REITs outperform market this week amid Fed action to boost lending

“There’s been a broad recovery across the entire equity sector,” one industry pro said

TRD NATIONAL /
Apr.April 10, 2020 05:15 PM
(Credit: iStock)

(Credit: iStock)

Real estate stocks rebounded in a shortened week as investors showed renewed optimism for equities in general, and the Federal Reserve announced more measures to bolster the U.S. economy.

From last Friday’s close through the end of the day Thursday, the S&P 500 rose 12 percent, and the Dow Jones Industrial Average grew 13 percent.

Meanwhile, the FTSE Nareit All REITs index, which tracks public real estate investment trusts, outperformed those indices, jumping 23 percent over those four days of trading. Markets were closed today because of Good Friday.

“There’s been a broad recovery across the entire equity sector. Pretty much everything has been up,” said Alexi Panagiotakopoulos, co-founder of Fundamental Income, sponsor of the NETLease Corporate Real Estate ETF. “I think a lot of that has just been propped up by rebalancing and money that has been on the sidelines, waiting and looking for opportunities.”

The market lift — from a crushing March as the coronavirus crisis deepened — also was seen among other real estate stocks. Brokerage firm CBRE Group, for instance, saw a 28 percent lift this week. Realogy rose 21 percent Thursday alone, and 51 percent for the week. Another brokerage, Re/Max, also shot up this week, by 44 percent.

Major hotel chains, like Marriott International and Hilton Worldwide Holdings, also were up over the prior four days of trading, even though hotel occupancy in the U.S. fell to 22 percent. The prices of both those firms’ stocks dipped Thursday.

Down year
Still, total returns for that main REIT index are down almost 16 percent year to date, according to data from Nareit, an industry group for the REIT space. The performance so far in 2020 stands in stark contrast to the standout year REITs had in 2019. And regional malls, feeling the pain of retail closures and government-mandated shutdowns to prevent the spread of the coronavirus, so far are suffering the most among REIT types, with returns down 51 percent year to date.

Global efforts to stop the rapid-fire spread of the coronavirus have nearly halted the economy, with front-line businesses — restaurants, hotels, for instance — among the first to take big hits.

REITs also struggled with the broader market selloff, which at points grew so dire that investors caused trading to stop several times last month. Prior to the pandemic, REITs were coming off a quarter of strong earnings and balance sheets, but the closures and layoffs led to concerns over cash flow and the ability of businesses to pay not just their employees, but their rents, said Calvin Schnure, senior vice president of research and economic analysis at Nareit.

The recent moves from the central bank and the government should help REITs to reverse course, experts said.

“With the Federal Reserve programs as well as the stimulus previously passed, the government is doing everything [it] can to prevent this outside event from hitting everyone in this payment stream, and that’s what’s benefitting the REITs,” Schnure said.

But the rest of the month — and perhaps even May — likely will provide the real proof of how REITs are faring, when a clearer picture emerges as to just how many tenants did not pay rent, Panagiotakopoulos said. April 1 was the first day rents were due during the pandemic for apartment renters, many of whom have lost their jobs, and commercial tenants, many of whom remain closed.

Still, the Fed’s actions, which were expanded Thursday to further boost lending, have been “massive,” Panagiotakopoulos added. And while REITs may not directly benefit from these actions, more small and mid-sized businesses will receive lending support, which will flow to landlords.

“It’s basically government-funded revenue, stimulus indirectly to the REITs,” he said. “Because honestly, these companies don’t want to lose their locations, so they’re going to pay their rents.”

Write to Mary Diduch at md@therealdeal.com


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