Funds from Operations for all Equity REITs Increased 20.5 Percent Year Over Year
Real Estate Industry Delivers Second Highest Earnings Growth Among S&P 500 Headline Sectors
WASHINGTON, DC, March 1, 2017 – U.S. stock exchange-listed Equity REITs drove operating and earnings growth higher in the fourth quarter, highlighted by record occupancy rates and rising Funds from Operations (FFO).
The National Association of Real Estate Investment Trusts’ (NAREIT) Total REIT Industry Tracker Series (T-Tracker®), a quarterly composite performance measure of the entire U.S. listed REIT industry, showed that fourth quarter 2016 FFO of listed U.S. Equity REITs recorded a 7.4 percent gain compared to the third quarter of 2016 and a 20.5 percent gain from the fourth quarter of 2015. Occupancy rates of all REIT-owned properties set a record high of 94.5 percent in the fourth quarter, representing an 81 basis point improvement from the prior quarter and up 123 basis points from year-ago levels.
Following the Global Industry Classification Standard (GICS®) reclassification of Real Estate into its own separate 11th headline sector last year, NAREIT also has introduced an earnings scorecard to compare the operating performance of the Equity REITs that make up approximately 95 percent of the S&P 500 Real Estate Sector’s equity market capitalization with the performances of the ten other Sectors. For the fourth quarter 2016, earnings for the REITs in the newly created Real Estate Sector, measured by FFO per share, rose 13.8 percent year-over-year, compared to 9.9 percent year-over-year earnings per share growth for the market cap-weighted S&P 500. Only one other industry sector – Consumer Discretionary – delivered stronger earnings growth than the Real Estate Sector’s REITs.
“REITs demonstrated improved operating fundamentals,” said NAREIT President and CEO Steven A. Wechsler. “The fourth quarter earnings outperformance of the S&P 500 Real Estate Sector underscores the continued growth potential of U.S. Equity REITs and helps shed more light on the decision to elevate Real Estate into its own headline Sector.”
Other measures also underscored the sound performance of the total listed Equity REIT industry. Same-Store Net Operating Income (SS NOI) rose 3.6 percent year-over-year and was in line with third quarter 2016 growth. SS NOI, which measures NOI generated by properties held for one year or more to factor out the effects of property acquisitions, is generally considered to be a reliable indicator of the underlying earnings of REIT-owned properties.
Other highlights of the NAREIT T-Tracker Fourth Quarter 2016 results were:
- The top-performing Equity REIT property segments on a Same-Store NOI basis in the fourth quarter of 2016 vs. the fourth quarter of 2015 were: Self Storage (5.9 percent); Manufactured homes (5.6 percent); Data Centers (5.4 percent), and Industrial (4.1 percent).
- Dividends paid by both Equity and Mortgage REITs totaled $12.2 billion, representing a 4.2 percent increase from the fourth quarter of 2015. Dividends paid by Equity REITs totaled $10.5 billion, while Mortgage REITs paid $1.7 billion to investors in the fourth quarter of 2016.
- Total industry Net Operating Income (NOI) was up 1.2 percent from the third quarter of 2016 and gained 5.9 percent compared with the fourth quarter of 2015.
- FFO per share rose 5.2 percent from the third quarter of 2016 and increased 12.6 percent compared with the fourth quarter of 2015.
“Real estate fundamentals remain strong. Occupancy rates of properties owned by REITs jumped 81 basis points from last quarter, and both headline FFO growth and same-store NOI are solid,” said Calvin Schnure, NAREIT’s Senior Vice President of Research & Economic Analysis. “This real estate cycle still has room to run, with net absorption outpacing the current pipeline of new development.”
About the NAREIT T-Tracker
The NAREIT Total REIT Industry Tracker Series provides investors with the total quarterly operating performance of the U.S. listed Equity REIT industry, as well as the total dividend performance of Equity and Mortgage REITs. The series includes the NAREIT FFO Tracker, the NAREIT NOI Tracker and the NAREIT Dividend Tracker, as well as other metrics.
The NAREIT FFO Tracker measures reported funds from operations (FFO) for REITs in the FTSE NAREIT All Equity REITs Index. FFO is a non-GAAP measure that is roughly equal to a REIT's GAAP net income excluding real estate depreciation and gains or losses from sales of property. It is considered a more meaningful performance measure for Equity REITs than earnings. REITs generally adhere to the NAREIT definition of FFO in their SEC filings.
The NAREIT NOI Tracker measures reported net operating income (NOI) for REITs in the FTSE NAREIT All Equity REITs Index. NOI is a non-GAAP measure that equals gross operating income provided by the property (rental income as well as fees and other revenues) less property operating expenses, including utilities, management fees, insurance, and property taxes, but excluding interest and principal payments on debt, income or franchise taxes, capital expenditures and depreciation.
The NAREIT Dividend Tracker monitors reported common dividends paid by REITs in the FTSE NAREIT All Equity REITs Index and the FTSE NAREIT Mortgage REITs Index – the total amount of all dividends paid to investors in common stock of these stock exchange-listed REITs.