WASHINGTON, D.C. (Nov. 18, 2024) – New data from the third quarter of 2024 show that REITs have strong balance sheets and healthy net operating income (NOI) growth, according to Nareit’s REIT Industry Tracker, released today.
The data illustrate how REIT balance sheets continue to be characterized by well-structured debt—79.5% of REITs’ total debt was unsecured, while 91.3% of listed REITs’ total debt was at a fixed rate. In addition, on average:
- Leverage ratios were low with debt-to-market assets at 30.7%.
- Interest expense to NOI ratio was also low at 23.2%.
- Weighted average term to maturity of REIT debt was 6.5 years.
- Weighted average interest rate on total debt was 4.1%.
“The market for debt issuance is extremely favorable for REITs given their well-structured debt and strong balance sheets,” said John Worth, Nareit executive vice president of research and investor outreach. “Looking forward, when transaction activity further picks up, REITs will more likely be buyers than sellers, which may lead to accretive growth.”
REITs Experience Year-Over-Year Increases in NOI
The REIT Industry Tracker data demonstrate that REITs displayed good operational performance during the third quarter. Specifically:
- NOI was $29.3 billion—a 1.7% rise from one year ago.
- Same Store NOI experienced 3.1% year-over-year gains, demonstrating that REITs outpaced inflation in the third quarter, which was 2.4%.
In addition, 62.6% of REITs reported having year-over-year increases in NOI.
REIT FFO Declines
At the industry level, funds from operations (FFO) for all equity REITs was $18.6 billion, representing a loss of 5.4% year-over-year. Sectors with positive year-over-year growth included data centers (8.2%), diversified (25.6%), and gaming (21.3%). More than half of REITs reported year-over-year increases in FFO.
“Looking at the comprehensive picture of operational performance and balance sheets, REITs remain well-positioned in the commercial real estate marketplace,” said Edward Pierzak, Nareit senior vice president of research. “They hold competitive advantages over their higher-levered private counterparts and remain well-prepared to navigate any economic uncertainty.”
REIT Implied Cap Rate Helps Close Divergence Gap
Nareit has written extensively about the divergence between public and private real estate market valuations, using differences in capitalization (cap) rates to help demonstrate this gap.
Data from the REIT Industry Tracker show that the REIT implied cap rate was 5.4% in the third quarter, which was 69 basis points higher than the private market appraisal cap rate. All else equal, this spread suggests that the public and private real estate market valuations are beginning to come back into alignment.
For more data, please read the complete Q3 2024 REIT Industry Tracker.