WASHINGTON, D.C. (May 20, 2024) – New data from the first quarter of 2024 show that REITs continue to maintain well-structured debt—79.2% of REITs’ total debt was unsecured, while 89.6% of listed REITs’ total debt was at a fixed rate, according to the Nareit Total REIT Industry Tracker Series (T-Tracker®) report released today.
First quarter 2024 data also show that REIT balance sheets remain resilient and well-positioned for the higher-for-longer interest rate environment. On average:
- Leverage ratios were low with debt-to-market assets at 33.8%.
- Weighted average term to maturity of REIT debt was 6.4 years.
- Weighted average interest rate on total debt was 4.1%.
In addition, the average occupancy for all equity REITs was 93.2%. Average occupancy levels were particularly strong for the traditional REIT sectors outside of office.
- Retail: 96.6%
- Industrial: 96.1%
- Apartments: 95.8%
- Office: 87.7%
“In this higher-for-longer interest rate environment, REITs’ balance sheets remain in good shape, largely because REITs continue to exercise great discipline in managing them,” said Nareit Executive Vice President of Research & Investor Outreach John Worth. “That discipline, combined with REITs’ solid occupancy rates, is enabling REITs to navigate tighter credit conditions and the uncertainty surrounding when the Federal Reserve will cut rates.”
Year-Over-Year Increases in NOI Illustrate REITs’ Sound Fundamentals
T-Tracker data demonstrate that despite ongoing macroeconomic uncertainty, REITs displayed sound fundamentals during the first quarter. Specifically:
- Net Operating Income (NOI) was $28.7 billion—a 2.8% rise from one year ago.
- Same Store NOI experienced 3.2% year-over-year gains, underscoring that REITs are keeping pace with inflation.
In addition, 68.9% of REITs reported having a year-over-year increase in NOI.
REIT FFO Experiences Year-Over-Year Growth
At the industry level, funds from operations (FFO) for all equity REITs was $18.8 billion, representing a modest gain of 1.0% year over year. That modest growth, however, is because isolated issues in the health care sector significantly lowered overall FFO in a way that is not broadly representative of the industry’s health. In fact, 62.5% of REITs reported having year-over-year increases in FFO, and the aggregate year-over-year FFO growth excluding the health care sector was 6.9%.
Implied Cap Rates Show Public-Private Real Estate Divergence Could Continue Into 2025
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.
The latest T-Tracker data show that the REIT implied cap rate was 5.8% in the first quarter of 2024, which was 120 basis points (bps) higher than the private market appraisal cap rate. All else equal, this spread suggests that the public real estate market is priced at a material discount to the private market.
“The valuation readjustment process could stretch into 2025, because progress remains slow,” said Nareit Senior Vice President of Research Edward Pierzak. “In the face of this divergence, public equity REITs are increasingly attractive, particularly when you consider their solid balance sheets and sound fundamentals. In our meetings with investors, it’s clear they understand that REITs offer them access to institutional quality properties with best-in-class operators at substantially discounted prices compared to the private market.”
For more data, please read the complete Q1 2024 Nareit T-Tracker report.