Real Estate Fund Financial Statements: Key Reports & Best Practices

For real estate fund managers, real estate fund financial statements are more than regulatory paperwork. They’re a strategic tool for measuring performance, promoting fund transparency and building trust with investors. These statements allow stakeholders to understand how individual assets contribute to fund value, track leverage and assess overall financial health. But due to unique challenges in real estate accounting, preparing them demands rigor, clarity and deep domain expertise.

In this guide, we’ll walk through the key financial statements for real estate funds, highlight supplementary disclosures (like the schedule of investments) and share best practices to align your fund’s reporting with investor expectations and regulatory standards.

The Key Financial Statements for Real Estate Funds

Below are the core reports real estate fund managers should produce, along with tips for effective presentation and interpretation.

1. Balance Sheet

The balance sheet, or statement of financial position, delivers a snapshot of what the fund owns (assets), owes (liabilities) and the residual interest (equity) at a point in time.

• Assets: Split into current (e.g., cash, short-term receivables) and non-current (e.g., investment properties). The valuation methodology you apply (cost, fair value, appraisal-based) profoundly impacts accuracy and comparability.

• Liabilities: Include short- and long-term debt, lines of credit, construction loans and other obligations. Disclosures around interest rates, covenants, maturity dates and embedded options (e.g., prepayment) enhance transparency.

• Equity: Reflects investor capital, distributions, contributions and revaluation adjustments. A companion Statement of Changes in Equity (discussed below) helps reconcile movements over time.

2. Income Statement (Profit & Loss)

This statement covers revenues and expenses for a reporting period, measuring the fund’s performance.

• Revenue streams: Typically include lease/rental income, property management fees and sales gains. Segregate recurring income from non-recurring gains (e.g., asset sales) to clarify sustainability.

• Expenses: Common line items include maintenance, property taxes, insurance, utilities and management fees.

• Non‑GAAP metrics: In addition to GAAP net income, present metrics such as net operating income (NOI) and funds from operations (FFO). FFO is especially useful in real estate contexts because it adjusts for depreciation and gain/loss recognition.

• Impairments & write‑downs: Recognize any decline in property value clearly. Describe the assumptions, methodology and sensitivity of your impairment calculations.

3. Statement of Cash Flows

Cash flow statements help users see how cash is generated and used, revealing liquidity and sustainability.

• Operating activities: Cash collected from leases and property operations, net of operating expenses.

• Investing activities: Purchases, capital improvements or sales of real property.

• Financing activities: Debt proceeds/repayments, distributions and equity inflows/outflows.

A strong positive operating cash flow, coupled with deliberate investing and financing flows, signals prudent fund management.

4. Statement of Changes in Equity

This statement provides a detailed reconciliation of changes in equity during a specific period. This helps investors understand how their equity has evolved over the course of the reporting period (accounting for contributions, distributions and withdrawals).

A simplified version of the statement may look something like this:

The Statement of Changes in Equity ensures transparency around how investor money is being managed and how returns are allocated, making it particularly valuable for funds with complex equity structures.

5. Schedule of Investments (Supplementary)

While not always required, the schedule of investments offers greater granularity into individual assets and their metrics. It often includes:

• Property details: Location, type (commercial, multifamily, etc.), acquisition cost and fair value.

• Performance metrics: Occupancy rates, rental income and appreciation/depreciation.

• Portfolio breakdown: Geographic allocation, sector exposure and concentration analysis.

Larger, more complex funds typically integrate these schedules alongside the primary statements.

Additional Considerations & Best Practices

Fair Value Accounting & Disclosure

Real estate funds often use fair value accounting, especially under ASC 946, and must comply with ASC 820 for valuation hierarchy and disclosure. You should disclose valuation techniques, assumptions, input levels (Level 1, 2 or 3) and sensitivity analyses.

Consistency & Uniform Methodologies

Maintain consistency in accounting policies (asset valuation, depreciation, expense allocation) across periods and assets. Fund users must be able to compare across time and across funds reliably.

Disclosure & Transparency

Disclosures are as crucial as the numbers: ensure each material line item is supported by relevant notes. Don’t assume “audit-ready” means “investor-ready.” Fund managers should thoroughly review and challenge disclosures.

Common Pitfalls to Avoid

• Misallocation of income and expenses

• Inadequate internal controls

• Poor reconciliation between schedules and primary statements

• Failure to consolidate multiple property entities

• Insufficient or inconsistent valuations

• Late or inaccurate investor reporting

Benchmarking & Investor Context

To strengthen investor confidence, pair your fund’s metrics with benchmarks and context. Use cash-on-cash return, cap rate and IRR, and compare against industry standards or relevant REIT performance.

Leveraging Financial Statements for Smarter Decision-Making with James Moore

Accurate and transparent financial reporting is essential for meeting regulatory requirements and gaining investor confidence. Real estate funds typically adhere to standards such as Generally Accepted Accounting Principles (GAAP). Compliance with these frameworks ensures consistency and comparability across financial statements, making it easier for stakeholders to evaluate the fund’s performance.

While compliance is a key driver of financial reporting, these statements also serve as a foundation for strategic planning and decision-making. By analyzing trends in income, expenses and cash flow, fund managers can identify underperforming properties, optimize debt levels to balance risk and returns and plan for future acquisitions and capital expenditures.

If you need help preparing these financial statements for your real estate fund, connect with James Moore. Our real estate CPAs have extensive experience supporting the accounting needs of real estate funds. We bring the specialized knowledge required to ensure your financial statements are compliant with all regulatory frameworks and promote stronger investor relationships.

Contact us today to learn more about our accounting services for real estate funds.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.