Industrial REITs reaped gains, regional malls led same-store NOI drops in Q3'20

Editor's note: In the below analysis, S&P Global Market Intelligence prefers to take cash-based same-store net operating income, if available. However, a noncash-based NOI will be used if not.

The median same-store net operating income of U.S. equity real estate investment trusts was still down year over year during the third quarter of 2020, following the previous quarter's median drop, as a result of the ongoing COVID-19 pandemic. That decline comes after a decade of NOI growth.

During the third quarter, the same-store NOI median among publicly traded U.S. equity REITs declined further by 3.0% year over year, after a 2.3% median loss in the second quarter and a 3.0% gain in the first quarter.

The industrial sector remained a strong performer, while the rest of the property sectors reported median same-store NOI losses.

The regional mall sector continued to be the biggest loser in the third quarter, as its median same-store NOI plummeted year over year by 27.4%. Shopping center and diversified REITs followed, ending the period with median drops of 9.3% and 4.7%, respectively.

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Among the regional mall REITs, Washington Prime Group Inc. suffered the biggest decline in same-store net operating income at 32.6% year over year, which is also the largest drop across all U.S. REITs in the third quarter. In its third-quarter earnings release, the company attributed the NOI decline to factors that include a "cautious view of the future collection of outstanding pandemic related rental income," and said it was also influenced by COVID-19-related lease modifications. Washington Prime said it expects its comparable NOI to drop between 10% and 20% in the fourth quarter, an improvement compared to its performance over the last two quarters.

Pennsylvania REIT followed closely with a 29.1% annual drop. Larger regional mall operators Macerich Co. and Simon Property Group Inc. also reported year-over-year decreases of 25.6% and 24.4%, respectively.

By contrast, the industrial sector saw year-over-year growth in same-store NOI in the third quarter, with a median increase of 2.1%.

Topping the list of REITs with the highest year-over-year NOI growth across the country is industrial REIT Terreno Realty Corp., which ended the third quarter with a same-store NOI of $32.5 million, a 16.6% increase from the same quarter in 2019. Americold Realty Trust, which owns and operates temperature-controlled warehouses, nabbed the fourth spot in the overall rankings with an 8.1% year-over-year NOI gain.