The weighted average unexpired lease term is easy to compute and easy to flatter: run it to the break as well as to expiry, and look at what the average hides.
WAULT is the average unexpired lease term weighted by passing rent: multiply each lease's rent by its years to expiry, add the products and divide by the total rent. Run it twice, once to expiry and once to the first tenant break. On an illustrative six-lease building with 1,778,000 of rent, the WAULT to expiry is 6.39 years and the WAULT to break is 3.82 years, 40 per cent shorter, and it is the second figure that says when the income can actually stop.
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The weighted average unexpired lease term is the most quoted number on a rent roll and one of the least examined. Brochures print the expiry figure because it is longer. Lenders, valuers and asset managers need both, side by side, with the expiry profile that sits behind them, because an average of six years can hide a building that has 90.6 per cent of its income exposed within five.
| Lease | Area m² | Passing rent | Share | Years to expiry | Years to first break |
|---|---|---|---|---|---|
| Unit 1, professional services | 2,400 | 600,000 | 33.7% | 8.50 | 3.50 |
| Unit 2, engineering firm | 1,800 | 405,000 | 22.8% | 4.00 | 4.00 |
| Unit 3, software company | 1,200 | 312,000 | 17.5% | 10.00 | 5.00 |
| Unit 4, recruitment agency | 900 | 198,000 | 11.1% | 1.50 | 1.50 |
| Unit 5, insurer | 700 | 168,000 | 9.4% | 6.00 | 6.00 |
| Unit 6, architect | 500 | 95,000 | 5.3% | 2.25 | 2.25 |
| Let space | 7,500 | 1,778,000 | 100% |
Where a lease has no break, its years to break equal its years to expiry. Only units 1 and 3 have breaks, but between them they carry 51.3 per cent of the rent, which is why the two averages end up so far apart.
WAULT to expiry = Σ(renti × years to expiryi) ÷ Σ renti
WAULT to break = Σ(renti × years to first breaki) ÷ Σ renti
In Excel, with rents in C2:C7, expiries in E2:E7 and breaks in F2:F7: =SUMPRODUCT(C2:C7,E2:E7)/SUM(C2:C7) and =SUMPRODUCT(C2:C7,F2:F7)/SUM(C2:C7). Fill the break column for every lease, using the expiry where there is no break, or the formula silently treats unbroken leases as zero.
Step by step on this rent roll:
| Measure | To expiry | To break |
|---|---|---|
| Rent-weighted, let space only | 6.39 | 3.82 |
| Area-weighted, let space only | 6.17 | 3.77 |
| Rent-weighted, vacant unit at its ERV of 150,000 and zero years | 5.89 | 3.53 |
| Rent ending within 3 years | 16.5% | 16.5% |
| Rent ending within 5 years | 39.3% | 90.6% |
The last line is the one a committee should see first. To expiry, 698,000 of rent, 39.3 per cent, ends inside five years. Counting breaks, it is 1,610,000, or 90.6 per cent. A building described as having "over six years of WAULT" has nine-tenths of its income dependent on decisions its tenants can take within five.
The vacancy line matters for a different reason. A WAULT on let space only describes the leases, not the building. Including the vacant unit at its estimated rental value with no term, 5.89 years to expiry and 3.53 to break, describes the income the asset should produce, and it is the version that compares fairly with a fully let building. State which one you are quoting.
| Event | WAULT to expiry | WAULT to break |
|---|---|---|
| Base case | 6.39 | 3.82 |
| Unit 1 removes its break | 6.39 | 5.51 |
| Unit 3 removes its break | 6.39 | 4.70 |
| Unit 2 regears to 10 years, no break | 7.76 | 5.19 |
| Unit 1 leaves, other leases on today's dates | 5.31 | 3.99 |
| One year passes, no lease events | 5.39 | 2.82 |
Two lines deserve attention. Buying out unit 1's break, typically for a rent-free concession, adds 1.69 years to the WAULT to break and nothing to the WAULT to expiry, so an asset manager judged on the expiry figure has no reason to pay for the most valuable lease event available. And unit 1 leaving, measured on today's dates for the other leases, raises the WAULT to break from 3.82 to 3.99 years, because the lease that drops out had the shortest break of the large tenants. The building has just lost a third of its income and its headline metric has improved.
The common mistake is to treat WAULT as a measure of income security. It is an average of dates, and an average of dates is indifferent to concentration and to vacancy. Here one tenant pays 33.7 per cent of the rent; its departure shortens the expiry WAULT and lengthens the break WAULT, and neither move says anything useful about the income that remains. Always print the WAULT to break beside the WAULT to expiry, show the share of rent ending in each of the next five years, and name the largest tenant's share. The lease mark-to-market is the other half of the same exercise: when the income stops, at what rent does it restart?
A check on the spreadsheet. The WAULT to break can never exceed the WAULT to expiry, and with one year elapsed and no lease events each figure must fall by exactly one year, 6.39 to 5.39 and 3.82 to 2.82 here, provided every lease is still running. If the rolled-forward figure falls by less, a lease has been left with a fixed date instead of a formula on the valuation date.
Calculate WAULT as SUMPRODUCT of rent and term over total rent, and always to both expiry and first break. On this building the answer is 6.39 and 3.82 years, and the exposure behind the shorter figure, 90.6 per cent of the rent within five years, is the real finding. The free workbook for the asset business plan computes WAULT, WAULB and the expiry and break profile from a live rent roll.
WAULT usually means the weighted average unexpired lease term to expiry; WAULB, or WAULT to break, stops each lease at its first tenant break option. On an illustrative six-lease building with two breakable leases carrying 51.3 per cent of the rent, WAULT is 6.39 years and WAULB is 3.82 years. Lenders and valuers generally treat the break figure as the more prudent one.
By passing rent, because the purpose is to measure how long the income lasts. Area weighting gives too much weight to large, cheap space. On the illustrative rent roll the difference is small, 6.39 years by rent against 6.17 by area, but on a building mixing warehouse and office space it can be large. State the weighting whenever the figure is quoted.
Conventionally no: WAULT is computed on let space. Including the vacant unit at its estimated rental value with zero years remaining describes the building rather than the leases. On the illustrative case, adding 150,000 of ERV at zero years cuts WAULT from 6.39 to 5.89 years and WAULB from 3.82 to 3.53 years.
This article is one calculation from The Real Estate Asset Manager. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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