Stress testing a portfolio: 5 scenarios every CFO should run quarterly

Property portfolios rarely fail because of one bad month. They fail because risk builds quietly across cash, covenants, refinancing, and operational performance-until one trigger turns "manageable" into "urgent."

Quarterly stress testing is how CFOs stay ahead of that curve. Not with a giant bespoke model that nobody wants to touch again-but with a repeatable set of scenarios that answer one question:

If conditions move against us, where do we break first-and what would we do about it?

Below are five scenarios worth running every quarter across property groups (especially multi-SPV portfolios), plus the common mistakes that make stress testing misleading and the best-practice way to report results so leadership can actually act.

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Why quarterly?

Monthly is often too noisy (timing, cutoffs, one-offs). Annually is too slow (risk evolves faster than budgets). Quarterly is the sweet spot because it aligns with:

• refinancing and lender conversations,
• capex programme governance,
• portfolio reforecast cadence,
• and the reality that macro drivers (rates, spreads, liquidity) can shift meaningfully in a quarter.

The goal is not to predict the future. It is to measure resilience-and to build muscle memory in decision-making.

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What good stress testing looks like

A stress test is useful when it produces:

1. A clear "break point"

• the week/month cash goes negative, or
• the covenant breaches, or
• the refinancing gap opens.

2. A driver explanation

• what caused the break (income, cost, capex, rate, timing, trapped cash).

3. A playbook

• the smallest set of actions that restores resilience (pause capex, speed collections, refinance earlier, inject equity, restructure sweeps, etc.).

4. A portfolio view and SPV/facility drill-down
   Because risk usually breaks at SPV/facility level before it shows up in a blended portfolio average.

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Scenario 1: Interest rates up + hedge roll-off

Definition

Stress the portfolio for a rate shock plus the realistic risk that hedges expire or coverage drops.

Typical stress levers

• +100 bps and +200 bps on floating base rates
• hedge expiry at maturity date (or partial coverage)
• refinancing margin +50-150 bps (if refi is within 12-24 months)

Common mistakes

• Stressing rates but forgetting hedge maturities (the real cliff edge).

• Applying the rate shock at portfolio level while covenants are tested at facility/SPV level.

• Looking only at interest expense and missing the impact on:

  • DSCR/ICR headroom
  • cash runway
  • distribution capacity
  • refinancing affordability

Best-practice reporting

Include, by facility and portfolio:

• Weighted average cost of debt (base + margin)
• % floating after hedging
• DSCR/ICR headroom under Base / Downside / Severe
• "First breach date" (if any)
• Cash impact: annual interest cost delta and the month cash trough worsens

Decision triggers

• Any facility that moves inside a predefined headroom buffer (e.g., <0.20x cover headroom)
• Hedge maturities inside the next 12-18 months without an action plan
• Severe case requiring distributions to stop or capex to pause

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Scenario 2: Occupancy down + collections slip

Definition

Stress revenue the way it actually breaks in real life: not just vacancy, but also collection timing and arrears.

Typical stress levers

• Physical occupancy down 2-5% (or a specific asset shock)
• Economic occupancy down due to incentives/rent-free on reletting
• Collections rate down (e.g., from 99% -> 97% or 95%)
• Bad debt / write-off assumption increase for a concentrated tenant exposure

Common mistakes

• Using month-end occupancy instead of average (day-weighted) occupancy for revenue impact.
• Stressing "rent" but ignoring arrears aging (which is what turns a revenue problem into a cash crisis).
• Applying a uniform vacancy assumption across assets instead of concentrating the shock where the risk actually sits (one asset, one tenant, one submarket).

Best-practice reporting

Show three layers (portfolio + worst SPVs/assets):

• Physical occupancy, leased occupancy, and economic occupancy
• Collections rate + arrears aging (0-30 / 31-60 / 61-90 / 90+)
• NOI impact and cash impact separately (NOI can look "fine" while cash deteriorates)

Decision triggers

• Any SPV projected to drop below minimum cash buffer due to collections timing
• Any asset with arrears >X% of monthly rent for 2 quarters
• Concentration: top tenant(s) represent >Y% of rent with weakening credit signals

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Scenario 3: Non-recoverable OpEx shock

Definition

Stress costs that are hard to avoid and not fully recoverable: insurance spikes, utilities exposure, compliance spend, repairs, and contract inflation.

Typical stress levers

• +10-20% on insurance and key service contracts
• Utilities cost shock (especially if partially landlord-borne)
• Repairs and maintenance spike (e.g., reactive spend after a bad winter)
• Service charge recovery shortfall (where applicable)

Common mistakes

• Stressing total OpEx without separating recoverable vs non-recoverable costs.

• Letting "one-off" classification hide recurring cost pressure (if the "one-off" repeats every quarter, it is not a one-off).

• Looking at NOI only and missing the knock-on impacts:

  • debt service coverage
  • capex deferral temptation
  • tenant affordability and arrears risk

Best-practice reporting

Report:

• NOI margin and controllable OpEx ratio
• A simple "cost bridge" that shows which 2-3 lines drive most of the downside
• DSCR/ICR headroom sensitivity to cost inflation (because lenders do not care whether a cost was "unexpected")

Decision triggers

• Any asset where cost increases push NOI below a covenant buffer
• Any recurring "one-off" line that appears in 2+ quarters
• Any contract renewal that materially changes the cost base with no mitigation plan

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Scenario 4: Refurb programme slips: downtime longer + capex higher

Definition

Stress capex the way it hurts: cash out sooner, downtime lasts longer, lease-up takes longer, and uplift arrives later.

Typical stress levers

• Capex +10-15% (plus contingency draw)
• Timing pull-forward (cash spends 1-2 months earlier than planned)
• Downtime +2-6 weeks, lease-up +1 month
• Incentives higher than expected (rent-free/leasing fees)

Common mistakes

• Treating refurb as only a capex line item (ignoring temporary NOI dip).
• Stressing total capex but ignoring the cash draw curve (the trough is the risk).
• Measuring payback using "headline rent uplift" instead of incremental NOI after incentives and downtime.

Best-practice reporting

A refurb stress test should output:

• Monthly NOI dip + recovery (a ramp, not a step change)

• Cash trough depth and timing (by SPV and portfolio)

• Committed vs uncommitted capex (what is still optional)

• Payback under Base / Downside / Severe, expressed as:

  • payback month (cumulative incremental NOI - cumulative capex)
  • stabilised incremental NOI

Decision triggers

• Any refurb programme that pushes an SPV inside covenant buffers
• Any programme with a cash trough that requires upstream funding that may be restricted
• Any uplift assumptions that require "perfect lease-up" to break even

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Scenario 5: Refinance squeeze: values down + spreads up + liquidity constraints

Definition

This is the scenario CFOs regret not running early enough: a combination shock where valuations soften, refinance pricing worsens, and liquidity gets constrained (including trapped cash in SPVs).

Typical stress levers

• Asset values down 5-15% (or cap rate expansion)
• Refinance margin +100-200 bps
• Amortisation requirements tighten
• Ability to upstream cash constrained (covenants, sweeps, reserve requirements)
• Disposal proceeds delayed (optional add-on if a sale is part of the plan)

Common mistakes

• Stressing valuation but forgetting that refinance terms change too (LTV tests plus affordability).
• Using "net debt" based on total cash without separating restricted/trapped cash.
• Reporting portfolio LTV only, when refinance risk sits in specific facilities with specific maturity dates.

Best-practice reporting

Build one page that leadership can read in two minutes:

• Maturity wall (next 6/12/24 months)
• LTV and headroom by facility (with valuation date clearly labeled)
• Refinance affordability: DSCR under refi pricing assumptions
• Liquidity reality: unrestricted vs restricted vs trapped cash, and where it sits
• Equity gap (if any): "How much cash/equity is required to refinance under the downside?"

Decision triggers

• Any maturity inside 12-18 months without a refi path under downside pricing
• Any facility where downside implies an equity gap
• Any portfolio that is "cash-rich" but cannot mobilise liquidity across SPVs

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How to run these scenarios without building a monster model

The scalable way to do this quarterly is:

1. Start with a base case you already trust

• latest actuals and a rolling forecast (even if simple)

2. Use a small set of controllable levers

• rates, occupancy/collections, non-recoverable costs, capex/downtime, valuation/refi terms

3. Measure outcomes consistently

• cash runway and cash trough
• DSCR/ICR headroom
• LTV headroom (with valuation date disclosed)
• breach timing ("first breach date")
• required actions and owners

4. Run it at SPV/facility level, then roll up
   Because average performance can hide concentrated risk.

This is where having a consolidated portfolio layer pays off: one-stop visibility across SPVs, standardised mappings so roll-ups are consistent, and "what if?" scenario planning that connects assumptions to cash flow and returns.

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A simple quarterly stress testing checklist

If you want a repeatable quarterly ritual, here is a lightweight checklist:

• Refresh debt schedule (balances, maturities, hedges, covenants)

• Refresh capex commitments (spent vs committed vs discretionary)

• Update occupancy + arrears snapshot

• Update base forecast (next 12 months + 13-week cash)

• Run the five scenarios above (Base / Downside / Severe)

• Publish a 1-2 page stress test summary:

  • "Top 3 vulnerabilities"
  • "First breach dates (if any)"
  • "Actions agreed this quarter"

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Closing thought: stress tests are a leadership tool, not a finance artifact

The best CFO stress tests do not just say "here is the downside." They answer:

• Where do we break first?
• How much time do we have?
• What decisions restore resilience fastest?

Run these five scenarios quarterly and you will spend less time reacting to surprises--and more time steering the portfolio with confidence.

If you are managing a multi-SPV property portfolio and want quarterly stress testing that is repeatable--rates, occupancy, costs, refurb programme risk, and refinance pressure--we can help you build a scenario framework on top of a consolidated portfolio view, so your downside analysis is consistent, drillable, and decision-ready every quarter.