Real Estate Investment Trusts (REITs) are companies that own and operate income-producing real estate. They are a popular investment medium as they allow retail investors to gain exposure into real estate assets with a relatively low investment capital.
If you are investing in REITs, these are the terms that you should know.
WEIGHTED LEASE AVERAGE EXPIRY (WALE)
Weighted Lease Average Expiry (ALE) is a metric used by investors to access the likelihood of REITs’ properties portfolio being vacant. As we all know, income generated by REITs are derived from its leasing out spaces. Hence, vacancy would hurt REITs’ earnings and therefore resulting in a distribution loss.
There are two ways to measure WALE. Either by using rentable area or rental income, measured across all tenants’ remaining lease in years.
An example based on gross rental income:
Property #1: 15% of gross rental income with 5 years of remaining lease term
Property #2: 70% of gross rental income with 2 years of remaining lease term …