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U.S. equity REITs report total Q3 FFO of $15.8b
Research - NOVEMBER 12, 2019

U.S. equity REITs report total Q3 FFO of $15.8b

by Released

Earnings for all U.S. Equity REITS declined 3.5 percent to $15.8 billion in the third quarter of 2019, according to the Nareit Total REIT Industry Tracker Series (T-Tracker) report. Industry results were reduced by a significant charge to earnings by one REIT to settle litigation that originated prior to the current year. Total funds from operations (FFO) excluding this charge would have been $16.6 billion, a 1.2 percent increase over the second quarter and 1.8 percent higher than the third quarter one year ago.

“The REIT industry’s consistent high earnings and near-record occupancy rates this year indicate that the REIT expansion is continuing,” said Steven Wechsler, Nareit president and CEO.

Most REIT sectors posted increases in earnings. Industrial, residential and self-storage REITs continue to show strong increases in earnings, reporting a 5.3 percent, 5.2 percent and 5.9 percent change, respectively, over the second quarter. Infrastructure and data center REITs posted modest increases after several years of strong growth at 2.8 percent and 2.1 percent, respectively, with retail REITs showing improved earnings growth at 5.0 percent after little change in the second quarter.

Occupancy rates for REIT-owned properties remained near record highs, with overall occupancy rates at 93.9 percent, according to Nareit. Most major property sectors saw a slight decline in occupancy rates from the prior quarter, while occupancy rates rose in the industrial sector to 96.3 percent.

Additional results from the third quarter T-Tracker show balance sheets remain solid, with low exposures to interest rates. Leverage ratios were little changed from second quarter on a book value basis but moved to a new low on a market assets basis. REITs have extended the weighted average term maturity of their debt to 82.8 months, or nearly seven years, from 75 months as of fourth quarter 2018, according to Nareit.

Growth of same-store net operating income, which measures NOI generated by properties held for one year or more, decelerated to 1.9 percent in the third quarter, compared with growth of 2.4 percent through the second quarter. Healthcare REITs were the only sector to post faster growth than they did in the second quarter at 1.7 percent.

“There are few signs of late-cycle weakness in REIT operating results, with two-thirds of REITs reporting higher FFO than a year ago,” said Calvin Schnure, Nareit senior vice president of research and economic analysis. “REIT balance sheets are strong, and interest rate exposures are low.”

The third quarter T-Tracker data also show a rebound in net acquisitions. REITs bought a total of $18.8 billion of properties in the first three quarters of this year, the strongest performance since 2015. Third quarter net acquisitions totaled $4.9 billion.

 

To read the results, click here.

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