REIT rents rebound

Rent collections for Real Estate Investment Trusts (REITs) in the US improved in July, according to the latest survey by Nareit (National Association of Real Estate Investment Trusts) which is the worldwide representative voice for REITs. The fourth edition of its monthly survey showed a material improvement for the US retail subsector while industrial, office, residential and health care subsectors reported rent collections above 95% of pre-COVID levels.

Figure 1. Share of Typical Rent Received by US REITs: April – July 2020

Source: Nareit

FTSE EPRA Nareit Developed ex Australia Rental Index AUD Hedged (REIT Index) provides exposure to a balanced and diverse range of international REIT subsectors including heath care and specialised REITs such as data centres, which are not available in Australia.

Figure 2. REIT Index Subsector Breakdown

Source: FTSE, VanEck, 31 July 2020

Global REITs as represented by the REIT Index have maintained a 12-month trailing dividend yield above 3.5% since 2010 despite a backdrop of falling global interest rates and bond yields – see figure 3 below. REITs are also considered ‘bond proxies’ as they provide a reliable income stream from rents to investors. This contrasts to dividends from shares, which can be volatile, suspended and/or payout ratios reduced, which has been more prevalent during the COVID-19 economic fallout.

Figure 3. 12 Month Trailing Dividend Yield & Government Bond Yield

Source: Bloomberg. Trailing dividend yield is not a guarantee of future dividends paid by the Fund. Past performance is not a reliable indicator of future performance.

Price to Net Tangible Assets (NTA) ratio, which is typically the market’s perception of future earnings potential and performance for the REIT index is trading below the 11 year average. This may present an opportunity for investors.

Figure 4. REIT Index Price to NTA

Source: FTSE