BTIG, a New York based financial services company, has been clocking the effect of COVID-19 on what’s happening with REITs and, for a change, the news is not all bad. But overall, things are off. In a recently published report on REITs invested in health care, apartments, hotels, and equity residential, BTIG surmised that, “since the high on Feb. 21, the Nareit Equity REIT index has declined 21.9%."
The good news is that the multifamily sector isn’t looking that scary. “Despite slightly lower expected same-store growth rates, we expect apartment REITs to perform relatively better than REITs overall in 2020," notes the report.
"Typically, a moderation in average same-store NOI growth would result in a flat or declining relative multiple for the sector. However, we believe the sector is relatively isolated from the impacts of the coronavirus. The virus may impact job growth and household formation, but, in our view, the impact should be relatively minor overall with the Sunbelt markets most at risk for increased volatility.”
Heath care REITs aren’t doing so well, especially in the short term. “Health care REITs have been hit hard in recent weeks by the newly raging concerns surrounding the COVID-19 virus. With a meaningfully higher mortality rate among seniors and the potential for the virus to overwhelm the national health care system, the concerns (not panic) are well founded,” says the report. BTIG is hopeful that the effects of the virus will dissipate by the second half of the year.
Drilling down a bit into the health care data reveals the numbers that have physicians so concerned. “There are approximately 5,200 hospitals in the U.S. with a total of 925,000 beds. However, the average hospital utilization rate is approximately 65% and could be higher during flu season. As a result, available beds in U.S. hospitals could become overwhelmed with a continued expansion of COVID-19.”
The Veterans Affairs system is the legal backup for the country’s private health care system. Beyond that lies the U.S. military and hospital ships that have already been called into action. In a doctor shortage, the U.S. government could tap the power of the Health Care Personnel Delivery System to draft health care workers into the armed services. The 6,100 ambulatory service centers, or "outpatient facilities," are the other, so far, untapped resource. At this point there is no legal way to repurpose them for dealing with the virus.
According to BTIG, Equity Residential has also been taking a beating by having “the worst performance YTD for the apartment REITs we cover, with prices decreasing 8%.”
By again taking the long view and factoring in the Saudi and Russian oil price war, a more pleasant picture emerges. “With market panic over the coronavirus, a collapse in oil prices, and the prospect for weaker conditions across the Sunbelt, we now view EQR’s relatively stable coastal markets in a more favorable light. Results in early 2020 are likely to be weak but should improve late in the year and into 2021,” per the report.