Real estate investment trusts were not immune from Monday’s global market sell — particularly hotel properties — a result of the growing fears surrounding the coronavirus and its potential to trigger a global economic slowdown.
The S&P 500 fell 3.35 percent and the Dow Industrial Average plummeted over 1,000 points following news that the coronavirus, which has infected over 77,000 and killed over 2,500, was expanding in Italy and South Korea.
REITs took a hit but fared better than the broader market, largely because many REITs own properties based in the U.S.
“REITs do provide a margin of safety,” said Omotayo Okusanya, managing director in the equity research department at Mizuho Securities.
The news rattled global markets Monday, and investors turned to defensive sectors like gold, which reached a seven-year high.
By market close, the SNL U.S. REIT Equity Index dropped just 1.32 percent, according to data from S&P Global Market Intelligence.
The hardest-hit sector Monday was hotels, as REITs with international properties were most affected, Okusanya said.
The SNL U.S. REIT Hotel index fell 4.71 percent, with Ryman Hospitality Properties, Wyndham Destinations and Hyatt Hotels Corp. all among the firms that suffered the biggest losses.
Industrial REITs also took a hit after hotels, with the SNL U.S. REIT Industrial index 2.86 percent lower Monday, according to S&P’s figures.
Self-storage was the only asset class that was not dinged; it crept up 0.23 percent, according to S&P’s figures.
The coronavirus outbreak could have a sustained impact on global supply chains, depending on the severity. China is where the outbreak began and where most of the deaths have occurred. The virus has already taken a toll on China’s manufacturing sector — and that could trickle down to affect the margins of logistics REITs. But such properties tend to have longer-term leases that should not be impacted by temporary disruptions, Okusanya said.
Prior to Monday’s market sell off, the virus’ impact on real estate had not yet been widely felt, and there had been scattered concerns in New York City’s residential world. But the impact of the coronavirus on financial markets also pushed mortgage rates to an eight-year low, according to CNBC.
Calvin Schnure, senior economist at REIT industry group Nareit, said the full impact of the coronavirus is not fully known. He said the stock plunge to start the week was akin to the recent market volatility stemming from the trade wars with China — REITs tended to fare better then as well.
“The market is reacting to a lot of fear and uncertainty,” he said. “The U.S. economy overall will have pockets that are hurt but the REITs have a lot of domestic focus.”
Write to Mary Diduch at [email protected]