COVID-19 Crisis Hits REIT Shares in First Quarter

WASHINGTON, D.C. APRIL 10, 2020 REIT shares in the first quarter of 2020, like the rest of the equity market, were negatively impacted by the COVID-19 driven shutdown of much of the economy. The total return of the FTSE Nareit All REITs Index , the broadest U.S. REIT Index containing both equity and mREITs, fell 25.42% in the first quarter. The FTSE Nareit All Equity REITs Index declined 23.44%, and the FTSE Nareit Mortgage REITs Index fell 56.12%. The S&P 500 fell 19.60%.

“Social distancing measures have cut revenues for many businesses, impacting their ability to pay salaries and rents and also service loans,” said Nareit Senior Economist Calvin Schnure. “Most REITs have reduced their leverage in recent years and maintain solid liquidity resources, including holding of liquid assets and lines of credit, which will help them weather the period ahead.”

Market Sectors Show Broad Range of Returns

Among the equity REIT market segments , Data Centers were the top performer with an 8.80% gain for the quarter. The Infrastructure sector, which consists primarily of cell tower REITs, was down 0.69%, approximately flat for the quarter.

“Real estate houses the economy, including the information economy,” said Schnure. “Data center and cell tower REITs play critical roles in enabling the internet-based communications on which much of the nation’s workforce, currently working remotely, now depends. They also are key to the rollout of 5G technology.”

Other market segments that outperformed the FTSE Nareit All Equity REITs Index in the quarter were Self-Storage, down 7.96%; Industrial, down 10.33%; Manufactured Homes, down 17.27%; and Single Family Homes, down 22.75%.

Regional Malls, down 60.42%, and Lodging/Resorts, down 51.31%, were the property segments most affected by the shelter-in-place guidance put into effect in many cities and states.

On a one-year trailing basis from March 31, property segments that outperformed the index’s negative 15.93% total return were Data Centers with a gain of 30.57%; Infrastructure with a 16.17% gain; Industrial, up 9.95%; Manufactured Homes, up 4.66%; Self-Storage, down 4.74%; and Single Family Homes, down 5.69%.

On a one-year basis, the Regional Malls and Lodging/Resorts segments also were the most negatively affected by the COVID-19 crisis, with returns down 67.29% and 51.38% respectively.

Yields Climb in Quarter

REIT yields climbed in the first quarter. The dividend yield of the FTSE Nareit All Equity REITs Index was 4.75% as of March 31. Among the highest-yielding equity REIT sectors were Regional Malls at 16.30%, Specialty at 9.92% and Shopping Centers with a 9.63% yield.

The dividend yield of the FTSE Nareit Mortgage REITs Index on March 31 was 22.89%, with Home Financing REITs yielding 25.64% and Commercial Financing REITs yielding 16.96%.

Securities Offerings Are Down

In the first quarter’s depressed market conditions, securities offerings declined. REITs conducted a total of 18 offerings in the quarter, raising $5.33 billion. In comparison, in the same quarter last year, REITs conducted 57 offerings that raised $19.60 billion. The capital raised in the recently completed quarter included $4.30 billion in common shares and $1.03 billion in preferred shares. There were no offerings of unsecured debt.

The total equity market capitalization of the 219 REITs in the FTSE Nareit All REITs Index at the end of the quarter was $993.10 billion, compared with 225 REITs with a combined market capitalization of $1.22 trillion at the end of last year’s first quarter. The 162 REITs in the FTSE Nareit All Equity REITs Index had a total market capitalization of $949.60 billion at the end of this year’s first quarter compared with 169 REITs with a total market capitalization of $1.13 trillion at the end of last year’s first quarter.

REITs continued to maintain strong balance sheets with extremely low debt. The debt ratio (total debt divided by total market capitalization) of the FTSE Nareit All Equity REITs Index was 31.3%.

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