FUNDS FROM OPERATIONS OF LISTED U.S. EQUITY REITS
FELL 3.3% IN THIRD QUARTER, BUT ROSE 6.8% ABOVE YEAR-AGO LEVEL
Total Dividends Paid Increased 13.7% From Year-Ago
WASHINGTON, DC, November 9, 2016 – Operating performance of U.S. stock exchange-listed Equity REITs eased modestly in the third quarter, following increases in the first two quarters of the year.
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, reported that third quarter 2016 Total Funds From Operations (FFO) of listed U.S. Equity REITs dropped 3.3 percent compared to the second quarter of this year, but was 6.8 percent above last year’s third quarter. Third quarter Net Operating Income (NOI) of all listed U.S. Equity REITs was essentially flat versus the second quarter, and was 6.7 percent above the same quarter one year ago.
Other measures underscored the sound underlying fundamentals of the listed Equity REIT market. Occupancy rates of all REIT-owned properties set a record high of 94.1 percent in the third quarter, representing a 76 basis-point improvement from its year-ago level.
Same Store Net Operating Income, which measures NOI generated by properties held for one year or more to factor out the effects of property acquisitions, increased 3.5 percent in the third quarter of 2016 over the third quarter of 2015. The measure is generally considered to be a reliable indicator of the underlying earnings of REIT-owned properties.
“U.S. stock exchange-listed Equity REITs continue to perform well on an operating basis, despite slowing slightly from the second quarter’s record levels of FFO and NOI,” said NAREIT President and CEO Steven A. Wechsler. “The listed Equity REIT sector has grown since the Great Financial Crisis. Total FFO has increased at an average annual rate of 14 percent since 2010, to an amount that is more than twice its pre-crisis peak.”
Listed U.S. REITs continue to pay significant dividends to shareholders. Total dividends paid by Equity and Mortgage REITs were $12.5 billion during the third quarter of 2016, a 13.7 percent increase over the third quarter of last year.
Other highlights of the NAREIT T-Tracker results were:
- Total Equity REIT NOI was $21.5 billion in this year’s third quarter, down from $21.6 billion in the second quarter but up from $20.2 billion in the same quarter last year.
- The top-performing Equity REIT property segments on a Same-Store NOI basis in the third quarter of 2016 vs. the third quarter of 2015 were: Self Storage (6.0 percent); Manufactured homes (5.6 percent); Industrial (4.9 percent), Apartments (4.5 percent) and Data Centers (4.5 percent).
- Dividends per share rose by 3.2 percent from the previous quarter and 6.3 percent from the same quarter in 2015.
- The price-to-FFO per share multiple for all Equity REITs was 18.1x in the third quarter of 2016, down 60 basis points from the second quarter. The FFO price multiple has stayed within a range of 17x to 20x since 2012; the current multiple is slightly below the middle of this range.
“The underlying economic fundamentals for REITs and real estate continue to improve, as demand for commercial space and a modest pace of new construction combined to push occupancy rates for the REIT industry to new highs,” said Calvin Schnure, NAREIT’s Senior Vice President of Research & Economic Analysis. “Landlords are gaining pricing flexibility as vacancy rates edge lower.
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.
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. 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.
As of November 7, 2016, 125 listed Equity REITs in the FTSE NAREIT All Equity REITs Index had reported their 2016 third quarter earnings. These REITs accounted for 95.2 percent of total industry FFO in the second quarter of 2016. The NAREIT T-Tracker uses estimates of FFO, NOI and dividends paid for REITs that have not reported as of November 7, 2016, based on growth of those measures for REITs that have reported.