Covenant strength and income resilience sit at the centre of Valad's underwriting. With financing costs higher than through much of the last cycle, income quality matters more than headline yield.
- Lease length alone is an incomplete measure.
- Occupier strength and rent affordability tested directly.
- Passing rent against ERV is central.
- Reletting speed, incentives and capex are priced in.
Why the market has changed
The approach reflects a broader change in the investment market. With financing costs and valuation volatility higher than during much of the previous cycle, the quality of the income supporting an asset has become increasingly important.
A high headline yield means little if the income behind it cannot be sustained.
Why WAULT is not enough
A long weighted average unexpired lease term provides visibility, but it does not indicate that income will remain secure once the lease expires.
The underwriting therefore considers the financial strength of the occupier, the affordability of the rent, the relationship between passing rent and ERV, and the underlying demand for the property.
The questions that reveal resilience
The asset itself matters as much as the lease. If an occupier leaves: how quickly can the property be relet? At what rent? What incentives and capital expenditure would be required? How much competing space is available?
These questions give a more complete assessment of income resilience than the headline lease profile.
Where active management fits
A property with strong existing income and opportunities to improve the asset can provide both downside protection and a route to additional value creation.
The objective is not simply to acquire a high-yielding asset. It is to understand the quality of the income, the risks to that income, and the actions available to strengthen it over the investment period.
Frequently asked questions
What is covenant strength?
The financial strength of the tenant standing behind the rent, which determines how reliable that income is likely to be.
What does WAULT mean?
Weighted average unexpired lease term — the average time remaining on an asset's leases, weighted by rent.
Is a long lease always a secure income?
No. A long lease gives visibility, but security also depends on occupier finances, rent affordability and how easily the space could be relet.