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When it comes to commercial real estate investments, one key metric that stands out is WALE, or Weighted Average Lease Expiry.
This measure is crucial for investors and property managers as it provides insight into the stability and longevity of the income generated from a property.
In simple terms, WALE indicates the average time period until the leases in a property will expire.
Why is WALE Important?
WALE is a vital statistic for evaluating the risk profile of a property investment.
A longer WALE generally suggests more stable and predictable income streams, as tenants are locked in for an extended period.
Conversely, a shorter WALE might indicate a higher risk due to potential vacancies and the need for re-leasing in the near future.
Types of WALE
There are two main types of WALE:
1. Physical WALE:
This reflects the average lease term remaining across all the physical spaces in a property, regardless of the rental income each space generates.
2. Economic WALE:
This takes into account the rental income associated with each leased space, giving more weight to spaces that contribute more to the total income.
Calculating WALE
Physical WALE Calculation:
1. List all Leases: Start by listing all the leases in the property along with their respective rentable square footage and lease expiry dates.
2. Calculate Lease Terms: Determine the remaining lease term for each lease from the current date, or acquisition date, to the expiry date. The Remaining Lease Term is calculated in years, not months.
3. Calculate Physical Area by Tenant: Multiply the Percentage of Rentable Area occupied by each tenant by the Remaining Lease Term to calculate the tenant’s Physical WALE.
4. Compute the Average: Add up all the tenant’s Physical Wale from step 3. The total amount sum is the physical WALE for that property.
Sample Physical WALE from TheAnalyst PRO:
Economic WALE Calculation:
1. List Leases with Income Contribution: List all the leases along with their respective annual rents, concessions and expense reimbursements.
2. Calculate Total Contracted Rent for each Tenant: For each lease, calculate the contracted (current lease) income from the Base Rent, Rent Concessions, and total Expense Reimbursements over the remaining lease term.
3. Sum Up the Total Income: Add up the total contracted income for all leases.
4. Compute the Economic WALE: Divide the Total Income for all leases by the Total Year 1 Tenant Income.
Sample Economic WALE from TheAnalyst PRO:
The Role of TheAnalyst PRO
Calculating WALE, especially the Economic WALE, can be complex and time-consuming. This is where tools like TheAnalyst PRO's Investment Analysis come in handy. This tool simplifies the process by automating the calculations, ensuring accuracy, and saving time. With TheAnalyst PRO, investors can easily input their lease details and get an instant calculation of both Physical and Economic WALE, helping them make more informed investment decisions.
Understanding and calculating WALE is essential for any commercial real estate investor. It provides a clear picture of the investment's income stability and risk profile. Tools like TheAnalyst PRO streamline this process, making it easier for investors to assess and manage their property portfolios effectively.
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Disclaimer: This blog post is for informational purposes only and does not constitute professional investment advice.
