RREEF Property Trust distribution center located in Seattle, Washington’s Eastside submarket.
By: John Manley, Client Portfolio Manager of Alternatives
The hallmark of RREEF Property Trust’s (“RPT”) investment objectives is to seek an attractive level of current income for distribution to RPT’s stockholders and preserve and protect RPT’s stockholders’ capital investments.
Year-to-date, RPT’s performance is reflective of those investment objectives: producing a total return of –0.6% comprised of distributions of 2.5% (5.1% annualized) and NAV decline of –3.2%, while generating an annualized standard deviation of 5.4% (Class I shares).1 Our year-to-date net loss was $5.2 million as of March 31, 2020.1
Since inception, RPT has delivered 85 consecutive monthly distributions resulting in an annualized distribution rate of 5.8%. RPT’s total net return over the same period totals 7.7%, while generating a standard deviation of only 3.0%. View complete performance here.
The distributions and income that RPT pays are uncertain and not guaranteed. The timing and amount of distributions is determined by RPT’s board of directors. RPT has paid, and likely will continue to pay, distributions and fund redemptions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or offering proceeds, and RPT has no limits on the amounts it may pay from such sources. For the quarter ended 3/31/20, 72% of distributions were funded from cash flows from operations and 28% were funded from borrowings. From inception through 12/31/15, RPT’s expenses were supported by expense support payments from its advisor, which are subject to repayment in future periods and will reduce cash flows during those periods. If RPT’s advisor had not made the expense support payments, a greater proportion of the distributions would have been funded from offering proceeds or borrowings. Distributions paid from sources other than cash flow from operations may not be sustainable.
Impact of COVID on the portfolio?
While commercial real estate has not been immune from the economic impacts of COVID-19, we believe RPT’s portfolio is defensively positioned to continue to provide steady current income while maintaining a low level of volatility in RPT’s total return, evidenced by the following:1
- Stable occupancy: began 2020 at 98%, and remains 98% today
- Strong lease term remaining: RPT has a weighted average lease term of 5.2 years, providing visibility into future distribution coverage. Importantly, there is significant term across sectors:
- Office: 5.9 years
- Retail: 5.6 years
- Industrial: 4.6 years
- Strong collections: RPT collected 97% and 98% of rents in June and July 2020, respectively, up from the low of 91% in May 2020 and 94% in April 2020.
Outlook going forward?
In our view, once the dust settles, core real estate prices will have declined by 0%–10%. The final tally will depend on two factors: the duration of and recovery from the recession (itself contingent on policy measures and health-care developments) and the sustainability of financial-market gains. Cash-flow disruptions will weigh on valuations, while generally favorable capital markets may cushion the blow. We believe that total returns (including income) will remain positive over the 2020–2021 period, more akin to the mild downturn of 2001 than the severe retrenchment of the early 1990s or the Global Financial Crisis.
We believe that RPT’s property portfolio is well diversified with significant lease term remaining, high occupancy rates, and modest leverage across the portfolio, and that secure cash-flowing assets will benefit from low interest rates while potentially mitigating against downside risks.
1 Source: DWS. As of June 30, 2020
Valuations and appraisals of our properties and real estate-related securities are estimates of fair value and may not necessarily correspond to realizable value, and may not accurately reflect the actual price at which assets could be liquidated on any given day.
Standard deviation is often used to represent the volatility of an investment. It depicts how widely an investment’s returns vary from the investment’s average return over a certain period.
The forecasts provided are based upon our opinion of the market as of July 2020 and are subject to change, dependent on future changes in the market. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance.
This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. An offering is made only by a prospectus to individuals who meet minimum suitability requirements. This sales literature must be read in conjunction with a prospectus in order to understand fully all the implications and risks of the offering of securities to which it relates. A copy of the prospectus must be made available to you in connection with any offering. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of our securities or determined if our prospectus is truthful or complete. Neither the Attorney General of the State of New York nor any other regulatory body has passed on or endorsed the merits of this offering. Any representation to the contrary is a criminal offense. Information provided by RREEF America, L.L.C. Securities offered through DWS Distributors, Inc.
Source: DWS as of 6/30/20. Performance is historical and past performance is no guarantee of future results. The returns have been prepared using unaudited data and valuations of the underlying investments in RPT’s portfolio, which are done by its independent valuation advisor. Valuations based upon unaudited or estimated reports from the underlying investments may be subject to later adjustments or revisions.
Returns shown reflect the percentage change in the NAV per share from the beginning of the period indicated, plus the amount of distributions paid during the period indicated. All returns shown are for Class I shares only and are net of company expenses, class-specific fees and advisory fees and assume reinvestment of distributions.
NAV is calculated in accordance with the valuation guidelines approved by RPT’s board of directors. NAV is not a measure used under generally accepted accounting principles in the United States (“GAAP”), and you should not consider NAV to be equivalent to stockholders’ equity or any other GAAP measure. As of 3/31/20, RPT’s NAV per share was $14.31 for Class I shares, and total stockholders’ equity was $7.93 per Class I share. For a full reconciliation of NAV to stockholders’ equity and a discussion of the limitations and risks associated with our valuation methodology, please see the “Management’s Discussion and Analysis of Financial Condition and Results of Operation—NAV Per Share” section of our annual and quarterly reports filed with the SEC, which are available at https://www.rreefpropertytrust.com/Investor-Relations/SEC-Filings/. For information on how we calculate NAV, see the “Net Asset Value Calculation and Valuation Guidelines” section of our prospectus. It may be difficult to fully and accurately reflect material events that may impact our daily NAV. In particular, the NAV per share of each class of our common stock as published on any given day may not reflect changes in values of our properties resulting from the ongoing coronavirus pandemic, as this impact is occurring rapidly and is not immediately quantifiable. Accordingly, our NAV and the price paid by new investors for shares of our common stock may not reflect the adverse impact on the value of our properties resulting from the coronavirus pandemic. Since our inception in 2012, as a consequence of recognizing depreciation and amortization in connection with the properties we own, we have experienced net losses (calculated in accordance with GAAP) for most fiscal years, which have contributed to our accumulated deficit of $53.6 million as of 3/31/20. Class I inception date is 5/30/13.
RREEF Property Trust is a speculative security and, as such, involves a high degree of risk. An investment in RPT involves the same risks associated with an investment in real estate, such as market risk, interest rate risk, risks related to property diversification, tenant turnover and the use of leverage. There is no guarantee that any real estate strategy, including RPT’s, will be successful. There is no public market for RPT’s shares of common stock. RPT’s shares should be considered as having only limited liquidity and at times may be illiquid. RPT’s redemption of shares will likely be the only way for you to dispose of your shares, and RPT’s redemption plan contains limitations on the number of shares RPT will redeem in any calendar quarter. RPT’s board of directors may modify or suspend RPT’s redemption plan, as well as RPT’s investment policies, without stockholder approval, which could alter the nature of your investment. The purchase price and redemption price for RPT’s shares is based on our NAV, which may not accurately reflect the actual price at which our assets could be liquidated on any given day because valuation of properties is inherently subjective. RPT’s failure to remain qualified as a REIT would have an adverse effect on our operations and RPT’s ability to make distributions to its stockholders. Distributions are not guaranteed, are made at the discretion of RPT’s board of directors and may be paid from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or offering proceeds, and RPT has no limits on the amounts it may pay from such sources. RPT is dependent upon its advisor to conduct its operations, and RPT’s advisor will face conflicts of interest as a result of, among other things, time constraints, allocation of investment opportunities and the substantial fees RPT will pay to its advisor. The value of RPT’s shares will fluctuate with the portfolio of the underlying real estate properties. Shares sold will be at a price which may be more or less than the original price paid for the shares by the investor. Investors can be subject to adverse tax consequences if RPT does not qualify as a REIT for federal tax purposes. In addition, distributions from current or accumulated earnings and profits are taxed as ordinary income. Data provided by RREEF America L.L.C., the advisor to RREEF Property Trust.
Investment products: No bank guarantee | Not FDIC insured | May lose value
The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries such as DWS Distributors, Inc., which offers investment products, or DWS Investment Management Americas, Inc. and RREEF America L.L.C., which offer advisory services.
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