A long lease is only as good as the tenant who signs it

Long leases with fixed annual increases look a great deal like bonds, and they are often valued that way. Like bonds, their value depends entirely on whether the counterparty keeps paying, and tenant credit gets far less attention than rates.

Credit risk in a property wrapper

A retailer or operator in trouble can reject a lease in restructuring, leaving an empty building and a gap in rent. Diversification helps, because no single tenant is a large share of rent, but groups of similar tenants can come under pressure together.

The long lease protects against rising rents elsewhere. It does not protect against the tenant.

What I'm watching

• Exposure to the largest tenants and to weaker retail categories
• Rent collection and any tenant restructurings
• Re-leasing spreads on properties that come back empty

Where I stand

Flat. Tenant credit looks sound overall, and a few weak categories deserve watching rather than a view.

What would change my mind

Re-leasing at higher rents on properties that come back empty. That would show the real estate is worth more than the leases, which is the best protection against tenant risk.