A trailing operating statement can include rent from a tenant that has already left. At maturity, reconcile that historical income to the current rent roll and the evidence supporting any replacement.
Office refinance underwriting can produce different loan amounts from the same property because the historical statement, current lease status and proposed stabilized operation describe different periods. An expiring tenant can still contribute substantial rent to T12 income after its space becomes vacant. A replacement lease may improve the forecast while its rent remains months away.
The first task is a lease-expiration ladder aligned to the proposed refinance date. Show each material tenant’s firm expiration, options, notice dates, expected cash change, work requirement and replacement evidence. Avoid summarizing a near-term concentration with one weighted-average lease term.
Distinguish signed, occupied and paying states
Kilroy’s 2025 Form 10-K separately reports occupied and leased office space and discusses backfilled or renewed space that has not yet commenced. Those issuer distinctions illustrate why a signed replacement can coexist with a current income gap. The subject lender’s recognition policy still controls the underwriting treatment.
Use one date across the rent roll, operating statement and maturity analysis. If the rent roll is newer than the T12, identify changes between them. A lender should not have to infer whether a tenant’s missing payment is timing, a concession, an expired lease or a permanent departure.
Worked exhibit: the T12 contains rent that is gone at maturity
Assume a hypothetical office property originally generates $2 million of annual rental receipts and $800,000 of operating expense, producing $1.2 million before debt and leasing capital. Tenant A pays $500,000 annually, Tenant B pays $300,000 and all others pay $1.2 million.
Tenant A’s lease ends in month 12 and renews immediately at $400,000 annually. Tenant B’s lease ends in month 24 and produces no rent afterward. The loan matures at the end of month 30. Expenses are held constant to isolate the revenue timing.
| Income basis at month 30 | Tenant A annual contribution | Tenant B contribution | Other receipts | Cash flow after $800,000 expenses |
|---|---|---|---|---|
| T12, months 19–30 | $400,000 | $150,000 | $1,200,000 | $950,000 |
| Current annualized rent roll | $400,000 | $0 | $1,200,000 | $800,000 |
| Future replacement case | $400,000 | $280,000 | $1,200,000 | $1,080,000 |
The T12 includes six months of Tenant B’s former $300,000 annual rent, or $150,000. That income is historical; it is not a current paying lease at maturity. The replacement case assumes a new tenant eventually pays $280,000 annually after required work and concessions. Its effective date and acceptance remain conditions.
Carry each period into the same sizing assumptions
Use hypothetical 1.25× coverage and an 8% annual debt constant. Coverage-only capacities are $9.5 million on T12, $8 million on current rent and $10.8 million on the replacement case. Now assume a $12 million accepted value and a 70% LTV ceiling, producing a value capacity of $8.4 million.
The lower of coverage and value is therefore $8.4 million, $8 million and $8.4 million respectively. The income differences remain important even though the value limit caps two cases. Debt yield, reserves and other constraints are omitted and could lower proceeds further.
Against an $8.3 million payoff, the T12 and future cases show a $100,000 gross surplus, while the current case shows a $300,000 gross gap. If transaction costs are 2% of new principal, net proceeds become $8.232 million in the capped cases and $7.84 million in the current case. All three then have payoff gaps: $68,000, $460,000 and $68,000.
The rates, value and thresholds are scenario assumptions, not current lender terms. The example shows why a small gross surplus can disappear when the closing uses are included.
Identify the evidence needed for the higher case
For Tenant A, provide the executed renewal and actual payment evidence at the lower rate. For Tenant B’s replacement, provide the signed lease if available, the delivery scope, commencement conditions, concession schedule and collection evidence as it develops. Label an unsigned proposal as such.
Ask each lender which income state it is using and why. A lender accepting the future case may require a reserve, completed work or another condition that changes timing and usable proceeds. A lower quote may reflect current income rather than a disagreement about the long-term property value.
Do not solve the discrepancy by deleting Tenant B from T12 history or adding its forecast rent to historical collections. Preserve the actual statement, then present explicit adjustments. That approach keeps the audit trail intact and lets the lender evaluate each judgment.
Fund rollover and maturity together
The replacement may require improvements and commissions in addition to the payoff gap. Identify those uses and their dates. A refinancing structure that covers the old principal but leaves the owner unable to deliver the new suite does not complete the business plan.
If maturity arrives before accepted replacement income, evaluate the documented extension or alternative financing on its own terms. Include interest, fees, reserves and any paydown. Do not assume a lender will wait because the replacement appears economically attractive.
Update the ladder when renewals are signed, options exercised, tenants leave or delivery dates change. The useful refinance model is a dated reconciliation from actual historical cash to current obligations and supportable future income. It explains the loan amount the property can support at the moment repayment is required, rather than at a more convenient point in the leasing cycle.
Sources and evidence
- Kilroy Realty — 2025 Form 10-KStabilized portfolio occupancy and leased discussion; lease expiration adjustments for uncommenced backfills · Checked 2026-10-21 · Issuer-specific measurement example; not a lender income-recognition rule.
Source dates and applicability matter. Report an error or a changed source.