Many property investment trusts have been badly affected by the coronavirus with the sector hit by dividend suspensions and severe write-downs, but the latest data suggests that the situation is not as bad as the valuations suggest.
A number of these funds have recently provided updates on their rent collection figures for the end of June, which shows the proportion of income collected from tenants for the third quarter that ends on 30 September. Initially it had been feared that this period would be substantially worse than the last one, yet the numbers announced to date have tended to show a small improvement.
The Winterflood investment trust team believe that we could be about to see some positive dividend announcements and better than expected 30 June NAVs. If they are right it could lead to a re-rating of the sector.
One of the biggest beneficiaries could be the BMO Commercial Property Trust (LON:BCPT), which is currently trading on a 54% discount to NAV. This fund has suffered more than most due to its high 31% exposure to retail and had to suspend its dividends in April after only collecting 74% of the rent for the second quarter.
The board has said that it would “re-introduce distributions when conditions improve” and the analysts at Winterflood believe that the shares could be re-rated in the event that the 30 June NAV update is not as bad as expected, or if the dividend is re-instated even if it is at a lower level.
Winterflood also highlighted the Schroder Real Estate Investment Trust (LON:SREI), which jumped six percent in early trading on Monday when it announced a 3.4% decline in the NAV over the quarter to the end of June and re-instated the dividend at half of its previous level. The shares are currently trading on a 39% discount.
Those funds that have not reduced or suspended their dividends could experience similarly positive reactions if they reaffirm that they intend to continue with this approach. The ones to look out for are: AEW UK REIT (LON:AEWU), which is trading on a 20% discount and yielding 11%, Regional REIT (LON:RGL), which is on a 33% discount and paying 12% and Standard Life Investment Property Income (LON:SLI) on a 36% discount with an 8% yield.
AEW has said that it intends to continue paying an 8p annual dividend, whereas Regional expects to update the market on its policy on 26 August, while Standard Life has announced that its dividend is under review.
Before investing in this area it is important to appreciate that there is a high degree of uncertainty around future valuations and rent collection rates in the sector. A second wave of the virus or the re-introduction of certain lockdown measures could have a potentially devastating impact.
I personally believe that long-term investors who are comfortable with the risks are likely to be well rewarded. These funds hold many valuable properties and even if they have to change the use of some of them they will continue to be prized assets.