Treatment of earned but not received rent in EBITDA and NOI CA definitions
Question on how REIT rental revenue that been earned but not paid.
I am underwriting a borrower that has seen ~90% rental collections during the pandemic. The proposed definitions for EBITDA and NOI in the credit agreement adjust out "non-cash" items.
My question though is whether non-cash items would just be referencing typical adjustments such as straight-line rent or if it would look through rental revenue and adjust out amounts not received to get to a true cash figure.
The borrower is only using the receivable approach for recognizing revenue if a formal deferral agreement has been signed. Otherwise rent is being recognized when earned.
Depends on the definitions in the loan docs how they calculate NOI. For REITs, they report on an accrual basis for GAAP purposes so you will have to convert to cash basis. Should be pretty easy as in the accrual basis, that uncollected revenue/reserves should be swept into bad debt. Or just simply take the cash collected - probably the safest route. Assuming you are calculating DSCR so just check the interest rate language for calculating the annual debt service. Hope this helps.
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