Most disputes between an investor and the manager of a real estate asset are not about performance. They are about information: what was known, when, and what the investor was entitled to decide. A vehicle can hold a sound asset, carry sensible leverage and still become unworkable because the reporting is thin, the decision rights are vague and the valuation is produced by the party whose fee depends on it. Reporting and governance are the mechanism through which a passive holder of equity retains control over an asset it does not operate, and they deserve the same attention as price.
What reporting is actually for
A report of absolute figures tells the investor almost nothing. Rent collected in a quarter is a number; rent collected against the figure underwritten for that quarter, with an explanation of the variance and its expected persistence, is information. The investment case rests not on absolute outcomes but on a business plan with assumptions about letting velocity, rental growth, void periods, non-recoverable costs, capital works and exit timing. Reporting exists to test those assumptions against reality on a repeated cycle, early enough for someone to act.
Every material line should therefore appear three times: as underwritten, as forecast at the current reporting date, and as delivered. A manager who reports only the third is asking to be judged on outcomes without exposing the reasoning behind them. One who quietly revises the forecast each period is worse, because the moving baseline conceals drift; the forecast should be restated with a visible bridge from the prior version. Frequency should follow the asset rather than convention, but the cycle must be fixed in advance, the deadline after each period end stated in days, and late delivery treated as a breach.
Occupancy, income and variance against budget
The tenancy schedule is the most informative document in the pack and the one most often reduced to a summary line. It should be supplied in full: tenant, area, commencement, expiry, break options and their notice dates, current rent, indexation mechanism and next review date, incentives granted and their unamortised balance, security held, and arrears with ageing. From it the investor should be able to derive, unaided, the expiry profile, the income exposed to breaks within the coming year, the weighted average unexpired term to break and to expiry, and the concentration of income in the largest tenants. Arrears deserve narrative rather than a figure: a balance owed by a covenant under pressure is a different matter from a timing mismatch on a service charge reconciliation. Letting activity should be reported as a pipeline with stages, since a signed lease reports the market too late to be useful.
The operating statement should be presented against budget for the period and cumulatively for the year, with variances explained above an agreed threshold. The variance analysis should distinguish timing from permanence; a cost deferred to the next quarter is not a saving, and reporting it as one flatters the period. Non-recoverable costs should be isolated and tracked, since service charge leakage is a quiet erosion of net income that rarely surfaces in headline yield discussion. Cash should be reported separately from accounting result, with a reconciliation from net operating income to cash available for distribution as a standing item.
An investor who cannot say, without asking the manager, how the asset is performing against the plan it was bought on has not delegated management. They have delegated judgement.
Debt, covenants and liquidity
Where the structure is leveraged, the debt section should stand on its own: outstanding balance and amortisation profile, maturity date and period remaining, margin and reference rate, hedging with its own maturity, and each financial covenant expressed as headroom rather than as a bare ratio. Headroom answers what matters: how far income can fall, or values move, before a covenant is tested.
Two forward-looking items belong here and are frequently absent. The first is a covenant sensitivity showing the effect of plausible adverse movements on the tested ratios. The second is the refinancing plan, which should appear well before the maturity year, since the terms available depend on work that begins early. Where hedging expires ahead of the facility, that gap should be flagged rather than left to be discovered. How leverage interacts with structure and deductibility is a separate question, addressed in our material on financing and capital structure; the reporting duty is to make the position legible.
Capital expenditure and the risk register
Capital works should be reported as a programme: approved budget, committed to date, spent to date, forecast to completion, and variance against the original approval, with the same treatment for contingency drawn. Physical progress should sit alongside financial progress, because the two diverge and the divergence is itself the warning signal. Works pending should be split between those contractually required, those necessary to deliver the business plan, and those discretionary; only the last is a matter of preference.
A standing risk register is the item investors most often go without. It should be short, dated and comparative: each risk, its likelihood and impact, the mitigation, the owner, and whether the position has improved or deteriorated since the previous report. Restating it each period forces a manager to say that something has worsened, which is precisely the disclosure informal reporting tends to defer.
Reserved matters and how decisions are documented
Governance is the allocation of decisions. The manager needs authority to operate without constant reference upwards; the investor needs the decisions that alter the risk profile to require consent. The workable arrangement is a schedule of reserved matters in the shareholders’ or management agreement, with quantitative thresholds where the subject matter allows and qualitative triggers where it does not.
Matters that typically sit above the line include incurring or refinancing debt and granting security; disposal of the asset or any material part of it; capital expenditure above a stated amount, whether as a single item or in aggregate; leases outside agreed parameters of term, rent or incentive; any related party transaction; changes to the business plan or annual budget; appointment or replacement of key service providers, including the valuer and the auditor; litigation above a threshold; and any change to distribution policy. Thresholds should be absolute rather than percentages of a moving base, and aggregation rules should prevent a decision being split into approvable fragments.
Documentation is where governance most often fails. Consent should be sought in writing against a defined pack of information, with a stated response period and a specified consequence if it lapses. Board or investor committee meetings should follow a standing agenda, minute the basis of decisions rather than only the outcome, and maintain a decision log. The design of these organs, and their interaction with statutory duties under Dutch law, is treated in our article on governance design in Dutch holding companies, which is worth reading alongside this one where the vehicle sits in the Netherlands.
Conflicts that must be declared
Conflicts are inherent in the operating model rather than exceptional, and the response is disclosure with a consent mechanism, not denial. The categories worth naming in the agreement are: services provided to the vehicle by the manager or its affiliates, such as property management, letting, development monitoring or insurance placement, and the basis on which they are charged; commissions, rebates or introductory fees from third parties; co-investment by the principals; allocation of opportunities between this vehicle and other mandates; personal interests in counterparties, tenants or contractors; and any remuneration that varies with a valuation the manager influences.
A conflicts register, refreshed at each reporting date and confirmed as nil when it is nil, is more useful than a general covenant to act fairly. Related party transactions should be reported individually, with the comparable evidence relied on to show terms are at arm’s length.
Who values the asset, and on what basis
This is the question investors ask least and should ask first, because valuation drives covenant compliance, performance measurement, any fee tied to value or gains, and the reference point for a buyout or an exit. The valuer, the appointment mechanism and the basis of valuation should be fixed at the outset, not settled when the number first becomes contentious. The points to settle:
- Whether valuation is external and independent or internal, and if internal, how often it is verified externally.
- Who appoints and instructs the valuer, and whether the investor sees the instruction; a valuation is shaped by its instructions, and an investor who never sees them is reading an answer without the question.
- The basis and standard applied, and whether any special assumptions are used.
- A rotation policy, so that the same firm does not value the same asset indefinitely.
- Whether the manager may make representations to the valuer, and whether those are disclosed.
- The mechanism by which the investor may dispute the outcome, normally a second independent valuation with a stated method for resolving the difference and allocating cost.
Where any part of the manager’s remuneration depends on value or on realised gains, the case for external appointment and for investor involvement in the instruction becomes considerably stronger. That linkage belongs in the documentation rather than being inferred from the fee schedule.
What to test before signing
Ask for a specimen reporting pack from an existing mandate, redacted as necessary, and read it as though it concerned your own asset. Establish whether you can answer, from the document alone, how the asset is performing against plan, where the covenants stand, what has been spent and what remains, and what has worsened. Then read the reserved matters schedule and ask what the manager could do without telling you. The gap between those two answers is the real governance position, and it is far easier to correct before signature than after.
Montclare works as an operating partner and structuring counterparty on European real estate and asset platforms. Our approach is set out on our asset management page.
This article is informational. It does not constitute investment advice, an offer, or an invitation to invest, and it is not a financial promotion. Regulated activities are carried out only by appropriately licensed parties.