A lease schedule is an income-risk map
Lease expirations show when contracted rental arrangements come up for renewal or replacement. Exposure can be measured by rent, area, or property count; each weighting tells a different story. Rent weighting highlights income at stake, while area can reveal the physical amount of space to re-lease. A weighted-average lease term is useful but can hide a concentrated expiry year. Read annual buckets, major tenants, break options, and renewal rights. A stated final expiry date may not capture every route to an earlier income change.
Hypothetical arithmetic: headline rent versus cash received
Suppose an expiring lease paid $1 million annually. A replacement lease promises $1.1 million annually, a 10% increase. If the building sits empty for six months before the new lease begins, first-year rent is only $550,000, before free-rent incentives or leasing costs. Add $200,000 of tenant improvements and commissions, and the first-year cash effect is much weaker than the rental spread suggests. Over later years the higher rent may help recover those costs, depending on lease duration and collections.
Renewal economics go beyond the rent increase
A positive rental spread compares new and old rent under the issuer's definition, but it does not automatically measure the full return on renewal. Free rent, tenant improvements, commissions, and downtime can offset a higher headline rent. Cash and straight-line spreads may differ. Retaining a tenant at a modest increase can produce better near-term cash economics than replacing it at a large advertised increase after a long vacancy. Compare total lease economics over a consistent period rather than celebrating the percentage alone.
Long leases offer protection and tradeoffs
A stability-focused reader values long contractual income and limited near-term rollover. A growth-focused reader may prefer shorter leases when market rents are rising quickly. Long leases can delay repricing, and contractual protection depends on tenant ability to pay. Short leases can reset income faster but expose the owner to weaker market rents and repeated leasing costs. The relevant question is how lease length fits the sector, tenant credit, market supply, and balance sheet. No single average duration is universally best.
Connect leases to the financing calendar
Find the expiration table in the annual filing or supplemental report, then read tenant concentration, rent-collection, occupancy, and leasing-cost disclosures. Identify whether renewal options are included and how annualized rent is defined. Compare the largest rollover years with debt maturities and development obligations. A company facing both major lease uncertainty and refinancing may have less flexibility than either table suggests alone. Track completed renewals over time, distinguishing signed leases from commenced leases. Do not assume that every expired lease becomes vacant or that every tenant renews.
A common mistake
A positive renewal spread does not account automatically for vacancy time, concessions, or capital spent to secure the tenant.
What to check in the disclosures
- Identify whether exposure is rent- or area-weighted.
- Read break and renewal options.
- Compare cash and accounting rent spreads.
- Overlay lease and debt maturity calendars.
Sources & scope
This guide focuses on US REITs. Examples are hypothetical unless explicitly attributed. Definitions and issuer disclosures can change; use the current source and the issuer's own reconciliation.
- Realty Income investor FAQs: lease-expiration disclosures ↗
- Realty Income 2024 Form 10-K: lease schedules and risk disclosures ↗
Educational material, not a recommendation or personalized investment advice. How these guides are prepared · Report a correction