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Key takeaways
- Read the expense definition before comparing two NOI figures.
- An imputed replacement reserve may not be a cash payment.
- Use actual capital and debt obligations in a separate cash bridge.
Read the expense definition
The OCC’s definition includes a replacement reserve. It leaves out debt service, income taxes, depreciation and the capital items themselves. It also separates stabilized assumptions from actual cash. JLL’s selected senior-housing survey also counts management fees and a reserve in its stated NOI. (Sources: OCC, printed page 140; JLL, page 15)
Why it matters in a senior care sale
The cap rate and income must describe the same assets and costs. Use the OpCo/PropCo guide to identify the property and operating roles. EBITDA has a different starting definition; its label does not resolve the asset perimeter.
A fictional underwriting example
Assume property income of $500,000 after lost rent and credit losses. Ordinary operating expenses, including management, are $300,000. Both invented amounts cover the same year. Add a $20,000 reserve for future capital needs in the underwriting model. This is an assumed allowance, not cash already set aside.
| Fictional bridge | Amount |
|---|---|
| Effective property income | $500,000 |
| Ordinary operating expenses | -$300,000 |
| Income before reserve | $200,000 |
| Imputed replacement reserve | -$20,000 |
| Underwriting NOI | $180,000 |
The market report applies a defined NOI to a sensitivity. This example establishes no appropriate expense ratio, reserve amount or price.
Reconcile to actual cash separately
Now assume actual income receipts and operating payments equal the amounts above. Actual capital spending is $50,000, debt service is $100,000 and no reserve is separately funded. The cash bridge is $200,000 minus $50,000 minus $100,000: $50,000 before income taxes and other excluded cash uses. No other timing changes are assumed.
Starting from $180,000 requires adding back the imputed $20,000 before those actual cash deductions. Otherwise the reserve and capital outlay are counted twice. Review the financial records and the actual coverage-ratio definition used by the lender.
A separate capital-needs exercise starts with project records rather than the income figure used here. It distinguishes paid work, future replacement, an assessment and restricted funds. Check those statuses before building a cash schedule. A reserve balance does not reduce the cost of the work or prove the funds are available.
Frequently asked questions
Does NOI include debt service?
The OCC property definition excludes interest, principal and income taxes. That makes NOI different from cash after debt service. Review the definition in the actual statement or agreement, and keep the debt schedule and other cash obligations separate.
Is a replacement reserve always cash paid out?
No. The OCC underwriting definition imputes a replacement reserve whether it is funded or not. A funded reserve, an assumed allowance and actual capital spending are different items. Identify each one before moving from NOI to a cash calculation.
Is NOI the same as EBITDA?
Not necessarily. NOI depends on the stated property or operating perimeter and expense conventions. EBITDA begins from net income with specified adjustments. Compare the actual definitions, including rent, central costs, management and reserves, rather than treating the two labels as interchangeable.
What is stabilized NOI?
It uses supported assumptions for income and expenses at a stabilized operating condition. That may differ from current collections or occupancy. It is not automatically a historical result or a guaranteed forecast. Identify the changes, timing and evidence needed to reach the assumed condition.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- OCC: Commercial Real Estate Lending, version 2.0 (2022; cover notes 2025 changes). Retrieved September 6, 2026.
- JLL: Seniors Housing and Care Investor Survey, Spring 2026 (Spring 2026; selected 2025 observations). Retrieved September 7, 2026.