Median implied capitalization rate for US REITs expands 44 basis points QOQ

The median implied capitalization rate for U.S. equity real estate investment trusts rose in the second quarter, reaching 6.3%. The figure marks a 44-basis-point jump over the quarter prior and a slight 6-basis-point increase year over year, according to S&P Global Market Intelligence data.

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 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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Hotel REITs see largest YOY increase

The hotel sector posted the largest year-over-year growth in their implied cap rates, up more than 5 percentage points on a median basis. Within the hotel sector, Braemar Hotels & Resorts Inc. logged the largest increase, up 8.5 percentage points from a year ago. Xenia Hotels & Resorts Inc. and Ashford Hospitality Trust Inc. followed next, with their implied cap rates expanding 7.7 and 6.7 percentage points, respectively.

At the other end, REITs in the specialty sector — advertising, casino, communications, energy infrastructure, farmland and timber REITs — experienced the largest year-over-year compression in their implied cap rates, a median of more than 1 percentage point. Data center REITs also saw cap rates compress by a median 75 basis points.

The median implied cap rate for the retail sector dropped 77 basis points year over year. Within the retail sector, implied cap rates for regional mall REITs fell 69 basis points on a median basis, while cap rates for shopping center REITs compressed by 77 basis points. The "other retail" sector, which includes single-tenant retail and outlet center REITs, saw cap rates drop by a median 96 basis points.

Highest implied capitalization rates

Among the U.S. equity REITs with market capitalizations of at least $200 million, advertising REIT OUTFRONT Media Inc. held the highest implied capitalization rate at quarter-end, at 18.5%.

Two timber REITs, PotlatchDeltic Corp. and Weyerhaeuser Co., followed next, with implied cap rates of 17.6% and 15.9%, respectively.

Information storage-oriented Iron Mountain Inc. and communications REIT Uniti Group Inc. rounded out the top five, at 15.0% and 14.3%, respectively.

Lowest implied capitalization rates

At the other end, Market Intelligence calculated casino REIT VICI Properties Inc. at the lowest implied capitalization rate, 0.2%. Within the recent quarter, VICI completed its acquisition of MGM Growth Properties LLC.

IStar Inc. and Safehold Inc. held the second and fourth spots at 1.1% and 2.3%, respectively. The two REITs announced their merger Aug. 11.