Median implied capitalization rate for US REITs grows to 6.8% in Q3

The median implied capitalization rate for U.S. equity real estate investment trusts rose another 43 basis points in the third quarter, reaching 6.8%, according to data compiled by S&P Global Market Intelligence. Year over year, the median implied capitalization rate was up 77 basis points.

The analysis included all U.S. REITs that trade on the Nasdaq, NYSE or NYSE American with market capitalizations of at least $200 million at quarter-end.

Market Intelligence calculated the implied capitalization rate as property net operating income generated in the last 12 months divided by the REIT's implied real estate value — calculated as market capitalization, including operating partnership units plus total debt, preferred equity, mezzanine items and noncontrolling interest, less non-real estate assets such as cash, securities or loans.

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Office sector logs highest median implied capitalization rate

The office sector closed the quarter at the highest median implied capitalization rate at 8.8%, up 45 basis points year over year. Within the office sector, Office Properties Income Trust and Empire State Realty Trust Inc. traded at the highest implied capitalization rates, both at 12.9%. Alexandria Real Estate Equities Inc., the largest office REIT by market capitalization, had an implied capitalization rate of 5.7%, while Boston Properties Inc. closed the quarter at 6.7%.

The hotel sector placed second and recorded the largest year-over-year increase, up 6.3 percentage points to 8.7%.

On the other side, the self-storage sector traded at the lowest median implied capitalization rate at 4.6%, with all self-storage REITs in the analysis clustered fairly closely together, ranging from 4% to 5%.

Meanwhile, the shopping center sector logged the largest drop year over year, down 82 basis points to 7.1%.

Highest implied capitalization rates

Advertising REIT OUTFRONT Media Inc. traded at the highest implied capitalization rate at quarter-end at 20.3%.

Two timber REITs, PotlatchDeltic Corp. and Weyerhaeuser Co., followed in the second and third spots with implied capitalization rates of 17.8% and 15.7%, respectively.

Lowest implied capitalization rates

Meanwhile, ground lease-oriented Safehold Inc. and industrial REIT Prologis Inc. traded at the lowest implied capitalization rates, both at 3.0%.

Two additional industrial REITs, Rexford Industrial Realty Inc. and Terreno Realty Corp., followed next.