Non-Traded NAV REITs: Yield Compression Meets Overdistribution Risk

When risk-free rates climb sharply, the economics of income investing shift. Higher Treasury yields shrink the premium paid for taking risk, making assets like non-traded REITs less attractive to yield-focused investors. Sponsors face a choice: boost the yield to keep the spread (and sales pitch) shiny or hold the line to protect distribution sustainability. We looked at ALTIDAR’s non-traded NAV REIT universe to see how they navigated this trade‑off over the past few years. Did they prioritize investor appeal or distribution discipline?

Quick Insights

• Started High, Uncovered: In late 2021, non-traded REITs offered ~400 bps over Treasuries but had a median coverage ratio of ~40%, meaning most distributions weren’t supported by operating cash flows.

• Steady Distributions, Compressed Spread: Distribution rates held around 5.6%–6.3% as the 10‑year Treasury tripled from 1.5% to ~4.5%, cutting the spread from 400+ bps to <200 bps.

• Improved Coverage, Still Overdistributing: Median coverage by FFO as Adjusted improved, but remains <100%. NTRs have been overdistributing for much of this period.

Takeaway: Non-traded REITs have largely avoided raising payouts to offset narrowing yield spreads, signaling a focus on distribution discipline over headline yields. Coverage ratios are improving as portfolios season, but most remain below 100%—a sign that distributions still lean on sources beyond operating earnings. Progress is evident, but the gap underscores that sustainability remains a work in progress.

*FFO as Adjusted: NAREIT-defined FFO adjusted for: (i) acquisition-related expenses; and (ii) unrealized gains or losses on investments in marketable securities.

Not investment advice.