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First Quarter REIT Industry FFO Up From Year Ago, But Down From Last Quarter

U.S. stock exchange-listed Equity REITs showed a decline in Funds From Operations (FFO) in the first quarter of 2017 compared with the final quarter of last year, but delivered gains in most other operating performance measures, including Net Operating Income (NOI) and occupancy rates.

The National Association of Real Estate Investment Trusts’ (NAREIT) Total REIT Industry Tracker Series (T-Tracker), a quarterly composite performance measure of the entire U.S. listed REIT industry, showed that first quarter 2017 Funds From Operations (FFO) were $14.3 billion, down 3.9 percent compared to a strong fourth quarter of 2016, but up 8.1 percent from the first quarter of 2016. First quarter 2017 was highlighted by strong FFO growth compared to last year’s fourth quarter in several REIT sectors including Manufactured Homes (34.3 percent), Infrastructure (23.7 percent), Lodging/Resorts (10.4 percent), Apartments (6.8 percent), Office (5.1 percent), and Health Care (4.0 percent).

Occupancy rates for all Equity REITs set a record high of 93.9 percent in the first quarter of 2017, representing a 30 basis point increase over the prior quarter and an increase of 84 basis points compared to year-ago levels.

Other measures also underscored the sound performance of the total listed Equity REIT industry. Same-Store Net Operating Income (SS NOI) rose 3.7 percent year-over-year and was in line with fourth quarter 2016 growth. SS NOI, which measures NOI generated by properties held for one year or more to factor out the effects of property acquisitions, is generally considered to be a reliable indicator of the underlying earnings of REIT-owned properties.

“First quarter T-Tracker results reinforce the fact that the underlying fundamentals of the REIT industry remain resilient,” said NAREIT President and CEO Steven A. Wechsler. “REITs are well positioned to continue to deliver income and long-term growth to their shareholders.”

Other highlights of the NAREIT T-Tracker results were:

• The top-performing Equity REIT property segments on a Same-Store NOI basis in the first quarter of 2017 vs. the first quarter of 2016 were: Data Centers (8.0 percent);Single Family Housing (7.3 percent); and Industrial (5.9 percent).
• Dividends paid by Equity and Mortgage REITs totaled $12.5 billion in the first quarter of 2017, down 5.4 percent compared to the fourth quarter of 2016. The quarter-over-quarter change was primarily due to a large special dividend paid by a single REIT during the fourth quarter of 2016. During the first quarter of 2017, over 80 percent of Equity and Mortgage REITs paid dividends equal or higher compared to the fourth quarter of 2016.
• Net acquisitions fell to essentially zero in the first quarter. Gross acquisitions and dispositions both declined, to $7.5 billion. Across the sectors, Infrastructure, Free Standing Retail, Data Centers, Residential, Lodging/Resorts, Self Storage and Industrial all made positive net acquisitions, while Health Care, Office and Diversified were net sellers.
• Total industry Net Operating Income (NOI) was up 0.7 percent from the fourth quarter of 2016 and gained 7.7 percent compared with the first quarter of 2016.

“This real estate cycle shows all the signs that it will continue, despite some soft numbers last quarter. It’s quite common for the macro economy and for the real estate sector to have slow periods in the middle of long expansions, and such times are often followed by a return to above-trend growth,” said Calvin Schnure, NAREIT’s SVP of Research & Economic Analysis. “High occupancy rates and steady growth of NOI provide support for the outlook for REITs.”

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