Why Coronavirus Will Hit Hotel REITs Hardest
March 18, 2020 | Stephen Boyd | Commercial Property Executive
Risks U.S. REITs face from coronavirus depend on a variety of factors. Property type, lease duration, market location and concentration, and tenant profiles or operations all play a role in the level of risk. The highest risks are seen in hotels, malls, health care and gaming & leisure asset types, while grocery anchored shopping, single tenant triple-net retail and data centers are among the lowest risk.
Hotels are most at risk from coronavirus-driven business disruption, given nightly duration leases and discretionary demand. Cash flows could temporarily turn negative in markets that are coronavirus clusters. Destination resorts, large conference hotels, and hotels catering to inbound international visitors will experience an immediate, outsized effect.
Case by Case
Malls could experience near-term traffic declines driven by consumer fears or coronavirus-related quarantines, but mall cash flows are partially insulated by long-term leases with modest, sales-based percentage rent. Malls located in urban markets or in coronavirus clusters could see a higher rate of traffic decline, with restaurant and entertainment concepts disproportionately affected. Weaker traffic will be an additional challenge for struggling mall tenants and tenants losing market share to e-commerce. Class-B mall owners have the least flexibility to withstand additional retailer tenant failures and potential related co-tenancy issues.
