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Credit Tenant Property:
Like Corporate Bonds
Attributes of credit
tenant property make this asset effective as a long-term investment and
in the implementation of tax managed investment strategies. Providing
secure, management-free cash flow with exceptional liquidity and high
leveragability, credit tenant property presents unique advantages,
performing like corporate bonds while preserving the benefits that real
property offers.
 Unique,
Advantageous Financing Because of their secure nature, credit
tenant properties may be leveraged far more highly
than traditional real estate. Based on the lease guarantee by the
tenant, non-recourse financing may be arranged with a 1.0 debt coverage
ratio, allowing for financing in the 85-91% loan to value range.
Secure Return
Income from an investment grade tenant over the length of a multi-year
lease offers returns with reliability comparable to those of corporate
bonds. Credit tenant leases are usually contracted for 20 years, and
range from 10 to 25 years. Lengthy terms eliminate concern about tenant
turnover normally associated with real estate ownership.
Zero Management With credit tenant property, management responsibility and operating
expenses, including roof and structure, are assigned entirely to the
tenant.
Near-Zero
Volatility Because the key value determinant of credit tenant
property is the long-term corporate guarantee, this asset does not
experience the cycles affecting other real estate markets. Long-term,
highly leverage financing removes interest rate risk and minimizes
pricing volatility. Circumstances affecting traditional real estate,
such as changes to surrounding property, local politics and market
swings, have little impact on credit tenant property values.
Credit-Based
Analysis Because credit tenant property rental income relies on the
long-term lease obligation of a corporation, it may be efficiently
analyzed on the basis of the tenant’s credit, rather on the physical and
geographical attributes of the property itself. Tenants have typically
been rated by Standard & Poor’s and the owner’s investment returns
correlate directly with the strength of the rating. Investment
portfolios are efficiently adjusted for credit duration and
diversification to reflect the investor’s risk appetite.
Returns Exceeding
Equivalent Credit Bonds Yields typically exceed those of equivalent
credit corporate bonds. Additionally, credit tenant property likely
offers capital appreciation.
Liquidity The
long-term corporate guarantee of rental income and expense coverage,
combined with the tenant-based financing, enable this asset to be traded
with liquidity exceptional for real property. |