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 fourth quarter 2018 T-Tracker data paint a picture of a healthy industry, generating $15.9 billion in FFO,” said Steven Wechsler, Nareit president and CEO. “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 healthcare 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).
The fourth 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 Calvin Schnure. “High occupancy rates support rent growth and also capital appreciation of the properties owned by REITs.”
Click here to read all the fourth quarter 2018 Nareit T-Tracker results.