WASHINGTON, D.C. March 10, 2020 – Earnings for all U.S. equity REITS rose to a record high of $16.8 billion in the fourth quarter of 2019, an 8.5% increase over the third quarter and 6.6% higher than the fourth quarter of 2018, according to the Nareit Total REIT Industry Tracker Series (T-Tracker®) report released today. Total earnings, represented as funds from operations (FFO), were $64.6 billion for the year as a whole, an increase of 1.1% from 2018 and a record high.
REITs continued to maintain strong balance sheets. Leverage ratios edged lower in the fourth quarter, with debt-to-book assets declining to 49.8% from 50.6% in in the third quarter. Debt-to-EBITDA also declined, to 5.8 from 6.0 in the prior quarter. REITs have lengthened the maturity of their debt to protect against future changes in interest rates. The weighted average maturity of REIT debt rose to a record 83.4 months, compared to less than 70 months in 2016. Interest expense relative to NOI declined to a record low of 21%.
Occupancy rates for REIT-owned properties remained near record highs, with overall occupancy rates at 94.0%, one-tenth percent below the record high reached in 2018. Most major property sectors saw an increase in occupancy rates from the prior quarter, with the Industrial, Apartment and Retail sectors showing the greatest gains.
“While COVID-19 has created near-term economic uncertainty, the REIT industry’s strong earnings, solid balance sheets, and high occupancy rates demonstrate that they are entering this situation well-positioned to handle a potential economic slowdown,” said Nareit President and CEO Steven A. Wechsler.
Same-store Net Operating Income (SS NOI), which measures NOI generated by properties held for one year or more, rose 2.1% over the past four quarters, a bit of an acceleration from the 1.6% growth through the third quarter. Several sectors reported robust results with the Manufactured Homes sector showing a 6.0% year over year increase, Diversified showing a 4.6% increase, Industrial with a 4.1% increase, and Apartments with a 3.8% increase.
“In addition to REITs’ strong operating performance and fundamentals, the long-term nature of their leases and high quality of their properties offer protection against potential economic risks ahead,” said Calvin Schnure, Nareit Senior Vice President of Research and Economic Analysis.
Total dividends paid rose 3.0% from the third quarter. Dividends paid were $15.4 billion, nearly 9% higher than the fourth quarter of 2018. This includes $13.2 billion paid by equity REITs, up 3.5% over the third quarter, and $2.2 billion paid by mREITs, up 0.2% over the third quarter. Dividends paid for full year 2019 were $60.2 billion, up 6.0% from 2018.
REITs made $8.4 billion of net acquisitions in the fourth quarter. Net acquisitions totaled $32.9 billion for the full year 2019, up from $3.3 billion in 2018 and the highest annual total since 2015. In addition, REITs increased their development activity over the past year. The value of properties under development totaled $49.2 billion, an increase of 11.4% over one year earlier. There were significant increases in development among the Apartment, Health Care and Office REIT sectors.
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.