U.S. REIT industry grows steadily in Q2, debt ratio hits record low
Real Estate - AUGUST 19, 2019

U.S. REIT industry grows steadily in Q2, debt ratio hits record low

by Andrea Zander

Earnings for U.S. equity REITs grew at 2.8 percent in the second quarter of 2019 over the prior quarter, according to the Nareit Total REIT Industry Tracker Series (T-Tracker®) report. The report also showed REITs’ property development pipeline grew 7 percent from the last quarter, and net acquisitions were up almost $6 billion. This growth took place at the same time REITs’ debt to market assets ratio dropped to 32.5 percent, a record low.

“We’re seeing growth in REIT earnings in the second quarter,” said Steven Wechsler, Nareit president and CEO. “It is accompanied by a rising development pipeline and increasing net acquisitions, all taking place when the balance sheet of the entire industry is stronger than it’s ever been. The REIT industry is well prepared for whatever economic conditions may lie ahead.”

Additional results from the Q2 T-Tracker provide more detail on the continued improvement in REIT balance sheets. The industry’s weighted average interest rate on long-term debt fell below 4 percent. The average term to maturity for REIT-held debt rose to 78 months, the longest since 2001.

Occupancy rates for REIT-owned properties remained steady and high with most sectors near or at 95 percent. Total occupancy for all sectors is at a record high of 94.1 percent. Office REITs rose to 93.9 percent, the highest level since the beginning of 2002, and apartment REIT occupancy remained steady at 95.7 percent.

Funds from operations (FFO), or earnings, from U.S. equity REITs totaled $16.5 billion in the second quarter of 2019. Among REIT market sectors, the industrial sector had the most significant increase in second quarter FFO, rebounding from negative growth last quarter to 16.6 percent growth this quarter.

Net operating income (NOI) increased by 2.4 percent from the first quarter of 2019 and held steady compared to the second quarter of 2018. Same store NOI, which measures NOI generated by properties held for one year or more, remained positive across sectors at 2.6 percent growth over second quarter 2018.

“The latest T-Tracker results show the REIT industry is continuing to grow, without increasing its very favorable leverage position,” said Nicole Funari, Nareit vice president of research.

To read the complete Q2 2019 Nareit T-Tracker results, click here.


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