Following on from the IPF Report of 2021, “Turnover-based Leases; Issues, Drivers and Challenges – A Survey of Current Practice”, it became apparent that the use of turnover based-leases (as opposed to fixed rent leases) was becoming more prevalent. This seminar will look at the worth of such assets let on fixed rents versus the same properties let a turnover basis.

Although, for many sectors, this trend is likely to be a temporary reaction to the challenges of pandemic-related lockdowns and a change in consumer behaviour but for certain other sectors, in particular fashion and hospitality, it likely to be a structural change that will continue. This means that an investment in such retail investments will produce different cash flows to the current market norm of fixed rents, subject to five yearly upward only reviews.

Turnover-based leases are better linked to the ability of the tenant to afford the rent as it is directly based on their sales each year. As a result, the cash flows from turnover-based leases are more volatile and, this should be reflected in an adjustment to an individual investor’s discount rate depending on their risk tolerance. This loss in value may be least be partially offset by increased occupancy through letting on more attractive lease terms to occupiers and the greater asset management freedom of leasing outside of The 1954 Act.

This seminar will also cover the topic of data and suggests ways in which the whole market can benefit from a greater collection and collation of such information.

Ultimately, the worth of an investment to an investor is determined by its performance. Expected returns are based on expected cash flow and capital value changes. This seminar considers the impact of a greater use of turnover-based leases on expected performance and the relationship of the asset’s price in the market (Market Value) and the individual investor’s calculation of worth (Investment Value).

Chair: Cara Reynoldson, JLL
Speaker: Malcolm Frodsham, Real Estate Strategies

Panellists:
Nick French, Real Estate Valuation Theurgy
Rikesh Parmar, Riverton Partners
Malcolm Frodsham, Real Estate Strategies
Further panellists TBC

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