Funds from Operations of U.S. REITs Rose 5.5 Percent in Second Quarter of 2018

Record-high Occupancy Rates Help Push FFO Above $16 Billion for the First Time

WASHINGTON, D.C., Aug. 22, 2018—U.S. listed REITs delivered strong earnings in the second quarter of 2018, boosted by record-high occupancy rates.

Nareit’s Total REIT Industry Tracker Series (T-Tracker®), a quarterly composite performance measure of the entire U.S. listed REIT industry, reported that funds from operations (FFO) for the second quarter of 2018 reached a record $16.4 billion, up 5.5 percent from the first quarter of 2018 and up 6 percent from the second quarter of last year.

The occupancy rate for REIT-owned properties reached a record high of 94.3 percent, up from the previous record high of 93.6 percent last quarter.

Net operating income (NOI) increased to $24.5 billion, a 2.5 percent gain over the first quarter of 2018 and a 4.3 percent gain from the second quarter a year ago. Same store NOI (SS NOI), which measures NOI generated by properties held for one year or more to factor out the effects of property acquisitions and dispositions, was up 2.7 percent from the second quarter last year, a modest acceleration from the 2.6 percent pace in recent quarters.

REIT leverage ratios remain near all-time lows, while interest expense relative to net operating income dropped 100 bps to an all-time low of 21.2 percent. The weighted average term to maturity of REIT debt, at 73.8 months, is nearly the longest in 15 years, reflecting the fact that REITs have locked in favorable financing costs well into the future.

Total dividends paid edged down 1.3 percent from the first quarter of 2018, to $14.1 billion. However, this decline follows several quarters of significant increases in dividend payments, and REIT dividends were up 10.1 percent from the second quarter of last year.

“This Nareit T-Tracker report paints a picture of a healthy industry that is delivering earnings growth, rewarding its shareholders with strong dividends and maintaining strong balance sheets. REITs remain well positioned for whatever economic environment is ahead,” said Nareit President and CEO Steven A. Wechsler.

Other highlights from the second quarter 2018 Nareit T-Tracker report include:

  • Data centers led the REIT industry in terms of growth of FFO over the past four quarters. FFO is 35 percent above one year earlier, including an 8.1 percent increase in the second quarter. Demand for data centers is growing vigorously, and the sector has a $2.5 billion pipeline of new properties under development, nearly double its size at the end of 2015;
  • Other sectors with double-digit growth of FFO over a year-ago include specialty REITs (28.0 percent), manufactured homes (25.5 percent) and industrial REITs (18.0 percent);
  • Property sectors with the strongest growth of same store NOI include manufactured homes, diversified and industrial REITs, each of which clocked same store NOI growth of greater than 5 percent;
  • FFO of retail REITs rose 1.9 percent over the first quarter, while same store NOI increased 1.9 percent over the second quarter last year, a pickup from the 1.1 percent growth through the first quarter. Notably, regional malls delivered FFO growth of 3.8 percent compared to the first quarter. Growth of same store NOI for regional malls accelerated one full percentage point, to 1.8 percent over last year’s second quarter, compared to the 0.8 percent growth through the first quarter.

Read all the 2Q 2018 Nareit T-Tracker results

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.

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