REIT Earnings Rose 24.6% In 2021: Report

The total earnings for real estate investment trusts (REITs) in 2021 as measured by funds from operations (FFO) for all equity REITs increased 24.6% year-over-year to $64.8 billion, according to the Total REIT Industry Tracker Series data released by Nareit, the sector’s trade organization.

What Happened: Nareit reported that nearly every commercial real estate sector experienced FFO growth between 2020 and 2021, with only the health care sector recording a full year’s FFO decline

“Strong balance sheets bolstered REITs’ resilience during the pandemic and leave them well-positioned for the likely higher interest rate environment ahead,” said John Worth, Nareit’s executive vice president for research and investor outreach.

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What Else Happened: For the fourth quarter of 2021, Nareit reported that net acquisitions totaled $26.7 billion, the second-highest on record. Net acquisitions for the full year of 2021 are also a record-breaker at $67.8 billion.

Interest expense as a percentage of net operating income (NOI) dropped to a record low in the fourth quarter, with Nareit observing that the decline in both leverage and interest rates over the past few years reduced net interest expense as a percentage of NOI to below its prior levels. The ratio dropped to 17.3% in the fourth quarter, as compared to the previous record low of 19.2% in the third quarter. In the pre-pandemic fourth quarter of 2019, the ratio was 21.6%.

Dividends lagged when compared to FFO, remaining 18.5% below the pre-pandemic level of $16.9 billion. Total fourth-quarter dividends were flat, dipping by 0.2% to $13.78 billion — although it was also a 14.4% increase compared to the fourth quarter of 2020’s total of $12.04 billion.

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Also Occurring: Nareit’s data also determined occupancy rates were up by 40 basis points to 92.9% in the fourth quarter, a significant uptick from the low of 89.7% in the second quarter of 2020.

Apartment REITs reported an occupancy rate of 96.1%, putting the sector back to pre-pandemic levels, while industrial REITs enjoyed record-high occupancy rates of 96.8% and retail REITs embraced a 96% occupancy rate in the fourth quarter, a 70 bps increase.

On the flip side, office REITs took a 20-basis-point tumble with occupancy rates at 89.6% in the fourth quarter.

Photo: Daria Nepriakhina / Pixabay