What a Rent Roll Tells You That the OM Does Not
An offering memorandum is a sales document, prepared by the seller's broker from financials and rent rolls the seller supplies, and no independent party audits it, while the broker's disclaimer typically says the information has not been verified. That makes the rent roll attached to it the most useful page in the package, because it is where the claims can be tested against individual residents.
The headline numbers deserve the first look, since the memorandum often builds its cap rate on pro forma income rather than in-place income and may show face rents that leave out concessions. Small income errors become large price errors, because value is income divided by the cap rate. At a 5.5% cap rate, overstating net operating income by $100,000 inflates the implied price by roughly $1.8 million.
Concessions are the next thing to find, because a rent roll often shows contract rent without them, so effective rent has to be rebuilt, and the math is simple. A rent of $1,500 with two free months on a 12 month lease works out to $1,250. To find them, compare monthly bank deposits against the collections the rent roll implies, and compare new lease rents with renewals for similar units.
In seniors housing, the rent roll is really a resident roster, and a good one lists each unit with the resident's care level, move-in date, current rate, contract type, and payer type, meaning private pay or Medicaid waiver. Each field answers a question the memorandum tends to skip, and care levels show how the census is spread across independent living, assisted living, and memory care. Payer type matters because waiver dependent communities carry different rate ceilings and reimbursement risk. Move-in dates show whether the census rests on long tenured residents or on a cluster of recent move-ins that may have inflated occupancy ahead of the sale.
Ask for the rate roll and the concession records as well, since they show how much of the in-place rate is real, and then compare scheduled rent with 12 months of actual collections. A gap under 5% is tight, a gap of 5% to 10% is worth investigating, and anything above 10% deserves a line by line explanation.
Occupancy deserves the same skepticism, so check whether the headline number rests on a clean trend or is propped up by concessions or a few large private pay residents, and review trailing occupancy over 12 to 24 months, split by care level, to see whether move-ins are outpacing move-outs. Residents can typically leave on 30 days notice, so the roster is a snapshot of the operation and not a contract.
Check the document itself before trusting it, because a rent roll dated more than 60 days before the memorandum is stale, and missing fields such as move-in dates, rates, or concession data block most of the analysis above. Unit counts should also match the floor plan, since missing units may be offline or undisclosed.
Treat the memorandum's highlights as argument rather than data, and reconcile the roll to executed resident agreements and bank deposits. The roll will not tell you everything about a community, but it is the best place to find out what residents are actually paying.
Reconciling the roll to the agreements and the bank deposits is also where a buyer finds the gap between the price in the memorandum and the price the income actually supports. I help buyers review rent rolls, resident rosters and offering memorandums, rebuild effective income from the records and model the deal on what residents are actually paying. If you are reviewing an offering memorandum now, send it with the rent roll to amer@awadcapitaladvisors.com, and I can help you see what the property really earns before you make an offer.