Pandemic Proof Property Companies

Abstract

Using a sample of 163 U.S. based equity real estate investment trusts (REITs), this paper explores the consequences of COVID-19 on securitized commercial property markets. More specifically, we first map the geographic location of each firm’s investment property holdings to gauge the degree of exposure of each REIT’s asset base to the pandemic. We next demonstrate these firm level exposure metrics are directly related to the negative returns encountered by REITs in the early months of the pandemic and explore what firm specific characteristics and attributes (notably financial flexibility and financing constraints) may moderate this relation and enhance the resiliency of their equity returns. Finally, we examine the impact of the Federal Reserve’s late-March intervention designed to address and soften the economic fallout of the pandemic and ensure the liquidity and stability of capital markets. After this intervention, previously observed relations and patterns between firm specific COVID-exposure levels and operating characteristics fail to retain their prior signs and significance. In sum, the magnitude of the government’s response to the economic challenges brought about by the coronavirus pandemic is shown to outweigh the importance of firm specific factors in predicting the resiliency of REIT returns during this crisis period.