Are REITs dangerous right now?

Are real estate investment trusts (REITs) dangerous right now because of the economic impacts of the coronavirus?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are real estate investment trusts (REITs) dangerous right now because of the economic impacts of the coronavirus?

I'm not referring to the share price falls of REITs in general, though those have been painful. Since 21 February 2020 we've seen:

The Scentre Group (ASX: SCG) share price has fallen 56%.

The GPT Group (ASX: GPT) share price is down 43%.

The Stockland Corporation Ltd (ASX: SGP) share price is down 53.4%.

Even the Goodman Group (ASX: GMG) share price is down 25%.

REITs are in a bit of a difficult spot. The coronavirus is causing some sections of the economy to go into hibernation. Plenty of businesses are asking their commercial landlords for rental reductions or even rental holidays.

It's hard for REITs because their rental income is disappearing but they still have other expenses to pay. Debt in-particular can put a business in trouble, particularly if there are covenants. Most REITs have plenty of debt. The REITs will be relying on banks to be flexible during this time.

However, I do think that Goodman is better placed than most because of its largely eCommerce tenant base. 

Investors like WAM Leaders Ltd (ASX: WLE) have been selling out of REITs because of these risks.

There's also the risk that people's behaviours are permanently changed by this. Maybe people in office buildings decide they work better at home and they'll let their rental contracts expire when it comes up for renewal. It would save the business a lot of rent and the staff would probably prefer it too (with no commuting and so on). Not so good for the REIT. 

Foolish takeaway

Scentre may have been sold off a bit too hard, there could be an opportunity there – but it's not for me. I don't think the average REIT is as safe in the medium-term as some may be thinking with so many tenants just deciding they're not going to pay. I'm looking elsewhere. 

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on REITs

An Australian farmer wearing a beaten-up akubra hat and work shirt leans on a fence with livestock in the background and a blue sky above.
REITs

Why is the Rural Funds share dropping today?

This may be the reason investors are exiting Rural Funds.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
REITs

Want the latest quarterly dividend from Rural Funds? You'd better hurry

Here's what you need to do to secure the latest dividend from this income stock.

Read more »

An industrial warehouse manager sits at a desk in a warehouse looking at his computer while the Centuria Industrial share price rises
REITs

Why bond yields are bruising ASX property shares on Monday

It's a bad day to own property shares this Monday...

Read more »

Rising real estate share price.
REITs

How are ASX REITs smashing 52-week highs despite today's market meltdown?

If you own ASX REITs, you're probably feeling pretty chuffed today.

Read more »

An Australian farming woman of the land wears an akubra hat and work shirt smiles broadly as she looks out over turned soil paddocks with a mountain range far off in the distance and blue sky above.
Dividend Investing

Want passive income? This high-yielding ASX dividend stock pays cash every quarter

The list of ASX dividend stocks making quarterly income payouts isn’t overly large. Here's why I like this one.

Read more »

Increasing blue arrow with wooden property houses representing a rising share price.
Broker Notes

3 ASX 200 REITs receiving broker upgrades today

These three ASX 200 REITs have earned a thumbs up from brokers today.

Read more »

a man sits on a ridge high above a large city full of high rise buildings as though he is thinking, contemplating the vista below.
REITs

Here are 4 ASX 200 REITs results catching the eye on Wednesday

A mixed set of results have been announced by these property companies.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
REITs

2 ASX 200 shares making big moves on strong earnings

These two REITs are soaring, despite swinging to big losses.

Read more »