There are already people saying we've seen the worst of the REIT implosion bringing to mind the quote that led-off April 6's "What Comes After Post-Political?":
Estragon: I can’t go on like this.
Vladimir: That’s what you think.—Samuel Beckett, Waiting for Godot
We ain't seen nothin' yet.
From TheMarket.ch at Neue Zürcher Zeitung, April 4:
Listed real estate investment trusts (REITs) offer access to diversified real estate portfolios to a wide range of investors due to their low denominations. Such structures exist in all regions of the world.
The rental income received from the underlying real estate portfolios is distributed to investors in the form of dividends after the deduction of costs. If the price of the shares rises during the investment period, investors can achieve a positive return on value change with such an investment. But the reverse can also happen, of course.
2021: Year of Exaggerations
As the chart below illustrates, the dividend yield of the S&P Global REIT Index fluctuated between 4% and 5% for the period between 2010 and the pandemic. The average risk premium over 10-year government bonds was 2.2%. This significant premium over bonds made REITs real dividend gems.
....MUCH MOREThe low global interest rate levels acted as a catalyst for value increases. An important indicator for the direct real estate market is the cap rate. It behaves similarly to the «yield to maturity» for bonds. As interest rates fell back to very low levels over the past decade cap rates retreated. In the course of the economic recovery following the financial and euro crisis, the rental markets also gained momentum. This led to a robust upward trend in REIT valuations and total returns in the 2010s.
The pandemic has permanently disrupted this balance. REIT prices quickly recovered from the March 2020 shock. However, the highly expansionary monetary and fiscal policies laid the ground for exaggerations in the direct and indirect real estate markets in 2021. The dividend yield of the Global REIT Index declined to 3.1% as REITs were highly sought-after investments.
The historic rise in interest rates last year brought an abrupt price correction. The global REIT index suffered a 26% price decline in 2022. US and European vehicles showed the most significant drops, while Asian vehicles fell less. We estimate that at the end of March 2023, the global REITs index was trading at a 20% discount to NAV (net asset value). At the end of 2021, an average premium of around 8% to NAV was observed.
Effects from Higher Inflation....
