REITs Analysis
I'll preface the "long designation": Short term bear, intermediate to long term bull. We haven't seen declines like these since 2008 and buying then could have been considered a once in a lifetime opportunity. Buying when people are disinterested or scared has more often than not been a winning market strategy. That said: timing is everything and the underlying assumption is perpetuity rather than the death of the firm.
From most to least affected by coronavirus:
Retail --> Office --> Residential --> Industrial
Retail: I wrote a little on this a couple days ago but SPG has seen nearly a 30B decrease in market cap over the last couple of weeks. Mandatory store closures across the nation put them in a position where rents are either reduced, unpaid, or defaulted on which is going to decimate the already weak retail sector. I wouldn't be surprised if the government does more in the form of a retail bailout like they are likely to do with airlines though the 200B-300B small business bridge loans wouldn't go so far as to help our the formerly investment grade worthy anchors that retail REITs build themselves around
Office: Really depends on what the major tenant group is made of. Accounting firms in office spaces will be fine. Call centers not so much.
Multifamily/Residential: I was a little surprised to see this sector drop as much as it did. My first thought was that if anything, the worst we would see is proportional beta drops and with most of them being in the .5-.7 range a typical 35% drop is marginally more than the S&P/DOW. Looking at it at a cap rate comparison, AVB div yield based on last quarter's div is about 4.4%. If you were to look just about a month ago at their portfolio (consisting of urban and suburban core assets) capitalization rates for those would be 4-5% if not lower. However, what I believe is being priced in at this point is the bursting of another bubble so to speak. Covid is more or less shutting down the US economy and the ensuing layoffs, margin calls, etc are likely going to reduce demand for luxury apartment housing therefore reducing rental prices and thus NOI for residential properties.
Industrial: This is more of an odd ball. First who most need industrial space typically own it themselves. I don't know too much about this sector just because there's somewhat of a U shaped curve where its either very large firms or very small firms but the intermediate player doesn't exactly exist in the market. So rather than do any analysis, I'll just leave it out an say "I don't know anything"
From most to least affected by coronavirus:
Retail --> Office --> Residential --> Industrial
Retail: I wrote a little on this a couple days ago but SPG has seen nearly a 30B decrease in market cap over the last couple of weeks. Mandatory store closures across the nation put them in a position where rents are either reduced, unpaid, or defaulted on which is going to decimate the already weak retail sector. I wouldn't be surprised if the government does more in the form of a retail bailout like they are likely to do with airlines though the 200B-300B small business bridge loans wouldn't go so far as to help our the formerly investment grade worthy anchors that retail REITs build themselves around
Office: Really depends on what the major tenant group is made of. Accounting firms in office spaces will be fine. Call centers not so much.
Multifamily/Residential: I was a little surprised to see this sector drop as much as it did. My first thought was that if anything, the worst we would see is proportional beta drops and with most of them being in the .5-.7 range a typical 35% drop is marginally more than the S&P/DOW. Looking at it at a cap rate comparison, AVB div yield based on last quarter's div is about 4.4%. If you were to look just about a month ago at their portfolio (consisting of urban and suburban core assets) capitalization rates for those would be 4-5% if not lower. However, what I believe is being priced in at this point is the bursting of another bubble so to speak. Covid is more or less shutting down the US economy and the ensuing layoffs, margin calls, etc are likely going to reduce demand for luxury apartment housing therefore reducing rental prices and thus NOI for residential properties.
Industrial: This is more of an odd ball. First who most need industrial space typically own it themselves. I don't know too much about this sector just because there's somewhat of a U shaped curve where its either very large firms or very small firms but the intermediate player doesn't exactly exist in the market. So rather than do any analysis, I'll just leave it out an say "I don't know anything"
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