FFO more than 40% higher in Q3 2021 than Q3 2020
WASHINGTON, D.C. (November 18, 2021) – REIT earnings continued to climb in the third quarter of 2021 with funds from operations (FFO) for all equity REITs increasing 2.9% to an all-time high of $17.4 billion according to the Nareit Total REIT Industry Tracker Series (T-Tracker®) – a quarterly, composite performance measure of the entire U.S. stock exchange-listed REIT industry - released today. This rise brings FFO 40.2% higher than the third quarter of 2020 and 6.0% above pre-pandemic earning levels.
“REITs continued to make gains in the third quarter though the pace of improvement slowed from the previous quarter with the rise of the Delta variant in the summer months,” said Nicole Funari, Nareit economist. “REITs saw a larger percentage increase in dividends this quarter following the improved operating performance.”
REIT earnings recovery was expansive in the third quarter of 2021 with FFO increasing in most sectors, occupancy rates continuing to rise, increased dividend payments, and acquisitions totaling more than $15 billion.
Sectors that were greatly affected by the pandemic continue their recovery, reporting consistent FFO increases.
- The lodging/resort sector reported the largest increase of all sectors in the third quarter of 2021, rising 355.0% over the prior quarter to over $400 million. Despite continuing recovery, the lodging/resort sector FFO is 62.4% below its fourth quarter 2019 pre-pandemic level.
- Diversified REITs reported a 21.6% increase to $900 million in the third quarter, up 21.1% over its pre-pandemic level.
Several REIT sectors that reported large growth in the second quarter of 2021 saw slight declines in the third quarter, however, these sectors continue to report historically high FFO.
- FFO for the office sector decreased 7.3% to $1.9 billion in the third quarter of 2021, following a 37.6% increase in the second quarter. Overall, office is up 2.4% from its pre-pandemic level in the fourth quarter of 2019.
- Retail REITs reported a slight decrease of 2.4% in FFO to $3.2 billion in the third quarter, following a 20.7% increase in the second quarter. FFO in the retail sector is 5.8% below its pre-pandemic level.
- Specialty REITs reported a FFO decrease of 14.3% to over $900 million in the third quarter, following a 45.9% increase in the second quarter. Despite this quarter’s decline, specialty is 13.6% above its pre-pandemic level.
Sectors supporting the digital economy continue to report high FFO, maintaining large gains from the beginning of the pandemic.
- FFO for the industrial sector rose 4.8% to $1.7 billion in the third quarter, 46.0% higher than the pre-pandemic level from the fourth quarter of 2019.
- FFO for the infrastructure sector declined slightly by 0.6% to $2.4 billion in the third quarter, 25.7% higher than pre-pandemic levels.
- FFO in the data center sector fell slightly in the third quarter by 5.6% to $1.05 billion, slightly below last quarter’s high of $1.1 billion, 27.9% higher than pre-pandemic levels.
Dividends continued to demonstrate recovery after a slight dip in the previous quarter.
- Total dividends paid rose 8.3% in the third quarter to $13.9 billion. This is a 18.6% increase compared to the third quarter of 2020 total of $11.7 billion, but still well below the pre-pandemic peak of $16.9 billion.
- Dividends paid by equity REITs rose by $974 million to $12.1 billion.
- Dividends paid by mREITs rose $86 million to $1.8 billion.
Occupancy rates increased 60 bps to 92.4% but are still lagging the pre-pandemic rate of 93.7%.
- Apartment REITs reported an occupancy rate of 95.6% which is slightly below the pre-pandemic rate of 96.1%. Retail REITs reported an occupancy rate of 94.1% which is 80 bps below pre-pandemic levels.
- Industrial REITs reported an occupancy rate of 96.4%. This is 30 bps above the pre-pandemic occupancy rate in the fourth quarter of 2019.
- Office REITs reported a slight decline of 30 bps to an occupancy rate of 89.8%. This is 390 bps below the pre-pandemic occupancy rates of the fourth quarter of 2019.
REITs made net acquisitions of $15.5 billion in the third quarter, the second highest quarterly total since the third quarter of 2015; the highest being the second quarter of 2021 at $18.3 billion.
- Health care REITs had net acquisitions of $5.2 billion of properties, accounting for 34% of net acquisitions this quarter. This was after reporting net acquisitions of $0.7 billion in the second quarter.
- The retail sector acquired a net of $2.5 billion in properties in the third quarter of 2021, compared to net $2.1 billion in the second quarter.
- Office REITs acquired net $2.1 billion in properties this quarter, compared to net $0.3 billion in the second quarter.
The T-Tracker report includes several factors that demonstrate the resilience of the REIT industry, including:
- Leverage ratios declined in the third quarter, with the weighted average debt-to-total book assets ratio dropping to 49.3% from 51.1% in the second quarter. The debt-to-market assets ratio declined to 28.9% from 30.0%.
- Same-store NOI (SS NOI) rose 7.3% in the third quarter of 2021 compared to the third quarter of 2020. This is the second straight quarter of increases after four consecutive quarters of declining SS NOI.
- Interest expense as a percentage of NOI declined to a record low of 19.2%, compared to 19.8% in the second quarter.
- Weighted average term to maturity of REIT debt continued to lengthen in the third quarter to a record 88.3 months, or 7.4 years, from 86.0 months in the second quarter of 2021. Average maturities had been less than 60 months (5 years) in the Great Financial Crisis of 2008. REITs have locked in record low interest rates for many years into the future.