Suneet Singal on how to read a rent roll

Suneet Singal has a published background in real estate and corporate finance, and a rent roll is one of the first documents that background teaches a reader to demand. Filings linked from this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. Those dates do not identify a tenant or a lease. A rent roll is a schedule of who occupies the space, what the lease says about rent, and when that right ends. Offering memoranda summarize it. Lenders ask for it. A careful buyer ties it back to the leases. This entry shows a labeled hypothetical roll, the columns worth adding, and the mistakes that turn vacant space or a free-rent month into income that is not being collected.

What you are holding

A rent roll is a list. Each line is a unit, a suite, or a tenant. The useful columns are an identifier, the area or the unit type, the tenant's name or a vacant mark, the lease start and end, the rent, any free rent or concession still left, and the status: occupied, vacant, or on notice. Some rolls add a security deposit, a recovery type, a guaranty flag, and the next increase. If a column is missing, the roll can still be a start. It is not yet a complete picture of the income.

The roll is not the lease. It is a table someone prepared from the leases, from the landlord's ledger, or from a broker's recreation. Those three sources can disagree. A digit transposed in the rent, a lease end copied from an option instead of the current term, or a draft that was never signed will all look like ordinary rows. Your job on a first read is to add the rows and to mark every cell you would not want to defend until you have seen the signature page.

Read the as-of date before you read the rents. A roll dated eight months ago is a history, not a current claim. Tenants leave, options get exercised or ignored, and a concession that was "remaining" may have burned off or been extended. Write the date at the top of your notes. If the offering memorandum uses a different date for its income page, you have found the first reconciliation item, and you should not blend the two dates into one story.

A labeled hypothetical roll

Picture a hypothetical four-bay property, 10,000 square feet in all, and a roll dated the first of a month you choose. Bay A is 2,000 square feet, occupied by a hypothetical tenant, with base rent of $24 per square foot per year, so $48,000 a year, and the term ends in 18 months. Bay B is 2,000 square feet and vacant. The roll shows an asking rent of $22 per square foot, or $44,000 a year, which nobody is paying. Bay C is 3,000 square feet, occupied, at $20 per square foot, or $60,000, ending in 6 months. Bay D is 3,000 square feet, occupied, at $22 per square foot, or $66,000, ending in 40 months.

In-place annual base rent is the occupied bays only: $48,000 plus $60,000 plus $66,000, which is $174,000. Potential base rent, if you also count the asking rent on vacant Bay B, is $218,000. Those are two different totals. A page that adds them and calls the sum "rent" has mixed a hope with a contract. Occupied area is 8,000 square feet out of 10,000, or 80 percent. That occupancy figure does not mean 80 percent of $218,000 is collected. Collection follows the occupied rents, and only if the tenants pay.

Now suppose Bay A has two months of free rent still to run, a hypothetical concession written on the lease. For those two months the contract rent is not cash. Annualizing today's bill without the concession overstates the next year. A careful note says: "In-place base rent $174,000 before remaining free rent of two months on Bay A, which is $8,000 of base rent at the $48,000 annual rate." The roll has done its job when you can see that sentence. It has failed when the free-rent cell is blank and the income page assumes every occupied bay pays from tomorrow morning.

Columns worth reconciling

Add the rent column and compare it with the income line in the operating statement. If the roll says $174,000 of in-place base rent and the trailing statement shows a different base-rent total, one of them is stale, one of them includes recoveries, or one of them is wrong. Do not "split the difference." Find the row. Recoveries, percentage rent, and parking should be in their own columns or their own lines. A single "total charges" column that blends base rent and a tax pass-through will not tie to a base-rent line, and it should not be forced to.

Read the end dates as a schedule, not as decoration. In the hypothetical, Bay C ends in 6 months and Bay A ends in 18. Half the occupied rent in this tiny example is exposed inside a year and a half: Bay C's $60,000 plus Bay A's $48,000 is $108,000 of the $174,000. Bay D, at $66,000, runs much longer. A roll with many near-term ends is a different risk from a roll with the same occupancy and long remaining terms. The occupancy percentage hides that difference. The end-date column shows it. Sort the roll by end date at least once, even if the author sorted it by suite number.

Check the unit of time and the unit of area. A rent of $2,000 might be monthly, which is $24,000 a year, or it might already be annual. A rent per square foot might be per year or per month. Commercial rolls are often annual. Apartment rolls are often monthly. Mixing them multiplies or divides your income by twelve. Also check whether area is rentable or usable. A rent per square foot on a larger area is a different rent. The column heading has to say which area and which period. If it does not, do not annualize yet.

What the file behind the roll should contain

The roll should identify its source in a line of text: landlord ledger, property-management export, or broker compilation. It should carry the as-of date, the name of the property, and a total row that you can tie to the sum of the lines. It should mark vacant space explicitly. A blank tenant name is not as clear as the word vacant. It should show concessions that have not yet expired, and it should show increases that are already in the lease, with the date they start, separate from increases that are only options.

For any row you might rely on, the lease file should contain the signed lease, amendments, and a note of any guaranty. An estoppel, if you are far enough into a purchase, is the tenant's own statement of the rent, the term, and the defaults they know about. The estoppel can disagree with the roll. The disagreement is useful. It is not a nuisance. A roll that says "see lease" in the option column is healthier than a roll that states an option as if it had already been exercised.

Commercial rolls often need a recovery column: gross, modified gross, or some form of net. The lease types entry explains those words. If every row says "NNN" and the leases say the landlord still pays structure and a management fee, the roll's label is advertising. Apartment rolls need a unit-mix summary: how many studios, one-bedrooms, and larger homes, and the rent for each, because a single average rent hides an empty large unit behind full small ones. Ask for the export, not only the one-page summary in the memorandum.

Usual mix-ups

Contract rent, market rent, and asking rent are three numbers. Contract rent is what the signed lease states. Market rent is an opinion of what a new lease would bring. Asking rent is what someone hopes to charge for vacant space. In the hypothetical, Bay C's contract rent is $20 per square foot. If a broker's opinion of market rent is $24, the $4 gap is not income. It is a difference you might underwrite as a future possibility, with a cost and a chance of failure attached. Putting $24 into this year's cash is how a pro forma outruns the roll.

Occupied is not the same as paying, and leased is not the same as occupied. A tenant can hold a lease, be in default, and still appear as a row. A tenant can be in occupancy month to month after the term, with no remaining contractual term at all. A space can be leased to a tenant who has not taken possession and is still inside a free-rent or build-out period. The status column has to be specific. "Leased" as a single word for all three cases will inflate both occupancy and near-term cash.

Another mix-up is the annual rent that quietly includes a temporary discount. A tenant paying half rent for a season, or a percentage-rent tenant whose sales are seasonal, will look too strong or too weak if you multiply this month by twelve. Percentage rent needs a breakpoint and a sales figure, and the sales figure needs a source. If the roll shows percentage rent with no sales, treat that cell as incomplete. Do not add it to base rent and call the total in-place income.

What the roll cannot prove

A rent roll cannot prove that a tenant will renew. An end date is an end date. A renewal option is a right, usually the tenant's, on stated terms. It is not a forecast. The roll also cannot prove credit. A well-known name on a row is not a financial statement, and a small local tenant is not automatically a weak one. Credit is a separate file: financials if you are entitled to them, a guaranty if one exists, and the payment history in the ledger. The name in the tenant column is an index to that file, not a substitute for it.

The roll cannot prove that the leases match the table. Until you read the leases, or a reliable abstract plus the signature pages, the roll is an assertion. In a hypothetical purchase at $4,000,000, a roll showing $200,000 of base rent and leases that support $180,000 is a $20,000 income gap. At a hypothetical 6 percent cap rate that gap is worth about $333,000 of price if you were capitalizing the difference, because $20,000 divided by 0.06 is about $333,000. The exact negotiation is up to the parties. The point of the arithmetic is that a small row error is not small after it is capitalized. The due diligence entry is where that lease-to-roll check sits in the larger file.

The roll cannot prove a personal history. This hypothetical four-bay property is not anyone's building. Suneet Singal's dated roles stay on the career record. If your own roll is thinner than the one in the memorandum, believe the thinner document until the missing leases arrive. A handsome table is not occupancy, and occupancy is not collection.

How to take the roll into the income line

Build the income from the roll in three stacked totals. First, in-place base rent that is actually billed after remaining concessions. Second, other contractual income the leases support, such as recoveries, with the matching expenses kept in the expense budget so you do not count the recovery as profit. Third, vacant space at asking or at market, in a separate column marked prospective. The vacancy and credit loss entry shows how a general allowance can sit on top of those totals. Do not let the prospective column leak into the in-place column because a formatting choice put them in one sum.

Write the expiration concentration in words. In the hypothetical, $108,000 of $174,000 in-place rent ends inside eighteen months. That sentence belongs next to the cap rate, because a rate computed on today's rent ignores how soon the rent must be re-leased. You can still use today's rent as the trailing figure. You should not pretend the end dates were blank. If you underwrite renewals, show the rent you assume, the months of downtime you assume, and any commission or tenant-improvement cost as cash, not as a footnote in a smaller font.

Keep one tie-out page. It lists the roll's as-of date, the sum of in-place rent, the sum on the trailing statement, and a one-line explanation of every material difference. That page is dull. It is also the page that prevents a later model from using a rent the leases never charged. When the tie-out is clean, the roll has become an input. Until then it is a set of questions, and the income line should carry the questions with it.

What this entry does not claim

Suneet Singal’s published professional background is in real estate and corporate finance. Company filings linked from this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. The Suneet Singal Scholarship, Grant and Giving websites describe him as the founder of those programs. This entry explains a general subject. It is not a private track record, a current job title, an investment result, or a quote.

This page is a reference, not investment advice. The empty rows and unpaid rows become the allowances in vacancy and credit loss, and the expense words on each row are defined in gross and net leases.