SCPI: Is this property investment solution equipped to stand up to the crisis?
The economic crisis caused by the Covid-19 epidemic raised concerns for investors regardless of the investment choices they have made.
For those who have invested in SCPI shares (collective property investment trust), will the slowing down of economic activity caused by the confinement have an effect on the returns on their investments?
SCPI: spreading the risk
It is still too early to measure the real impact that the Covid-19 crisis will have on SCPI performances in 2020. SCPI is a property investment solution, requiring as little as a few hundred euro from investors and which seeks to invest in leased property assets (offices, retail, residential, healthcare, etc.). The asset management company manages these assets on behalf of the SCPI investors. The leasing of these assets allows the SCPI to distribute potential revenues to their investors in the form of dividends, generally paid out quarterly.
The strength of SCPI that generate returns lies in their diversification in terms of asset numbers, investment locations, asset types and tenant variety. This allows them to spread out any leasing risks. This strategy means that SCPI seem to be well equipped to deal with the unforeseen contextual difficulties of the moment. However not all SCPI are the same. The larger SCPI provide better risk diversification thanks to the large number of tenants associated with their asset holdings. In the same way, we think that certain property sectors, such as the healthcare and office property sectors will come out of the crisis better placed than other property sectors. However, those SCPI with mostly small businesses as tenants, that have invested in non-essential retail or the tourism sector will be more exposed to risk, their tenants will have suffered the worst of the effects of the confinement.
SCPI: reactive professionals
SCPI that are oriented towards more prudent property investment strategies will stand up to the public health crisis and its consequences better. More than ever, building quality, location and tenant choice are the essential fundamentals and key indicators for choosing the right SCPI. Additionally, certain asset management companies were able to take the correct measures to support their tenants during the period of forced closure. Rent payment postponements and instalment schemes have been negotiated with those tenants who have suffered the most allowing them to build up their treasuries. These measures have reduced the payment issues, and made the recovery of rent easier on the agreed dates and thus preserved the interests of investors for 2020.
Primonial RIEM is the market leader for SCPI; it has been able to pay out 100% of the planned dividend payout for the 1st quarter of 2020 on the planned date.
For the next three quarters, the asset management company will apply the principle of distributing the rent payments received by the SCPI to its investors in the form of dividend advances in line with normal SCPI results.
SCPI: can a secure investment be competitive?
Even if, it remains impossible to foresee how the crisis will end, remember that the properties in which the SCPI have invested are considered as secure long-term values. They are managed by professionals and constantly adapt their property selection processes in terms of market changes.
In addition, SCPI have shown excellent results over the past years, which means that many consider them as solid financial reserves. If necessary, these reserves could be used to compensate any falls in returns, depending on the policies applied by the asset management company. According to the French Association of property investment companies (Aspim), the impacts of the Covid-19 crisis on the property market will be nothing like as bad as those expected for the financial markets. SCPI performances for 2020 will remain competitive compared to other financial investment plans (shares, savings - ‘Livret A’ or Euro trusts).
IMPORTANT FIGURE: 2.56 billion euro
This is the total net amount of funds collected by SCPI for the 1st quarter of 2020. That is an increase of 24% compared to the 1st quarter of 2019. In spite of the public health crisis, no increase in withdrawal applications has been registered up to the month of March. (Sources: French Association of property investment companies - Aspim).
The potential income of SCPIs may vary upward or downward, as well as the withdrawal value of the unit. SCPIs involve a risk of capital loss. The liquidity of SCPI units is not guaranteed by the management company. As this investment is invested in real estate, it is considered illiquid and should be considered from a long-term perspective.