← Business Metric: Industry Specific (Infrastructure, Transport & Utilities) (all topics)
REIT annuity income & cap rates
What it is
Real Estate Investment Trusts hold leased commercial property and must distribute at least 90% of net distributable cash flow, with leverage capped at 49% of asset value. Leases carry contracted escalations, typically 15% every three years
Asset value moves inversely with cap rates, which track interest rates
Impact on industries
- Contracted rent escalations deliver income growth without re-leasing, so distributions rise on existing assets
- Global capability centre demand has been the dominant driver of office absorption, and GCCs take large, long leases at quality assets
- Cap rate sensitivity means unit prices fall when rates rise, independent of rental performance - the asset is valued as a bond substitute
- Mandatory distribution limits retained capital so growth needs new units or debt, and hybrid working cut space per employee though GCC growth has offset it