Rent Rolls, WALT and Tenant Credit

A property's net operating income is only as reliable as the leases producing it, and the rent roll is the document that shows exactly where that income comes from: every tenant in the building, the space they occupy, the rent they pay, and the date their lease expires. Anyone buying, lending against, or valuing a commercial building starts by reading the rent roll line by line, because a building's income statement can look identical to another building's while hiding a completely different risk profile underneath.

WALT: how long is the income locked in

The weighted average lease term (WALT), sometimes called WAULT when weighted to the earliest possible break option, summarizes the whole rent roll into one number: the average number of years remaining on all the leases, weighted by how much rent each one contributes. A building with a WALT of 8 years has its income locked in for a long stretch, giving a buyer or lender confidence that the current rent roll — and the price paid for it — will hold up for years before anything needs re-leasing. A building with a WALT of 1.5 years has most of its leases expiring imminently, meaning next year's income depends heavily on whether those tenants renew and at what rent, turning today's rent roll into a much less reliable guide to tomorrow's income.

Tenant credit: will they actually keep paying

A long lease is only worth as much as the tenant's ability to honor it. Tenant credit quality asks whether each tenant is financially strong enough to keep paying rent for the length of their lease — a building fully let to a single investment-grade corporate tenant on a 15-year lease is a very different risk from an identical building let to a scatter of small, unrated local businesses on similar terms, even if both show the same headline rent roll today. Concentration matters too: a building where one tenant accounts for 60% of rent has effectively made a bet on that one company's staying power, however creditworthy it looks today.

For example, two $50 million office buildings might each show $4 million of annual rent on their rent rolls, but Building A's WALT is 9 years with 70% of rent from investment-grade tenants, while Building B's WALT is 2 years with most leases held by smaller, unrated firms. A lender or buyer would price these very differently — Building A's income is far more likely to still be $4 million in three years, while Building B's could be significantly higher or lower depending entirely on renewal outcomes still to be negotiated.