Calvin Schnure

The gradual reopening of the economy in the weeks and months ahead will restart the cash flows for many businesses small and large.

The FTSE Nareit All Equity REITs index posted a total return of 6.9%, the strongest weekly return in six weeks and outpacing the 3.5% total return on the Russell 1000.

The REIT sector overall entered this crisis period from a stronger position than in previous market downturns in terms of operational performance, balance sheet strength and sources of liquidity available for the potentially lean months ahead.

REIT earnings were impacted by the COVID-19 crisis in the first quarter, with funds from operation (FFO) declining 9.0% from the prior quarter, to $15.0 billion, according to the Nareit T-Tracker®.

The FTSE Nareit All Equity REITs index closed down 8.2% for the week ended May 15^th, the first weekly decline for the month of May.

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Most sectors were up, including a 10.3% total return for timber REITs, a 6.9% total return for specialty REITs and 6.7% total return for commercial financing mREITs.

The two largest risks to the economy from recent layoffs are that job losses spread from the front-line sectors into the broader economy, and that temporary layoffs translate into permanent job losses.

Nine of the 14 REIT sectors posted a positive total return.

The business closures and social distancing designed to slow the spread of COVID-19 had a significant impact on demand for commercial real estate, vacancies and rent growth across the major property sectors.

Last week the index posted a total return of negative 4.5%, the second week of single-digit moves after much sharper gyrations both up and down in the early stages of the crisis.

We are not expecting a “V” shaped recovery because some effects of the virus are likely to remain for quite some time. This news on durable goods orders, though, is consistent with underlying business fundamentals remaining intact for now despite the shutdown.