US REIT same-store net operating income slightly improves in Q3

Publicly traded US equity real estate investment trusts saw a slight improvement in same-store net operating income during the third quarter, posting a median growth of 4.5% year over year, up from 4.3% year-over-year median hike in the previous quarter. However, it was still slower growth compared to the 6.1% median annual gain for the whole year of 2022.

S&P Global Market Intelligence prefers to take cash-based same-store net operating income, if available. However, a noncash-based net operating income will be used if not.

Healthcare REITs bagged the biggest gains in Q3

The healthcare sector saw the largest year-over-year growth in same-store net operating income (NOI) during the third quarter, with a median increase of 7.0%. Next was the industrial segment, with a 6.5% median increase, while datacenter REITs came in third at 6.2%.

Two of the six existing healthcare REITs in the analysis were included in the overall list of US REITs with the most same-store NOI gains during the third quarter. Healthcare REIT Diversified Healthcare Trust was the biggest gainer among all US REITs in the recent quarter, posting a robust same-store NOI year-over-year growth of 64.6%.

Welltower Inc. was the other healthcare REIT on the overall list of gainers, grabbing the fourth spot, as it reported a same-store NOI year-over-year growth of 14.1% during the third quarter.

On its Oct. 31 earnings call, Welltower's Executive VP & COO John Burkart mentioned that this recent growth in same-store NOI was led by the senior housing portfolio, which had 26.1% year-over-year growth. "The 26.1% third-quarter year-over-year NOI increase in our same-store senior housing operating portfolio was a function of 9.8% revenue growth driven by the combination of 6.9% RevPOR [revenue per occupied room] growth, 220 basis points of average occupancy gain and moderating expense growth," Burkart said.

Within the industrial segment, Terreno Realty Corp. had the biggest gain in same-store NOI at 13.1%, which was also the fifth-highest gain across all analyzed REITs during the recent quarter. Two other industrial REITs joining Terreno on the list of top gainers were Prologis Inc. and Rexford Industrial Realty Inc., which posted year-over-year same-store NOI hikes of 9.5% each.

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Self-storage saw the weakest growth

During the third quarter, the self-storage sector was the weakest-performing property type, as it reported a year-over-year median growth of 0.7% in its same-store NOI.

Self-storage REIT Global Self Storage saw a 7.1% year-over-year decline in same-store NOI and was among the list of US REITs that experienced losses during the third quarter. Another self-storage REIT, National Storage Affiliates Trust, also had a 0.1% year-over-year decrease in same-store NOI during the same period.

Office-focused Office Properties Income Trust had the steepest year-over-year drop in same-store NOI across all REITs. The REIT posted a 9.2% annual loss with a same-store NOI of $73.6 million during the third quarter.

Better gains for retail, office

Despite having comparatively smaller gains out of the four major property types, both the retail and office segments saw subsequent improvements during the third quarter.

Retail REITs posted a median same-store NOI growth of around 3.5% year over year, an increase from 2.3% in the previous quarter, but still a slowdown from the 4.4% median growth for the entire year of 2022.

Likewise, the office sector reported a median annual gain of 2.6% during the third quarter, up from 2.0% increase in the prior quarter, and from the 2.2% median growth in 2022.

In contrast, the industrial and residential REITs saw slowdowns in their respective same-store NOIs during the same period. Industrial-focused REITs had slower growth in its same-store NOI at a median of 6.5% from an 8.2% gain in the prior quarter. Meanwhile, the residential segment saw a weaker median growth of 4.8% from the 6.3% growth in the previous quarter.

Same-store occupancy across all US REITs was at a median of 93.3% in the third quarter, a slight drop from the previous quarter's 93.8%.

The median same-store occupancy rate across all REITs has been above 94% for most years since 2015; however, the rate dropped to 93.4% in 2020 amid the COVID-19 pandemic. In 2021, the median same-store occupancy rate bounced back to about 94.1% and was at 94.0% in 2022.