The reopening of the New York Stock Exchange trading floor Tuesday accompanied a burst of optimism in the stock market as the Dow rallied more than 500 points, or 2.2 percent. And real estate stocks helped power the increase.
The FTSE Nareit All REITs index rose by 3.68 percent on Tuesday, outpacing the broader markets. The index had previously risen by 6.9 percent over the past week, with all REIT sectors — from data centers to malls — seeing gains, according to a new report from Nareit. It was the strongest weekly return in six weeks.
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Tech-related sectors such as data centers and infrastructure “have been little affected by the Covid-19 crisis, and last week’s gains added to their positive returns year-to-date,” the report notes. But “at the other end of the spectrum are several sectors that had a double-digit rebound from declines earlier this year,” such as hotels.
Since the start of 2020, data center and infrastructure REITs have seen returns of 14 percent and 11 percent, respectively, according to the latest data from Nareit. Meanwhile, retail is down 42 percent, lodging is down 45 percent and mortgage REITs are down 44 percent.
Retail’s struggles have been driven by massive shortfalls in rent collection. A Nareit rent collection survey from mid-May found that shopping centers in particular had collected less than half of all rent due in April and May, while free-standing retail properties have done a bit better, collecting about 70 percent.
“The prevalence of essential businesses such as grocery and drug stores among the tenant base for many shopping-center and free-standing REITs is a stabilizing factor for these types of retail properties,” Nareit’s report on the survey says.
Regional malls have struggled greatly, with Macerich collecting just 26 percent of its rent for April and 18 percent for May as of May 8, according to S&P. A seven-property regional mall portfolio owned by Starwood Capital — now facing multiple restructuring bids — has collected only about 20 percent of rent.
Another sector facing unique challenges from the pandemic is senior housing: Fitch expects monthly occupancy declines of 2 percent to 4 percent, which has led to ratings downgrades and higher leverage. Senior housing REIT Ventas announced Tuesday that it would eliminate over 25 percent of its corporate staff and cut executive salaries.
These uniquely affected sectors aside, analysts see reason for optimism regarding real estate stocks as a whole.
“Overall, the REIT sector entered this crisis with strong balance sheets and ample sources of liquidity,” Nareit senior vice president for research & economic analysis Calvin Schnure wrote last week, noting that REIT leverage ratios at the end of 2019 were near the lowest point in two decades.
“Having a strong financial condition at the start of any crisis improves the REIT sector’s ability to manage the challenges posed by the Covid-19 crisis.”
The reopening of the New York Stock Exchange trading floor — at 25 percent capacity, with legal waivers and a ban on public transportation — was largely symbolic, as the vast majority of buying and selling is done electronically and executed by computers.