The weighted premium after deferred taxes in the SXI Real Estate Funds Broad (SWIIT) Index was 3.5% in mid-October of this year, the lowest in over 13 years. At 11%, the average premium (as at 20 December 2022) is higher again, but still significantly below the historical average of 23%.
A closer look at the 41 listed real estate funds shows that the 14 funds that are listed below the net asset value (NAV), i.e. show a discount, include nine funds which are predominantly commercial use. The valuation difference between the housing and commerce segment is particularly evident in an analysis of these two peer groups.1 While funds with an investment focus on rental apartments have an average premium of 16%, funds concentrating on commercially used areas are discounted at an average of 7%. The valuation difference is a function of the current preference for the residential segment, which is considered more stable and reliable than its commercial counterpart. Funds with big discounts are also at risk of redemptions of units.
Attractive distribution yield for commercial funds
The low valuation also opens up opportunities. In the first place, negative market trends have already been factored into current prices. If these do not occur as expected, prices could recover. Secondly, based on the rental income collected from commercial funds, the yield is significantly higher than for residential funds at current prices. For comparative purposes, it is assumed that the net income generated will be distributed in full in the case of all funds. This standardised distribution yield is significantly higher at 4.4% thanks to low valuations for commercial funds than for residential funds at 2.5%.