REITs Deliver Strong Earnings Growth in 3Q 2018

Occupancy Rates for REITs Rise to Record High

WASHINGTON, D.C. Nov. 20, 2018 – Boosted by record-high occupancy rates, REITs delivered strong earnings growth 2018’s third quarter on a year-over-year basis, as they did in the first two quarters of the year.

Nareit’s Total REIT Industry Tracker Series (T-Tracker®), a quarterly composite performance measure of the entire U.S.-listed REIT industry, reported funds from operations (FFO) for the third quarter of 2018 rose 11.1 percent over the third quarter of 2017. The gains were powered by significant increases for the office, industrial, manufactured home and single-family home REIT sectors. The industry’s third quarter FFO was down 0.7 percent from the second quarter’s strong performance.

The occupancy rate for REIT-owned properties reached a record high of 94.3 percent in the third quarter, with occupancy rates for office and industrial seeing the strongest growth, gaining 170 and 58 basis points, respectively.

The REIT industry’s strong operating performance translated into dividend growth for its investors. Dividends paid in the third quarter totaled $14.3 billion, up 9.8 percent over the third quarter of last year and up 0.3 percent over this year’s second quarter.

“REITs showed solid growth in operating performance over the last three months on a year-over-year basis, continuing the trend we have seen throughout 2018,” said Nareit President and CEO Steven A. Wechsler. “The REIT industry remains well positioned to provide investors with strong dividends and growth.”

Net Operating Income (NOI) was up 4.8 percent from last year’s third quarter, but down 2.1 percent from last quarter’s strong performance. 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 2.8 percent, as the manufactured homes, industrial, office and single-family homes sectors saw strong gains. REIT leverage ratios on both a book-assets and market-assets basis were at their lowest levels in two decades in the third quarter, while interest expense as a percentage of net operating income reached a record low.

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

  • Sectors with double-digit year-over year FFO growth include single-family homes (43.6 percent); industrial (23.3 percent); manufactured homes (22 percent) and office (16.4 percent);
  • Regional malls led the retail REIT sector in FFO growth in the past quarter. FFO for regional malls was up 17.6 percent over the third quarter last year;
  • Sectors with the strongest SS NOI performance included manufactured housing (5.6 percent); industrial (5.4 percent); office (4.5 percent) and single-family homes (4.5 percent);
  • SS NOI for regional malls was up 2.1 percent in the third quarter, the sector’s strongest quarter in a year in a half.

“Record-high occupancy rates and a steady increase in FFO marked another strong quarter for the REIT industry,” said Nareit Senior Vice President of Research & Economic Analysis Calvin Schnure. “With leverage ratios at their lowest levels in two decades and interest expense relative to NOI at a record low, REITs are well-prepared to perform in the current interest rate environment.”

Read all the 3Q 2018 Nareit T-Tracker results.

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