Where Are the NTR Properties Most Vulnerable to COVID-19?

April 15, 2020 | James Sprow | Blue Vault

Hospitality

No doubt the most seriously affected property types in the nontraded REIT space are those in the hospitality industry. Three categories of hotels are: Full-Service Hotels, Limited-Service Hotels, and Extended Stay Hotels. Among the nontraded REITs, the following five-portfolios consist entirely of hotels (property counts in parentheses):  Carey Watermark Investors Incorporated (24), Carey Watermark Investors 2 Incorporated (12), Hospitality Investors Trust, Inc. (137), Moody National REIT II, Inc. (15), and Procaccianti Hotel REIT, Inc. (4). Three other nontraded REITs, Lightstone Value Plus REIT III, Inc. (9 of 10), Lightstone Value Plus REIT II, Inc. (15 of 18) and Lightstone Value Plus REIT, Inc. (9 of 13) have a majority of their property counts in the hotel category. Two relative newcomers to the nontraded REIT space, Blackstone REIT, Inc. (29 of 521) and Starwood REIT, Inc. (9 of 25) have interests in hotels, but with a much smaller percentage of property counts in their portfolios invested in hospitality properties.

STR, a firm that analyzes hospitality industry data, reported that hotel occupancy and average daily revenue per available room for the week March 29 through April 4 were down significantly year-over-year. Compared with the week of March 31 to April 6 last year, hotel occupancy was down nearly 70%, with only 21.6% of rooms filled. When occupancy dips below 25% to 30%, instead of trying to hold on to a skeleton staff, hotels save money by closing their doors. 

Multifamily

Another property type that can be vulnerable in the current crisis is multifamily. While everyone currently renting an apartment is unlikely to move out due to being unemployed, there is a real concern about tenants being unable to pay their rent, or even choosing not to pay rent with the states banning evictions during the crisis. Rental revenues are likely to be impacted negatively for at least several months.

By a recent count, only 4% of all properties held by nontraded REITs were multifamily assets. However, there were five NTRs whose entire portfolios were invested in multifamily properties: Cottonwood Communities (1), Resource Apartment REIT III, Inc. (7), Resource Opportunity REIT II, Inc. (17), Resource Opportunity REIT, Inc. (29), and Steadfast Apartment REIT, Inc. (91) were totally invested in multifamily assets. Highlands REIT, Inc. (11 of 21) and Oaktree REIT Inc. (2 of 3) also had a majority of their property counts in multifamily. 

Retirement / Healthcare

Among the many concerns that property owners and tenants must deal with during the crisis, the health of elderly persons housed in assisted living, continuing care retirement facilities, independent living and skilled nursing facilities is a concern that can affect their operations. With the disruptions in normal healthcare operations, including inpatient, outpatient and medical offices, it is possible that the broader category of healthcare-related properties will be negatively impacted while the pandemic plays out. The following NTRs have almost 100% of their assets in the retirement plus healthcare category of investments:  CNL Healthcare Properties, Inc. (76 of 77), Griffin-American Healthcare REIT III, Inc. (184 of 188), Griffin-American Healthcare REIT IV, Inc. (47 of 47), Healthcare Trust, Inc. (182 of 185), NorthStar Healthcare Income, Inc. (87 of 93), and Summit Healthcare REIT, Inc. (57 of 57). It is doubtful that a category such as medical office buildings will face revenue shortfalls, especially when tenants are backed by major hospitals, but many outpatient functions, such as elective surgeries, diagnosis and rehabilitation facilities, for example, will be negatively impacted in the near term. 

Sources:  Blue Vault, S&P Global Market Intelligence