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The most vulnerable are those with exposure to lockdown-sensitive businesses such as clothing retailers, gyms and movie theatres. “Certain types of retail have been impacted in a big way, and the move to online shopping has accelerated rapidly,” says Canaccord Genuity analyst Mark Rothschild.
Office-focused REITs have not been as intensely plagued by rent collection issues, but are seen as vulnerable to longer-term adjustments in work culture. A report from real estate consultancy CBRE Group Inc. pegs the national office vacancy rate, as of the end of 2020, at 13.4 per cent, the highest level since 2004.
“I think the office business has changed for a long time, if not forever,” Rothschild says. “Many people will not be back in the office five days a week any time soon. And that is something that is going to weigh on office REITs for many years.”
I think the office business has changed for a long time, if not forever
Mark Rothschild, analyst, Canaccord Genuity
At least 11 Canadian REITs have responded to pandemic-related cashflow issues by reducing distributions to unitholders, an unusual course of action in the normally placid REIT space. Among the companies who have recently chosen to cut payouts are two of the biggest names in Canadian real estate.
One of them is RioCan Real Estate Investment Trust, which announced on Dec. 3 that it would be cutting its monthly distribution by one third, from $0.12 per unit to $0.08 per unit — the first time in the company’s 26-year history that it has reduced its payouts. In a press release, the company said the distribution cut would bolster its balance sheet by $152 million per year.