Real-estate stocks, typically viewed as a safe haven amidst a gyrating market, appear to have joined in the latest market rout, according to Bloomberg reports. The S&P 500 Real Estate Index declined as much as 7.1% Monday, the most since 2011, reversing this month’s gains despite increasing expectations that the Federal Reserve will cut policy rates to zero.
Yet even though the COVID-19 virus outbreak is wreaking havoc on some residents of skilled nursing facilities — with the federal government and providers taking unprecedented action to restrict visitors to long-term care facilities — the effect of the virus on the industry’s real estate investment trusts has been more difficult to gauge, according to Green Street Advisors Analyst Lukas Hartwich.
“REITs are insulated somewhat by long-term triple-net leases,” Hartwich wrote in a March 4 investor note. “That being said, triple-net leases are only ‘safe’ to the extent that operators can pay the rent.” The sector also has suffered from oversupply, cost pressure, and some underperforming operators, according to the note.
Brad Thomas, editor of the Forbes Real Estate Investor, also backs continued investment in REITs, pointing out that the pullback has created a window of opportunity for income-oriented REIT investors to take advantage of the highly predictable dividend income that REITs generate, mentioning Ventas and Omega Healthcare Investors in particular as good buys.
“While the coronavirus has sparked a panic within the financial sector, this black swan event has less significance to real estate since the asset class provides core necessity ‘shelter’ attributes,” Thomas said in a Forbes article Monday. “Ultimately the short-term panic will subside, and the underlying real estate should continue to grow in value.”
