This year is going to be a tough one for real estate investment trusts (Reits). Many fear high interest rates will make buyers wary and push down values, while a recession will drive down rents and demand for space. With such a rocky year ahead, the state of Reit dividend payments is an open question.
On the one hand, the payout impulse is strong – Reits are legally required to pay out 90 per cent of their taxable income to investors. In return for having less cash to reinvest in their business, the Reits do not pay income tax.
However, it does not always work that way. In 2020, many Reits cancelled their dividend payments over concerns about a lack of rent from tenants who legally could not operate due to lockdown restrictions. John Cahill, an analyst at Stifel, said that HM Revenue & Customs opted to “turn a blind eye” to the Reits doing this as it was considered an exceptional circumstance.