Properties and Leases · REITs

The lease schedule turns a property portfolio into a timeline of risks and opportunities. Duration, rent resets and concentration should be read together.

A long lease is not automatically better

Long contractual terms can improve visibility, but fixed rent may lag inflation or changing market conditions. Shorter terms permit repricing sooner while exposing the owner to vacancies and turnover costs. Look for rent escalation rules, break options, renewal rights and expense sharing. The headline average lease term leaves much of that detail out.

Use the right weighting

A weighted average lease term may be calculated using rent, area or another measure. A large low rent building can dominate an area weighted figure while contributing less income. Read the definition, then examine the distribution of expirations. An average can conceal a concentrated expiry year.

Measure tenant exposure across properties

Ten properties leased to the same tenant do not create ten independent sources of credit risk. Group related businesses and include guarantees where applicable. Inspect industry exposure too. Different tenants may still depend on the same economic driver. For office and retail properties, estimate the cash required to secure replacement tenants.

Build a realistic rent reset scenario

Suppose 20% of annual rent expires next year. Renewed rent could be 10% higher, but only after a period of vacancy and leasing costs. Applying 10% to the whole rent roll would exaggerate the opportunity. Before downtime, a 10% uplift on that 20% exposure contributes only about 2% to total rent, assuming everything else is unchanged.

Try it yourself

One tenant contributes 30% of rent across fifteen buildings. Another portfolio has fifteen tenants contributing 2% each. Are their tenant risks the same?

Show the worked answer

No. Both groups contribute 30% of rent, but the first depends on one tenant. Geographic diversity can help with property risk while leaving tenant credit concentration intact.

Further reading

Educational material, not a recommendation to transact. All numerical examples are hypothetical and exclude costs unless stated. Actual terms, eligibility, tax treatment and broker procedures depend on the security and jurisdiction.

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