Definition
Weighted Average Lease Term (WALT) is the average amount of time remaining on the leases in a property, weighted by each tenant’s size or economic importance (most commonly base rent, total rent, or net rentable area). WALT helps investors understand how much of today’s income is “contracted†and when major lease rollover risk will hit.
How It’s Measured
WALT is usually expressed in years. The key choices are:
- Weighting method: by rent (economic weighting) or by area (physical weighting).
- Lease term basis: remaining term to expiration (typical) versus full original term.
- Options: whether to include tenant renewal options (often excluded unless they are highly likely).
Common formulas
- WALT (rent-weighted) = Σ( Tenant Rent × Remaining Lease Term ) ÷ Σ( Tenant Rent )
- WALT (area-weighted) = Σ( Tenant Area × Remaining Lease Term ) ÷ Σ( Tenant Area )
Why It Matters
WALT is a shorthand for income durability. A longer WALT generally means less near-term rollover risk and more predictable cash flow. A shorter WALT can create refinancing risk, capex/leasing cost risk, and the possibility of vacancy and downtime if tenants do not renew.
Investor Uses
- Rollover risk mapping: identify how much income expires in each year.
- Underwriting leasing costs: forecast TI/LC, downtime, and re-tenanting assumptions.
- Debt sizing and refinance planning: lenders often care about near-term expirations and DSCR volatility.
- Comparing assets: evaluate two properties with similar NOI but very different lease duration profiles.
Example
A retail property has three tenants. Remaining lease term is measured in years and weights are annual base rent:
- Tenant A: $300,000 rent, 5 years remaining
- Tenant B: $150,000 rent, 2 years remaining
- Tenant C: $50,000 rent, 1 year remaining
Rent-weighted WALT is:
- Σ(rent × term) = (300,000×5) + (150,000×2) + (50,000×1) = 1,500,000 + 300,000 + 50,000 = 1,850,000
- Σ(rent) = 300,000 + 150,000 + 50,000 = 500,000
- WALT = 1,850,000 ÷ 500,000 = 3.7 years
How to Interpret WALT
- Long WALT (e.g., 7–12 years typical in some net-lease deals): more stable near-term income, but less mark-to-market upside.
- Short WALT (e.g., 1–3 years): higher rollover and leasing cost exposure, but potential upside if market rents are higher.
- Barbell risk: a “good†WALT can still hide a single major tenant expiring soon if the tenant is large.
Common Pitfalls
- Ignoring concentration: one anchor tenant can dominate rent-weighted WALT and mask smaller rollovers.
- Including options blindly: tenant options may not be exercised; treat them as probabilities, not facts.
- Using area-weighting when economics matter: area-weighted WALT can understate the importance of high-rent tenants.
- Not pairing with a rollover schedule: always review a year-by-year lease expiration table.