Real Estate Investment Trusts ("REITs") are a good way of diversifying a portfolio and gaining property exposure but with the trading liquidity that property funds do not offer. With a number of property funds suspended since the onset of COVID-19 due to material uncertainty clauses being inserted into valuations of the underlying properties, investors have been locked into these funds and cannot take out their money. Last week the FCA put forward a proposal that investors would have to inform the fund 6 months in advance if they wanted to redeem their holding.

A significant number of REIT share prices have been battered since COVID and still sit at very large discounts to NAV with uncertainty over valuations, especially in retail, and also the concern that tenants could use CVA's to get out of leases. This has been exacerbated by the recent demise of Intu Properties, who collapsed under billions of pounds of debt after they failed to agree terms with their bondholders. Some REITs however sit at a premium to NAV due to the sectors they invest in, such as Tritax Big Box Reit (LON:BBOX) and £SUPR. The former is in the much sought after sector of big box warehouses, where companies store products ready for distribution to other areas of the company or direct to consumer, and the company are close to finalising development on a new facility near the M25, which will be one of the biggest big box warehouses in London. The latter has been almost a risk-free asset during COVID, with the REIT collecting all of its rent from supermarkets that have remained open throughout and who have been one of the only 'winners' from COVID.

I have taken this approach to look at the different REITs for my own investing, so I don't hold a position in any of these yet. However, given more uncertainty is yet to come (material uncertainty clauses have only been removed from industrials, warehouses, supermarkets and some office space) in terms of valuations, I have stressed the NAVs of these trusts using the below haircuts to valuations to give a 'worst case' look at valuations:

  • Hotels - This sector has been particularly ravaged from COVID due to the lockdowns applied and this has been evidenced by Travelodge applying for a CVA a few months ago (multiple trusts below have exposure to Travelodge). Although the year of…

Unlock the rest of this article with a 14 day trial

or Unlock with your email

Already have an account?
Login here