REITs Maintain Low Leverage and Increase Debt Maturities
WASHINGTON, D.C. March 19, 2019 – REITs continued to deliver solid operating results in the fourth quarter of 2018, according to the Nareit T-Tracker (T-Tracker®), a quarterly monitor of the operating performance of the entire U.S. listed REIT industry. Funds from operations (FFO) for all equity REITs increased 7.4 percent in 2018’s fourth quarter over the same quarter in 2017. Total industry FFO declined 3.2 percent in the fourth quarter from the prior quarter, as performance across various property sectors was mixed, with some – such as infrastructure, single family homes and industrial – showing strong gains.
The occupancy rate for REIT-owned properties in 2018’s fourth quarter was 93.8 percent, the same as the fourth quarter of 2017, but slightly down from the record high of 94.2 percent in the third quarter of 2018. The occupancy rate for apartments remained at a record high of 96 percent, while the rate for the office sector rose to 93.4 percent, the highest level since the fourth quarter of 2001.
Total dividends paid in the 2018 fourth quarter were $13.9 billion, the same as the fourth quarter of 2017, but down slightly from $14.1 billion in the third quarter of 2017, due to timing issues.
“The Q4 2018 T-Tracker data paint a picture of a healthy industry, generating $15.9 billion in FFO,” said Nareit President and CEO Steven A. Wechsler. “Importantly, REITs maintained solid balance sheets with low leverage. Interest expense as a percent of NOI declined to a record low and the average debt maturity increased to 76 months—the longest in nearly 20 years.”
Net Operating Income (NOI) was up 3.7 percent from the fourth quarter of 2017 and 1.2 percent from the third quarter of 2018. 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 2.2 percent, as the office, industrial, and manufactured homes sectors saw strong gains.
Other highlights from the fourth quarter 2018 Nareit T-Tracker report include:
- Sectors with the highest FFO gains over the prior year were specialty (44.8 percent); diversified (39.9 percent); infrastructure (35.7 percent); single family homes (32 percent); and industrial (31.4 percent).
- REITs became net sellers of properties in the fourth quarter of 2018. Total net dispositions were $2.9 billion, including $2.0 billion by office REITs, $1.0 billion by health care REITs, $0.7 billion by apartment REITs, $0.6 billion by lodging REITs and $0.5 billion by retail REITs.
- Sectors with the strongest SS NOI gains included manufactured housing (7.1 percent); office (5.2 percent); and industrial (4.3 percent).
This quarter’s Nareit T-Tracker introduces several new tracking series, including total property holdings, implied cap rates and dividend payout ratio. The new data reveal that total property holdings in 2018’s fourth quarter were $1.05 trillion, up from $395 billion in the same quarter a decade earlier.
“REIT operating performance continues to benefit from economic tailwinds that drive demand for leased space in commercial real estate,” said Nareit Senior Vice President of Research and Economic Analysis Calvin Schnure. “High occupancy rates support rent growth and also capital appreciation of the properties owned by REITs.”
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.