In different periods of the Brazilian economy, certain real estate funds tend to increase or decrease dividends. With rising inflation and Selic rates in Brazil, many investors have been able to make good returns with FII paper yields, for example, in 2022.
However, after three consecutive months of deflation, as well as the prospects that the end of the cycle of high interest rates is approaching, the scenario for certain paper funds has become more pessimistic in terms of maintenance dividend payment.
Therefore, doubts arise about how to invest in the last months of this year and what the prospects are dividends from FIIs in 2023. Before that, it is important to understand the behavior of the real estate market during 2022, and thus observe what may happen in the future.
In order to better explain this matter, Suno Notícias, with the support of Cy Capital, has prepared FIIs & Dividends Week, which lasts from October 24 to 28. You can keep up to date with everything happening this week at this link.
Real estate funds in 2022
With the Covid-19 pandemic, the real estate market has been pulled in several directions. Higher demand has boosted real estate prices, but supply chain problems have pushed up the cost of new construction.
During this period, inflation remained resilient and, to avoid it, the Central Bank raised the key interest rate (Selić), causing real estate funds to lose investors’ preference for fixed income investments, which affected dividends from FIIs.
Additionally, while many cities have returned to normal, existing offices have been operating at reduced capacity, while many new offices have struggled to find tenants in the face of hybrid work practices.
All these factors have influenced the decline in the shares of certain FIIs in the past months and their incomes. But what can happen with real estate fund dividends in 2023?
What is the outlook for FII dividends in 2023?
For Gustave Asdourian, founding partner of the Guardian, the prospects for dividends from FIIs in 2023 it is quite positive. By closing the cycle of high interest rates, and possibly reducing Selic for next year, this can generate capital gains for investors, through the appreciation of real estate fund shares in general.
Against this backdrop, Asdourian sees real estate funds as potentially improving in dividend distribution, with the exception of those with heavy exposure to inflation-indexed assets.
But with the large selection of real estate funds on the market, the prospects for real estate fund dividends in 2023 they differ according to the type of FII, where it is important to separate brick-and-mortar, paper and hybrid funds.
Brick fund dividends for 2023
in case of brick wallpapers for 2023scenarios are different depending on their sector of activity, such as corporate boards, purchasing and logistics.
Corporate real estate funds
As the hybrid work model takes shape, tenants are looking to decentralized teams working close to home and coworking spaces to fill this void and provide employees with a collaborative workspace.
For these funds, the expert sees a potential increase in dividends for 2023, due to the high demand for real estate in the sector and also due to the adjustments of lease agreements that should occur from one year to the next.
With this high demand, logistics real estate funds tend to be able to maintain high occupancy rates, allowing for greater revenue generation and ultimately greater revenue distribution to their shareholders.
Mall real estate funds
Mall funds, on the other hand, are associated with one of the sectors that suffered the most during the pandemic period, retail. In May of this year, according to the Brazilian Association of Shopping Centers (Abrasce), the average vacancy rate in the sector was 6.1%. Additionally, dividend yields averaged between 3% and 4%, lower than expected for the sector.
However, as COVID-19 restrictions eased and more Brazilians got vaccinated, pandemic-weary consumers left their homes and returned to brick-and-mortar stores.
However, managers know that this extended quarantine has created demands and that shopping centers have had to be updated. As a result, we may see the inclusion of non-traditional and lifestyle elements, including grocery stores, apartments, medical and dental offices, and microdistribution centers.
For dividends from funds for the shopping center in 2023Asdourian is already seeing a good recovery, continuing the recovery process started in 2022.
Logistics funds for real estate
FIIs in the logistics industry have benefited from the significant growth in e-commerce. Due to the high demand, logistics warehouses had to grow and expand to meet delivery, distribution and reverse logistics, reaching the limit of 1 million m² rented, where until then the average was 550 thousand m².
In the case of corporate weak funds, the recovery of their dividends should be more gradual, at a slower pace compared to logistics FIIs, for example, according to Gustave Asdourian.
The end of the pandemic did not see a complete return to offices, as many companies were adapting to a new work format, in which some of them fully or partially adopted a home office, which caused demand for these properties. will not return to pre-pandemic levels.
However, the prospect is that there will be more vegetative growth in occupancy and demand, as companies grow and look for better premises in the future, which could favor increase in dividends from FIIs of this sector.
Paper fund dividends for 2023
While most real estate funds collapsed due to the pandemic, paper FIIs stood out, showing appreciation and delivering record dividends to shareholders.
As the prime rate (Selic) rose, the main products allocated to paper FIIs also rose in value, such as real estate claims (CRI) and real estate letters of credit (LCI). Now the scenario is changing.
With the current scenario of three months of deflation in a row, some paper funds could see a decline in their dividends for 2023, especially those whose portfolios are heavily exposed to inflation indices, such as IPCA and IGP-M, for example.
Among paper FIIs, the founding partner of Guardian points out that they have mixed exposure to inflation and CDI indices, the tendency is to manage to maintain the level of dividend distribution, with some showing a slight downward adjustment.
Meanwhile, funds with exposure to CDI-exposed assets should see an improvement in earnings distribution.
In relation to hybrid funds, i.e. those that mix the allocation between assets invested by brick and paper FIIs, dividend distribution in 2023 it will depend on the strategy implemented by each of them.
Some hybrid FIIs may take a more “entrepreneurial” stance, so they will have an advantage when investing in the construction and development of real assets.
For them, the outlook becomes more complex, as the market has yet to see a high interest rate scenario that drags on for several months into the coming year, amid tighter monetary policy.
If the capital gains of these FIIs depend on the construction and sale of these ventures, maintaining income may become more complicated in this high interest rate scenario.
However, by considering hybrid funds with lower risks, that is, those that have the advantage of directly taking mixed exposure in brick assets and CRIs, they can be inserted into a more positive dividend payout scenario.
Is it time to ditch inflation-linked paper funds?
Despite market estimates, they point to a more negative scenario in relation to distribution dividends from FIIs of papers indexed according to inflation indices, for example, this does not mean that the investor should leave the sector permanently, on the contrary.
In less favorable scenarios for these funds, it is possible to find opportunities to buy these shares at discounted prices. In this case, Gustavo Asdourian emphasizes the importance of continued exposure to assets that protect capital against inflation.
“It doesn’t make sense to only want to have this type of asset when inflation is high or not have it when it is low. I believe that the longer-term approach to investments is also to maintain a composition of equity capital protected from inflation”.
One of the alternatives for investors is to rebalance their portfolio in different periods in the economy and take advantage of the best opportunities, not neglecting diversification, which manages to maintain a relevant level of income dividends in different scenarios.