REIT Earnings Reach Record High
Earnings for all U.S. equity REITS rose to a record high of $16.8 billion in the fourth quarter of 2019, an 8.5% increase quarter to quarter and 6.6% higher than the year-ago period, says Nareit.
Total earnings, represented as funds from operations (FFO), were $64.6 billion for the year as a whole, an increase of 1.1% from 2018 and a record high, according to the latest Nareit Total REIT Industry Tracker Series.
REITs continued to maintain strong balance sheets, Nareit says. Leverage ratios edged lower in Q4, and debt-to-EBITDA also declined from the prior quarter.
To protect against future changes in interest rates, REITs have lengthened the maturity of their debt. The weighted average maturity of REIT debt rose to a record 83.4 months, compared to less than 70 months in 2016. Interest expense relative to NOI declined to a record low of 21%.
Occupancy rates for REIT-owned properties remained near record highs, with overall occupancy rates at 94.0%, one-tenth percent below the record high reached in 2018. Most major property sectors saw an increase in occupancy rates from Q3, with industrial, apartments and retail showing the greatest gains.
“While COVID-19 has created near-term economic uncertainty, the REIT industry’s strong earnings, solid balance sheets, and high occupancy rates demonstrate that they are entering this situation well-positioned to handle a potential economic slowdown,” said Nareit president and CEO Steven A. Wechsler.
Same-store NOI rose 2.1% over the past four quarters, representing a slight acceleration from the 1.6% growth through the third quarter. Several sectors reported robust results, including the manufactured homes sector showing a 6.0% year over year increase, diversified up 4.6% Y-O-Y, Industrial up 4.1% and apartments up 3.8%.
“In addition to REITs’ strong operating performance and fundamentals, the long-term nature of their leases and high quality of their properties offer protection against potential economic risks ahead,” said Calvin Schnure, Nareit’s SVP of research and economic analysis.
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