07/29/2022 | by

As we reach mid-year, it’s a natural time to reflect on how the REIT industry, and our individual companies, have performed to date—and what might lie ahead for the rest of 2022.

Clearly the economic climate has become increasingly uncertain as inflation persists and the Federal Reserve continues to increase short-term interest rates, slowing the economy and increasing recession risks. As investor pessimism has become pervasive, REITs have experienced disappointing stock performance despite continuing to post impressive operational results with record high earnings in the first quarter and extremely resilient balance sheets.

Heading into a period of slower growth, high inflation, and significantly higher interest rates, I see REITs as well positioned for strong relative performance and stability. While slower growth and higher interest rates make the operating environment more challenging, REITs are uniquely positioned because of their well-managed balance sheets, and REITs, like other forms of real estate, have historically outperformed during periods of moderate and high inflation.

Many REIT executives speaking at last month’s REITweek 2022: Investor Conference in New York highlighted that current operations are excellent with strong demand and rent growth. Looking ahead to a potential economic slowdown, they highlighted how strengthened balance sheets, strong credit profiles, and high quality portfolios put them in good stead for any potential downturn.

Marguerite Nader
Marguerite Nader, 2022 Nareit Chair, President & CEO Equity Lifestyle Properties, Inc.

While there are certainly plenty of issues to be concerned about in the world today, I think we all left the conference feeling reinvigorated and pleased to be able to gather again in person.

One area that is consistently discussed at all Nareit conferences is ESG. Environmental stewardship, social responsibility, and good governance are core attributes of the REIT industry. They are critical to the communities that REITs operate in and to REIT investors.

As the Nareit ESG Dashboard shows, all of the largest 100 REITs by equity market cap are now reporting their ESG efforts publicly. In addition, 78% of the 100 largest REITs reported on their carbon emissions in 2021—double the 38% that were reporting on carbon emissions in 2017.

As you can read in this issue, the REIT industry as a whole is exhibiting strong momentum in its voluntary reporting on ESG and climate-related issues. However, that does not mean there aren’t challenges ahead, even for those REITs that have a long history of voluntary sustainability engagement and disclosure. Given this industry’s remarkable strength, however, I have no doubt that these challenges will be taken in our stride.

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