REIT Occupancy Reaches Record High In Q3, FFO Grows Y/Y

Broader macroeconomic concerns as well as a rise in Treasury yield have affected returns on REIT stocks in recent months. However, the operating performance of this special hybrid asset class was decent in the third quarter.

In fact, per a NAREIT media release, occupancy rates reached a record high in the third quarter, while funds from operations ("FFO"), a widely used metric to gauge the performance of REITs, reported growth from the year-ago period.

Specifically, the Q3 scorecard reveals that total FFO of $14.8 billion for the listed U.S. Equity REIT industry increased 7.8% year over year. However, the figure was 4.5% lower sequentially.

Same-store net operating income (NOI) increased 3.2% year over year. Results were driven by segments like Manufactured Homes, Diversified, Single Family Homes, Industrial, and Data Centers, which witnessed robust same-store NOI growth of 7.1%, 7.0%, 6.8%, 4.7% and 4.2%, respectively.

Importantly, properties owned by the listed Equity REITs enjoyed solid occupancy levels. In fact, the occupancy rate climbed 50 basis points to a record high of 94.0%.

Notably, growth in cloud computing, Internet of Things and big data is not only helping tech companies, but also driving demand for data center REITs. Moreover, the industrial asset category has hogged attention on the back of robust demand, recovering economy and job market, strengthening e-commerce market and healthy manufacturing environment.

The residential real estate market benefited from healthy demand levels and a delay in deliveries that kept the supply number at check. No doubt, shrinking mall traffic and store closures amid aggressive growth in online sales kept retail REITs on tenterhooks. However, retail REITs managed to grab attention from new and productive tenants, and made their best efforts to replace with the ones which have departed.

Among the S&P 500 REIT constituents, data center REIT — Digital Realty Trust DLR — and industrial REIT — Duke Realty DRE — delivered better-than-expected results in the quarter, with positive surprises of nearly 1.3% and 3.5%, respectively, in terms of FFO per share. Also, retail REIT, Regency Centers REG, and residential REIT, Equity Residential EQR surpassed estimates, registering a positive surprise of 4.4% and around 1.3%, respectively.

Moreover, solid dividend payouts are arguably the biggest enticement for REIT shareholders. Dividend from Equity and Mortgage REITs aggregated $12.8 billion, denoting a 0.6% increase sequentially. Total dividends paid out were also up 4.1% from the prior-year quarter.

Currently, Regency Centers has a Zacks Rank #2 (Buy) while Digital Realty, Duke Realty and Equity Residential carries a Zacks Rank of 3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Note: All EPS numbers presented in this write up represent funds from operations ("FFO") per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Regency Centers Corporation REG: Free Stock Analysis Report
 
Equity Residential EQR: Free Stock Analysis Report
 
Duke Realty Corporation DRE: Free Stock Analysis Report
 
Digital Realty Trust, Inc. DLR: Free Stock Analysis Report
 
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