense reimbursements
Correct answer: The total rental income a property would generate if 100% leased at current market rates with no vacancies
Gross potential rent is the maximum rental income a property could generate if every unit or space were leased at current market rates with full occupancy and no concessions.
BOMA BOMA Financial Management & Reporting 2
What is a 'variance report' in property management financial reporting?