NAA's Income and Expense Survey Results.

NAA has completed its Survey of Operating Income and Expenses in Rental Apartment Communities for 2000 (data for 1999). Major findings in this survey of the professionally managed rental apartment industry show further improvement in Net Operating Income (NOI) and more success in the continuing quest to control operating costs.

A total of 3,049 properties containing 732,292 units are represented in the report. Reporting of the data is composed of 2,349 market rent properties containing 633,331 units and 700 subsidized properties containing 98,161 units.

Data is presented for four types of properties in this report. Garden and high-rise structures each segmented further into individually metered and mastered metered utilities properties. Responses are dominated by garden properties with individually metered utilities. They represented 89 percent of the market rent properties and 69 percent of the subsidized properties. The analysis is, therefore, centered on the garden properties with individually metered utilities. Average sizes of these garden properties were 268 units for the market rent units and 144 units in subsidized units. Rentable floor area averaged 874 square feet for market rent apartments and 811 square feet for the subsidized units.

This report contains detailed data summarized for six geographic regions and metropolitan areas with at least 10 properties reported. Fifty-four metropolitan areas met the separate reporting requirement for market rent properties. Sufficient numbers of subsidized properties were submitted for 19 metropolitan areas. Data is presented in three forms: dollars per unit, dollars per square feet of rentable floor area and as a percentage of GPR.

Market Rent Properties

Net Operating Income

Respondents reported a healthy rental apartment market based in their operating and income and expense data. Net operating income (NOI) averaged 58.8 percent of gross potential rent in individually metered garden apartments reported in the survey. NOI has risen throughout the 1990s and is well above the 43.8 percent recorded a decade earlier (the NAA survey for 1988 data). In dollars per unit, it was $4,456 and $5.10 on a dollars per square foot basis. NOI regionally measure in percent of GPR terms ranged from a high of 63.4 percent in the South Midwest/Mountain states to a low of 54.5 percent in the Southwest.

Gross Potential Rent

GPR in the survey data tables is now defined on a post fiscal year basis. It is the sum of rent revenue collected and revenue losses. This gives the ability to produce better measures of financial performance. GPR in past surveys was defined as the rent for all occupied units at the beginning of the year with an allowance for rent increases and market rents for units that were vacant. The rent increases tend to be applied as a simple percentage of the rents paid by the residents at the time of the budget preparation. Since leases are renewed at different periods throughout the year and the projected rent increases are not fully realized in the fiscal year, an amount termed "loss to lease" occurs.

Average GPR for individually metered garden apartments was $7,996 per unit ($666 monthly). Translated into per square foot of floor area, it was $9.13. Median GPR was $7,653 ($638 per month). The range went from a high of $27,487 ($2,290 per month) to a low of $3,643 ($304 per month).

Rent Revenue Collected

Rent Revenue Collected averaged $7,303 per individually metered garden property unit annually last year ($609 per month). Measured on a per square foot basis rent revenue averaged $8.34 last year.

Revenue Losses

Rental revenue loss data was collected for the first time this year in the survey. Separate data was reported for revenue losses due to vacancies, collections and concessions. Vacancy losses for individually metered market rent garden properties averaged 5.9 percent of GPR ($475 per unit in the property, $0.54 per square foot). Collection losses averaged 0.8 percent of GPR ($61 per unit, $.07 per square foot). And losses from rent concession averaged 2 percent of GPR ($160 per unit in the property, $0.18 per square foot).

Other Revenue Collected

Other revenue collected from operating sources includes receipts from on-site laundries, cable, telephone systems, parking fees and other charges for services and amenities. These other operating revenues averaged $374 per unit ($0.43 per square foot unit) for individually metered garden properties reported in the survey. Other non-rent operating revenues ranged from none to a high of $4,216. Median other operating revenues was $340 per unit.

Total Operating

Expenses

Rental apartment management firms continued to be successful in controlling operating expenses last year. Total operating expenses for individually metered garden properties in the survey averaged $2,971 per unit ($3.39 per square foot). They accounted for 37.1 percent of gross potential rent. Operating expenses declined from the $3,055 per unit ($3.50 per square foot) recorded in last year's survey.

Economic Vacancy

An 8.70 percent economic vacancy rate was calculated for all market rent individually metered garden properties market in the survey. Economic vacancy is a measure of potential income not realized over a given period of time, a year in this survey. It offers another useful measure of the economic vitality of a property and local markets. It is defined as the difference between rent revenue collected GPR.

Turnover Rates

Turnover rates averaged 65 percent of total units among the individually metered garden apartment properties reported in the survey. Move-outs have been increasing over the past two years as the economy continued to improve and the homeownership rate increased. Turnover had reached a low of 59 percent in the survey for 1995 data. A peak turnover rate at 69 percent occurred during 1990. The high rate in 1990 reflected the apartment market and national economic recessions.

Age of Property

NOI measured in percentages of gross potential rent was the lowest for the oldest properties reporting in the survey. It was relatively the same for the three other age groupings used in this analysis. It was the lowest for those 20 or more years old at 55.5 percent. The highest at 60.9 percent for those 5 to 9 years old, followed by 60.2 percent for those 10- to 19-years-old, and 59 percent for properties less than 5-years-old. It the drops to 59.4 percent then to, and the lowest. This result for the most part comes from the levels of GPR. GPR in dollars per unit terms go from the highest to the lowest in the same order as NOI.

Size of Property

Scale economies based on the size of a property do exist to a point. Four categories were selected: less than 100 units, 100 to 249 units, 250 to 499 units and 500 or more units. The highest operating costs for market rent individually metered garden properties reporting in the survey were those with less than 100 units. This was true for all three forms of measurement. The numbers of properties reported, however, limits the ability to make absolute conclusions. Most of the units and properties reporting were in the two middle-sized categories and limited data from the smallest and largest properties. Properties with less than 250 to 299 units had the lowest average total operating costs--$2,938 per unit, $3.37 per square foot, and 36.5 percent of GPR. The highest operating costs were for those properties with less than 100 units--$3.250 per unit, $3.65 per square foot and 39.8 percent of GPR.

Subsidized Properties

Revenues

GPR averaged $6,451 ($7.57 per square foot) annually. This is 20 percent under the $7,998 ($9.13 per square foot) for their market rent counterparts. Rental revenues averaged $6,118 per unit ($7.57 per square foot). Other operating revenues in subsidized properties are significantly less than those for market rent properties. They averaged $174 per unit ($0.20 per square foot) for the subsidized properties vs. $374 per unit ($0.43 per square foot).

Operating Expenses

Operating expenses in subsidized properties were close to those for market rent properties. Subsidized properties reported in the survey had total operating costs averaging $2,949 per unit ($3.46 per square foot). The market rent property average was $2,971 per unit ($3.39 per square foot).

Net Operating Income

Subsidized properties with their lower rents had smaller NOIs than those for the market rent properties reporting in the survey. NOI for subsidized properties in the survey averaged 51.9 percent of gross potential rent vs. 58.8 percent for the market rent properties. The comparisons on a per unit basis were $3,343 vs. $4,705 and $3.92 per square foot vs. $5.37.

Economic Vacancies

Economic vacancy rates tend to be lower in subsidized properties with their lower rents. A 5.16 percent average rate was calculated for the subsidized individually metered garden properties vs. 8.7 percent for market rent units.

Turnover Rates

Occupants of subsidized apartments have lower income and fewer housing choices in most local market and are less likely to move. The turnover rate in individually metered subsidized units was 28 percent vs. 65 percent for market rent units. Gross potential rent averaged $6,384 ($7.87 per square foot) annually. This is 20 percent under the $7,963 ($9.11 per square foot) for their market rent counterparts. Rental revenues averaged $6,000 per unit ($7.40 per square foot). Other operating revenues in subsidized properties are significantly less than those for market rent properties. They averaged $195 per unit ($0.24 per square foot) for the subsidized properties vs. $375 per unit ($0.43 per square foot).

This Executive Summary was reprinted from the Survey of Operating Income and Expense in Rental Apartment Communities. To order a copy of the entire Survey of Operating Income and Expenses in Rental Apartment Communities, please see the ad on page 70.

All Market Rent Properties Operating Income & Expense Data

INDIVIDUALMETEREDPROPERTIES
                               Total     Garden   High Rise

Number of Properties            2131      2037       94
Number of Units                576163    550843     25320
Avg. No. of Units/Property      270       270        269
Avg. No. of Square Feet/Unit    875       876        853
Turnover rate in %              64        65         56

                       $ Per   $ Per     % of     $ Per   $ Per
Revenues               Unit    Sq. Ft.   GPR      Unit    Sq. Ft.

Gross Potential Rent    8060    9.21     100.0%    7998    9.13
Rent Revenue            7365    8.42      91.4%    7303    8.34
 Collected
  Losses to Vacancy      476    0.54       5.9%     475    0.54
  Collection Losses       62    0.07       0.8%      61    0.07
  Losses to              158    0.18       2.0%     160    0.18
   Concessions
Other Revenue            379    0.43       4.7%     374    0.43
Total Revenue           7744    8.85      96.1%    7676    8.76

Operating Expenses

Salaries and             754    0.86       9.4%     742    0.85
 Personnel
Insurance                 88    0.10       1.1%      87    0.10
Taxes                    693    0.79       8.6%     689    0.79
Utilities                404    0.46       5.0%     396    0.45
Management Fees          282    0.32       3.5%     277    0.32
Administrative           145    0.17       1.8%     136    0.16
Marketing                140    0.16       1.7%     139    0.16
Contract Services        257    0.29       3.2%     252    0.29
Repair and               259    0.30       3.2%     254    0.29
 Maintenance
Total Operating         3021    3.45      37.5%    2971    3.39
 Expenses

Net Operating Income    4723    5.40      58.6%    4705    5.37

Capital Expenditures     533    0.61       6.6%     531    0.61

                        % of     $ Per    $ Per      % of
Revenues                 GPR      Unit     Sq. Ft.    GPR

Gross Potential Rent    100.0%    9409     11.03    100.0%
Rent Revenue             91.3%    8727     10.23     92.8%
 Collected
  Losses to Vacancy      5.9%      492      0.58      5.2%
  Collection Losses      0.8%       71      0.08      0.8%
  Losses to              2.0%      118      0.14      1.3%
   Concessions
Other Revenue            4.7%      483      0.57      5.1%
Total Revenue           96.0%     9210     10.80     97.9%

Operating Expenses

Salaries and            9.3%     1023      1.20      10.9%
 Personnel
Insurance               1.1%      109      0.13       1.2%
Taxes                   8.6%      777      0.91       8.3%
Utilities               5.0%      569      0.67       6.1%
Management Fees         3.5%      408      0.48       4.3%
Administrative          1.7%      340      0.40       3.6%
Marketing               1.7%      153      0.18       1.6%
Contract Services       3.1%      369      0.43       3.9%
Repair and              3.2%      360      0.42       3.8%
 Maintenance
Total Operating        37.1%     4109      4.82      43.7%
 Expenses

Net Operating Income   58.8%     5101      5.98      54.2%

Capital Expenditures    6.6%      588      0.69       6.2%

MASTERMETEREDPROPERTIES
                               Total   Garden   High Rise

Number of Properties            218      140       78
Number of Units                57168    40420     16748
Avg. No. of Units/Property      262      289       215
Avg. No. of Square Feet/Unit    889      894       876
Turnover rate in %              59       58        61

Robert J. Sheehan is president of Regis J. Sheehan Data and Forecasting Service in McLean, Va., and serves as NAA consulting economist. He can be reached at 703/893-9185 or by e-mail at [e-mail].