Source : Business Times - 5 Aug 2008
I REFER to the article entitled ‘Safety in Reits? Don’t count on it: analysts’ (BT, Aug 4).
The article mentioned that Reits are not necessarily defensive plays as these are subject to the cyclical property sector. While this association is generally true for Reits which have short-term lease agreements with their tenants, the cyclical nature of the property sector does not impact those Reits which have long-term leases - examples of which would be First Reit, Parkway Life Reit and CDL Hospitality Trust.
In the case of First Reit, our Indonesian and Singapore healthcare assets are leased to master lessees for long tenures of 10 or 15 years, with provisions for favourable yearly rental increases. What this means is that even when the property market takes a downturn or the economy slows down, we will still enjoy a stable revenue structure with rental increases according to agreed lease terms with the master lessees. The risks associated with short-term leases and multiple tenants such as the possibility of loss of tenants or reduced rental rates during economic downturns are thus avoided.
Ronnie Tan
CEO, Bowsprit Capital Corporation Limited
Manager of First Reit
The editor replies: The article did make reference to Reits with long-term leases. Specifically, it said that ’some Reits may be more resilient because they can lock in leases over several years, which helps stabilise earnings’.
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