SINGAPORE (Jan 15): Master leases — in which landlords rent an entire building to a single tenant for several years — are seen as positive because they provide real estate investment trusts with income stability. This is especially so when an industrial REIT undertakes a “build-to-suit” property for a specific tenant, who takes up the lease for a long period. This arm’s length agreement provides unitholders of the REIT with stable distributions. Sometimes, REITs prefer a combination of master-leased and multi-tenanted properties in their portfolios.

In some cases, master leases are contracted at above market rents, at times to provide the vendor with a higher sale price or, as the argument goes, because properties are not “stabilised”. In this event, master leases provide unitholders with an artificially high distribution that may not be sustained once the master lease ends.

Master leases from build-to-suit properties are most likely done at market valuations. AIMS AMP Capital Industrial REIT completed a build-to-suit for Beyonics International in Marsiling last October. The latter has leased the property for 10 years with an option to renew for a further 5+5 years.

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