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IntermediateBrazilian REITs · Lesson I4.5 · Module I4

Defaults, grace periods and rent discounts

Module I4: Analysis indicators

10 slides~4 minquiz at the end

In this lesson

  • Defaults: billed vs received
  • Hidden free rent and discounts
  • Accounting vs cash income
See the slides
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Brazilian REITs · Lesson I4.5

Occupied doesn't mean paying

The tenant is there. The question is whether the money arrived.

Zero vacancy, less cash

Three ways rent fails to arrive

  • DefaultThe tenant owes rent and hasn't paid.
  • Rent-free periodMonths with no rent at the start of the lease.
  • DiscountLower rent for a while, to win or keep a tenant.

None of the three shows up as vacancy: the space is still occupied.

Default

What was billed but never came in

R$ 1.90Mcontracted−R$ 1.71Mreceived=R$ 190Knot received
R$ 190K÷R$ 1.90M=10%default rate

Significant late collections are a material fact (CVM Resolution 175, Annex III, art. 37, §1, I).

6-month rent-free period

Full building, half a year with no rent

  1. 0Jan
  2. 0Feb
  3. 0Mar
  4. 0Apr
  5. 0May
  6. 0Jun
  7. 100Jul
  8. 100Aug
  9. 100Sep
  10. 100Oct
  11. 100Nov
  12. 100Dec

R$ 100K rent, 60-month lease: in year 1, only 6 of 12 rents come in. Vacancy: 0%.

Books vs cash

Accounting spreads it. Cash shows it.

Accounting income

R$ 90K/month

  • 54 rents ÷ 60 months
  • The free months vanish from the math

Cash income

R$ 50K/month

  • Year-1 average: R$ 600K ÷ 12
  • This is what pays distributions

Accounting may straight-line rent over the lease. That's why this site looks at cash income (lesson I2.2).

How to dig in

Follow the money to the cash

  1. Contractedwhat the leases say
  2. Reportfree months, discounts and arrears
  3. Receivedwhat actually came in

The gap between the first and the last is income you won't see in the vacancy rate.

Remember this

Three takeaways

  1. Occupied ≠ payingDefault is billed rent that never came in.
  2. Free rent is hidden vacancySpace occupied, cash empty for months.
  3. Trust the cashThe books can spread rent out; cash shows what arrived.

Quick quiz · 1 of 2

A new 5-year lease with 6 rent-free months starts in January. In year 1, how many rents reach the cash account?

See answer

6. Nothing comes in from January to June; six rents arrive from July to December — with 0% vacancy.

Quick quiz · 2 of 2

Contracted R$ 500K, received R$ 450K. What is the default rate?

See answer

R$ 50K ÷ R$ 500K = 10%. The 90% is what was received.

Lesson complete

Next lesson

I4.6Intermediate · Lesson I4.6Typical and atypical leases and average termA long lease guarantees a penalty, not income — and the penalty can vary 40×.Continue
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Image credits
  • Alena Darmel · Pexels · Pexels License — Pexels
  • Handi Boyz LLC · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.