Hedging Strategy
A hedging strategy uses financial instruments or operational tactics to offset specific investment risks including interest rate, currency, and market value fluctuations.
| Risk Type | Hedging Instrument |
| Interest rate risk | Swaps, caps, collars, fixed-rate debt |
| Currency risk | Forward contracts, swaps, options |
| Property value risk | Index derivatives, REIT shorts, diversification |
| Lease rollover risk | Stagger expiries, longer initial terms |
| Tenant default risk | Credit insurance, guarantees, deposits |
| Inflation risk | CPI-indexed leases, hard assets |
| Hedge Effectiveness | Consideration |
| Perfect hedge | Eliminates risk but also caps upside |
| Partial hedge | Reduces exposure while retaining some potential |
| Cost of hedging | Reduces exposure while retaining some potential |
| Basis risk | Hedge may not perfectly match exposure |
| Counterparty risk | Derivative provider may default |
| When to hedge | High conviction on risk, volatile environment |
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