REITs Rebound from Sluggish Q1

WASHINGTON, DC—The comparatively weak performance of REITs in the first quarter of this year didn't carry over into the second, judging by NAREIT's quarterly composite measure. The association's Total REIT Industry Tracker Series debuted this past May with Q1 results; the latest NAREIT T-Tracker shows a strong rebound compared to three months ago.

Equity REITs produced total funds from operations of $12.9 billion in Q2. The total was up 16.6% from Q1 and represented a 16.5% increase from $11.1 billion in the year-ago period. That's more than twice the rate of year-over-year increase the REIT sector saw in Q1, when the $11.2 total FFO was up 8% from the same quarter in 2014. FFO per share was up 14.8% in Q2 from the previous quarter, and up 5% compared to the same period last year.

In conrast, Q1's Y-O-Y increase in FFO represented “a bit of a deceleration,” Calvin Schnure, SVP of research and economic analysis at NAREIT, said in May. “In the prior two years, FFO was growing 21% or 22% per year.” He noted that the broader US economy decelerated during Q1, “and real estate was not immune to this slowing.”

Total NOI for Q2 was $19.5 billion, up 7.5% from Q1 and up 12.7% from $17.3 billion in Q2 '14. The numbers represent an improvement over Q1, when the total NOI of $18.3 billion represented an 11.6% increase from the year-ago period. That being said, both quarterly measures of NOI represent a slowing from the nearly 18% NOI growth for all of last year.

NAREIT's T-Tracker began compiling same-store NOI this quarter to provide a key measure of organic growth for investors. It found that REITs delivered a 3.9% percent increase in same-store NOI in the most recent quarter compared to the same period a year ago.

Total dividends paid by all listed REITs were $10.7 billion during Q2, up 2.1% from $10.5 billion in the same period last year. The tally includes $9 billion for listed equity REITs and $1.7 billion for listed mortgage REITs.

Total dividends paid declined 7.5% from the payouts in Q1, a quarter that represented a 21% Y-O-Y increase. NAREIT says Q1's dividend total was elevated by substantial special, non-recurring dividend payments from several REITs. Adjusting all periods for the impact of special dividends, total dividends paid were up 2.2 percent from Q1 of this year and up 14% from the year prior.

Similarly, dividends per share in the second quarter declined 8.7% from Q1, and were down 6.7% from a year ago. Again, when adjustments are made for the impact of special dividend payments, dividends per share were up 0.9% quarter-over-quarter and 4.2% higher than the same period a year earlier.

“REITs delivered strong operating performance in absolute terms and outperformed other S&P 500 sectors in the second quarter by a wide margin,” says Schnure. He adds that the growth in REIT NOI is being spurred by “healthy same-store trends, reflecting rising occupancy and rent growth, coupled with ongoing expansion of the REIT sector.”

NAREIT's Tracker Series has three components: the FFO tracker; the NOI tracker; and the Dividend tracker. “This is the first industry-wide measure of performance that we have for the REIT sector, with data on all listed REITs as well as data on individual property sectors,” Schnure said in May.