Q&ACategory: REITsGuidelines on Short-Leasehold Properties for REIT Evaluation
Cass Ng asked 9 months ago
During the course, it was mentioned that properties with less than 30 years of remaining lease are generally not ideal. However, when I reviewed REITs like MIT and CLAR, I noticed that a number of their properties fall into this category. Given that these REITs each own over 100 to 200 properties, having some with shorter leases seems inevitable, especially since some industrial properties are originally developed with only 30-year leases. For example, CLAR has a total of 230 properties (including projects under development), of which 35 properties have less than 30 years remaining, representing approximately 15.2% of the portfolio. In such cases, what percentage of short-leasehold properties is considered acceptable? Or would any level of exposure to short leases be considered a strict no-go? Thank you.  
1 Answers
Rusmin Ang Staff answered 9 months ago
Hi Cass, If the short-leases are just a small basket (<10% of total investment value) of properties that are less than 30 years, I think we can close one eye but sooner or later, the existing industrial REITs in Singapore would face a bulk of them coming up for renewal. Right now, JTC only entertains lease renewal at ten years mark, previously seven years. With more clarity on land renewal, we will have more picture on what are the assets that could get renewed and those that are not even before their financial result is being affected. If I see a REIT that have significant portion of asset not going to get renewed, then U will ask for higher risk premium, i.e. higher than its historical high yield. If you want to keep it simple, then just avoid them.
Cass Ng replied 9 months ago

Thanks!