So, when something like a pandemic comes along and shuts down much of the economy in the blink of an eye, it stands to reason that REITs would be affected, too, by the potential loss of income from their tenants.
That, indeed, did happen, but how much depends greatly on the sector that REIT occupies, and across the board, rent collections have improved from April's initial dive, according to the latest survey by the National Association of Real Estate Investment Trusts (Nareit).
"The June results show an improvement for most sectors compared with last month, with large improvements in the retail subsectors for free-standing and shopping center-focused REITs," the trade group said in a June 24 report.
The survey is of 35 equity REITs across six sectors -- industrial, apartments, office, healthcare, free-standing retail, and shopping centers. Nareit says those REITs own and operate between 10% and 20% of all commercial real estate in the country.
Essential businesses kept the bottom from falling out
The improvement from April's collections show that May's retail reopening in many parts of the country have had a positive impact on retail REITs, but they also certainly had a ways to go.
REIT-held shopping centers collected 60.5% of their rent in June, up from 45.9% in April and 49.4% in May. For free-standing retail, those percentages were 72.0%, 70.6% and 79.4% in April, May and June, respectively. Malls were not included in the survey.
Nareit says REITs own more than 16,000 free-standing retail properties across the country, including pharmacies, grocery and convenience stores, and restaurants. "The prevalence of essential businesses … among the tenant base for many shopping center and free-standing REITs is a stabilizing factor for these types of retail properties," the trade group's report says.
Industrial sector showed the most resilience
The strongest performer in the past three months was the industrial sector. Those nearly 4,900 properties held by REITs reported rent deferrals of less than 1% and collections of nearly 98% in June, actually down a bit from 99.7% in April, and there were no forbearances reported in May or June.
The office sector turned in a similar performance, ranging from 94.3% to 95.9% in rental collections among the nearly 1,800 REIT-owned office properties over the past three months, Nareit says.
After dipping to 87.3% in March, meanwhile, healthcare rebounded to 95.0% in May among its mix of 4,500 senior residential properties and 2,800 hospitals and other medical office buildings.
In the apartment sector, rent collections rebounded from 89.9% in April to 97.5% in June, a strong performance that prompted this observation in the Nareit report: "The increased ability of apartment renters to meet their rent obligations reflects the increasing economic activity and the fact that REIT apartments generally serve a population less likely to be affected by layoffs."
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