Rental income is the lifeblood of real estate. Without it, property funds are not able to pay distributions to shareholders and borrowers cannot service their debt. The contractual nature of property rental income, a key feature of the asset class, underpins asset values and by extension property and fund returns. The Covid-19 pandemic has put occupiers under financial pressure, which has in turn stressed property funds’ rental income. We analysed fund-and asset-level data for 107 property funds in the UK, Europe, Australia and North America to assess the impact of slowing net-income growth on distribution yields, performance and debt-service ratios during the Covid-19 pandemic. Our analysis suggests that real estate investors may want to consider new ways of analysing income risk and benchmarking the income performance of their portfolios.

Real estate income was impacted by the pandemic

The Covid-19 pandemic has impacted the business operations of many real estate occupiers, stressing landlords’ rental-income streams. To illustrate the extent of the impact, we compared the asset-level income return of five regional MSCI property-fund indexes for the six-month periods ended December 2019 and June. All five indexes showed lower income return in June compared to December 2019.

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