05/21/2020 | by
REITs maintained strong balance sheets, financial resilience, and high occupancy rates as the COVID-19 crisis intensified
WASHINGTON, D.C. May 21, 2020 – Earnings of all U.S. equity REITs declined 9.0% to $15.0 billion in the first quarter of 2020 compared to the prior quarter, according to the Nareit Total REIT Industry Tracker Series (T-Tracker) report. Earnings, represented as funds from operations (FFO), were 6.2% lower than the first quarter of 2019.
Results varied widely across sectors, largely reflecting exposures to loss of business from the COVID-19 crisis. FFO in the Lodging/Resorts sector fell 67.2% from the prior quarter, and this sector accounted for half the overall decline in REIT FFO. Regional Malls experienced an 11.6% decline in FFO. Other sectors with decreases included Office, Infrastructure and Specialty REITs. Industrial REITs, on the other hand, reported a 21.7% increase in FFO from the prior quarter, and FFO of Single-family Homes rose 7.0%.
REITs maintained strong balance sheets and other financial resources to help weather the crisis. Leverage ratios inched lower in the beginning of 2020, with debt-to-book assets for all equity REITs declining slightly to 50.5% from 50.8% in the fourth quarter of 2019. The weighted average maturity of REIT debt declined marginally to 82.3 months. This compares to an average maturity of less than 60 months in 2008, however, measures to lengthen and ladder debt maturities have reduced the need to refinance debt during the current market turmoil. The average interest rate paid on long term debt declined to 3.8%, and interest expense relative to NOI reached a new record low of 21.7%.
“COVID-19 impacted all aspects of the economy, and the REIT industry is no exception,” said Nareit President and CEO Steven A. Wechsler. “However, the low leverage, longer debt maturities, and high interest coverage ratios all indicate that REITs entered this crisis with solid financial fundamentals and have substantial resources to meet this challenge.”
Many measures of operating performance remained on track during the first quarter, despite the impact of COVID-19. Occupancy rates for the REIT industry ticked down 31 basis points from the prior quarter to 93.6% but are just 50 bps below the record high reached in 2018. Occupancy of Apartment REITs rose to a record 96.3%.
“Operating performance has been maintained through the early phases of this crisis, in part because REITs generally hold higher quality properties with investment grade tenants,” said Calvin Schnure, Nareit senior economist. “Occupancy rates remain high and the vast majority of tenants continue to make timely rent payments.”
Same-store net operating income (SS NOI), which measures NOI generated by properties held for one year or more, rose 2.5% over the past four quarters. This was a marked increase from the 1.9% gain through the fourth quarter of 2019. The Manufactured Homes sector reported a 6.3% increase in SS NOI, while Office, Industrial and Single-family Homes showed gains of 6.0%, 4.6% and 4.0%, respectively. Regional Malls, however, reported a 0.2% decrease in SS NOI over the past four quarters.
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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