Fourth Quarter 2017 Funds from Operations for U.S. Equity REITs Rose 1.4 Percent Year-Over-Year to $15.1 Billion

High occupancy rates and low leverage ratios underscore strong industry fundamentals


WASHINGTON, DC, March 5, 2018 – U.S. stock exchange-listed Equity REITs achieved moderate operating performance improvement in the fourth quarter of 2017 while continuing to demonstrate robust industry fundamentals, highlighted by record high occupancy rates and well capitalized company balance sheets.

Nareit’s Total REIT Industry Tracker Series (T-Tracker®), a quarterly composite performance measure of the entire U.S. listed REIT industry, showed that fourth quarter 2017 Funds from Operations (FFO) totaled $15.1 billion, a 3.2 percent increase compared to the third quarter of 2017 and a 1.4 percent gain from the fourth quarter of 2016.

Occupancy rates for all Equity REITs rose to a record high, reaching 93.8 percent, the highest level in the 17-year history of the T-Tracker database. This gain represented an increase of 20 basis points over the prior quarter.

The T-Tracker data also demonstrate REITs have been proactive in strengthening their balance sheets for the higher interest rate environment ahead. Leverage is the lowest on record, with the debt-to-book assets ratio declining 95 basis points year-over-year to 47.6 percent. Debt-to-market assets (which substitutes market cap for the book value of shareholders’ equity) was 34.7 percent, slightly higher than the third quarter but still near its lowest recorded level of 32.7 percent reached in mid-2016. REITs have locked in low interest rates until well into the next decade, with the weighted average maturity of their debt at 75.1 months. Interest expense as a share of Net Operating Income (NOI) was 22.3 percent, near its record low of 21.7 percent.

“The REIT market shows strong industry fundamentals and continuing earnings growth,” said Nareit President and CEO Steven A. Wechsler. “The steps REITs have taken to strengthen their balance sheets, favoring equity as a source of capital and extending debt maturities to lock in low rates, have prepared the industry to weather a climate of rising interest rates.”

Other highlights from the fourth quarter 2017 NAREIT T-Tracker results were:

  • Dividends paid by Equity and Mortgage REITs totaled $13.7 billion, an increase of 4.5 percent from the third quarter of 2017 and a 3.0 percent gain from the fourth quarter of 2016.
  • Total industry NOI reached $23.9 billion, a gain of 3.1 percent from the third quarter of 2017 and a 9.8 percent increase from a year ago.
  • Same Store Net Operating Income (SS NOI) for the industry was up 2.6 percent compared to the fourth quarter of 2016, a modest deceleration from the pace in 2016 and earlier in 2017. SS NOI measures NOI generated by properties held for one year or more to factor out the effects of property acquisitions and dispositions.
  • The top-performing Equity REIT property segments on a Same-Store NOI increase basis versus the fourth quarter of 2016 were Single Family Homes (6 percent), Manufactured Homes (5.7 percent), Diversified (5.4 percent), and Industrial (4.2 percent).

“Slower rent growth in commercial real estate markets overall contributed to more moderate gains in the REIT sector last quarter,” said Calvin Schnure, Nareit’s SVP of Research & Economic Analysis. “Supply and demand are roughly balanced in most property sectors, however, and this real estate cycle still has plenty of room to run, setting the stage for further rent growth ahead.”

Read all the 4Q 2017 Nareit T-Tracker results

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