facebookIs a REIT with more freehold properties better than another that has a shorter leasehold properties? - Seedly

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Anonymous

09 Jul 2019

General Investing

Is a REIT with more freehold properties better than another that has a shorter leasehold properties?

Discussion (3)

What are your thoughts?

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That should not be the only factor to determine whether it is better or worse.

still boils down to valuation, yield, net gearing ratio and many other factors. A reit may hold only freehold properties but command lower occupancies that another with leasehold properties in a better area. older freehold properties may also need higher maintenance or require money for constant refreshing of the property to attract tenants.

REITs generate income by selling their assest (properties) as well. Obviously a freehold property appreciates in value as time goes by, while leashold properties depreciate and theoritically they will worth nil at the end of the lease term (unless it is extended, which will be like buying the property you think you already own). This can become a huge issue as time is ticking towards the end of lease term, as the property will not be worth renovating and renting out.

In my opinion REITs that own freehold assets should always be preferred in the long run.

Billy

25 Mar 2019

Development & Acquisitions Manager at Real Estate Private Equity

Interesting point you raised here! In my perspective, I think one should understand the underlying b...

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