T-12
Also called Trailing twelve, TTM operating statement, T12.
A T-12 is a trailing twelve month operating statement: every income and expense line a property actually produced over the last twelve months, normally shown as twelve monthly columns with an annual total. It reports what happened, as opposed to what a seller projects.
How it works
The monthly presentation is the reason to ask for it in that format. An annual total conceals a tax bill that landed in one month, a utility line that doubled in July, and a repairs line that was flat for eleven months and then absorbed a roof. Twelve columns make all three visible in a single read.
Practitioners pull a T-3 and a T-1 alongside it and annualise them. If the trailing three months annualised sit materially above the trailing twelve, something improved recently: a lease-up finished, concessions burned off, a renovation programme started producing premiums. If they sit below, look for a tenant that left or an expense that reset. The direction of travel matters more than the twelve-month average.
Two lines on a T-12 are frequently irrelevant to a buyer no matter how accurate they are. Real estate taxes reassess on sale in many jurisdictions, so the seller's basis is not yours. Insurance in coastal and wildfire markets has repriced faster than any trailing statement can reflect. Both should come from a calculation or a quote, never from the statement.
Worked example
Illustrative adjustments between a seller's T-12 and a buyer's underwritten year one.
| T-12 net operating income as presented | $3,148,000 |
|---|---|
| Reassessed property taxes | ($214,000) |
| Insurance requoted for buyer coverage | ($68,000) |
| Management fee to market at 3% of EGI | ($42,000) |
| Roof replacement reclassified from repairs to capital | $196,000 |
| Normalised NOI | $3,020,000 |
Four adjustments, $128,000 of net movement, and at a 5.4 percent cap rate about $2.4 million of price. Three of the four make the deal worse and one makes it better, which is the usual pattern.
Conventions worth knowing
- Read the repairs and maintenance line item by item, not in total. Capital work booked as a repair is the most common misclassification on a trailing statement.
- Owner-managed properties often book a management fee below market or none at all. Use the fee you will actually pay.
- Strip every non-recurring item: insurance rebates, legal settlements, tax appeal refunds, a burst pipe. They belong in the trailing statement and nowhere in a forward year.
The common mistake
Trusting the trailing tax line
In states that reassess on transfer, the seller's tax expense reflects an assessment that may be years old and a basis far below your purchase price. Carrying it forward can understate the single largest operating expense by six figures, and because it is a real cost with no offsetting revenue it flows straight through NOI into both the valuation and the loan sizing. Calculate taxes from your expected assessed value and the local millage rate, and confirm the reassessment rules before you do.
Related terms
- Net operating incomeNet operating income is a property's effective gross income less all operating expenses, before debt service, income taxes, depreciation and capital expenditure. It is the figure a cap rate is applied to, the numerator of debt yield and DSCR, and the number a purchase price is ultimately negotiated against.
- Rent rollA rent roll is the unit-by-unit or tenant-by-tenant schedule of who occupies a property, what they pay, and when their lease ends. It is the primary evidence behind every revenue assumption in an underwriting model.
- Capital expenditure versus operating expenseAn operating expense keeps a property running in its current condition and is deducted above the net operating income line. A capital expenditure replaces or improves a component with a life beyond the current year and is deducted below it. Which side of the line an item lands on changes the property's value.
- Operating expense ratioThe operating expense ratio is total operating expenses divided by effective gross income. It is a fast sanity check on whether an expense budget is plausible for the asset type, the market and the way the property is run.
- Replacement reservesReplacement reserves are an annual allowance set aside for the periodic replacement of building components that wear out: roofs, HVAC, appliances, parking surfaces, elevators. They smooth lumpy capital spending into a level annual charge.
Keep reading
Every figure, traced to its source
Altyst computes these in exact decimal arithmetic, not with a language model, and clicking any number shows the formula behind it.