As global REIT specialists, delivering relatively high risk-adjusted, income-based returns to our investors is our priority. My colleague David Kruth recently highlighted how the breadth and depth of North American REIT markets help us to deliver on our income objectives and generate capital growth from types of commercial real estate that aren’t readily available, at least to the same extent, in Australia.
But there’s a lesser known but highly compelling component of the REIT capital structure that isn’t available in Australia at all.
So-called REIT preferred securities offer a diverse source of funding to REITs in North America especially that help them meet their ongoing capital requirements. They’re publicly listed, a cost-efficient source of capital and can be repaid at the time of the REIT’s choosing. Whilst preferred securities have many benefits to the issuer, the attractions for investors are equally alluring.
Benefit #1: Relatively high income compared to common equity
REIT preferred securities typically deliver far higher levels of income yield compared to common equity. As the chart below shows, our analysis suggests that, of the preferred securities we cover, the average yield is ~6.5%, which is about 1.8 times higher than that delivered by US REIT’s common equity.
For investors like us, focused on reliable, attractive dividends, that’s a meaningful and attractive difference.