US equity real estate investment trusts posted gains in same-store net operating income during the third quarter, although the pace of growth was almost the same as the previous quarter.

During the third quarter, same-store net operating income (NOI) across publicly traded US equity REITs grew at a median rate of 2.7% year over year, up slightly from the 2.6% median year-over-year increase in the prior quarter. However, this recent increase was more than half the 4.3% median annual gain for full year 2023, according to an S&P Global Market Intelligence analysis.

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

While earnings trends within the portfolio of publicly traded REITs might not match all privately owned properties, during a time when commercial real estate is being scrutinized, the data reported by public REITs can provide valuable insight into potential earnings trends for commercial real estate as a whole.

Healthcare REITs grab biggest gains

The healthcare segment had the biggest year-over-year gain in same-store NOI during the third quarter, with a median increase of 7.6%.

Four of the seven healthcare REITs in the analysis were included in the overall list of US REITs with the most same-store NOI gains. American Healthcare REIT Inc. was the biggest gainer in the healthcare REIT sector and among all US REITs in the recent quarter, posting a same-store NOI year-over-year growth rate of 17.0%.

During a Nov. 13 earnings call, American Healthcare REIT COO Gabriel Willhite said operational performance in the third quarter reflects the strength of the REIT's diversified portfolio and robust demand for healthcare real estate, especially in the seniors housing and care space.

"Over the next 12 to 18 months, we anticipate that the demand for long-term care should only continue to grow, resulting in [revenue per occupied room] growth, outpacing export growth in our managed portfolio segments. The level of occupancy gains we've achieved so far this year are setting a backdrop for us to drive solid NOI growth and margin expansion next year by focusing on further refining our revenue and expense management at our properties," Willhite said.

The second overall top gainer was another healthcare REIT, Diversified Healthcare Trust, which booked a 16.1% year-over-year increase in same-store NOI during the same quarter. The other two healthcare REITs on the top gainers' list were Welltower Inc. at fourth place with a 12.6% year-over-year increase and Ventas Inc. at 10th place with 7.6% year-over-year growth.

The industrial sector recorded the second-largest year-over-year increase in same-store NOI during the third quarter, with a median gain of 5.4%.

Of the 11 industrial REITs, only Americold Realty Trust Inc. managed to get a spot on the overall top gainers' list at seventh place with a 9.5% year-over-year gain.

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Self-storage REITs book biggest losses

The self-storage segment recorded the biggest year-over-year loss in same-store NOI during the third quarter, reporting a median decline of 2.5%.

Among the five self-storage REITs included in the analysis, National Storage Affiliates Trust logged the steepest year-over-year decline in same-store NOI at 5.3%, making it the seventh-biggest loser among all US REITs.

On an Oct. 31 earnings call, National Storage CFO Brandon Togashi said the decline in same-store NOI mainly drove the REIT's third-quarter core funds from operations per share to drop 7.5% year over year to 62 cents.

"For the quarter, revenues declined 3.5% on a same-store basis, driven by a 290-basis-point year-over-year decline in average occupancy and a 90-basis-point decline in rent revenue per square foot. Expense growth was 1.2% in the third quarter, with the main drivers of growth being property taxes and insurance, partially offset by declines in personnel and R&M," Togashi said.

Another self-storage REIT on the list of REITs with the biggest losses during the third quarter was CubeSmart, which booked a year-over-year drop of 3.1% in same-store NOI. The REIT posted a drop in revenue and an increase in operating expenses, which led to the reduction in its same-store NOI.

"Same-store revenues declined 0.8% compared to last year, with average occupancy for our same-store portfolio, down about 120 basis points to 90.8%. Same-store operating expenses grew 5.3% over last year, driven by continued pressure on property insurance, but the biggest driver of expense growth during the quarter was on the marketing line item," CubeSmart CFO Timothy Martin said during a Nov. 1 earnings call.

Same-store NOI for two other self-storage REITs declined year over year: Public Storage's was down 2.5% and Extra Space Storage Inc.'s dropped 1.0%. Global Self Storage was the only self-storage REIT that posted gains in same-store NOI, at 6.3%.

Office sector logs decline

The office sector also reported a median year-over-year decline in same-store NOI for the third quarter, down 0.8%.

Ten out of 19 office REITs in the analysis logged a year-over-year decrease in same-store NOI during the third quarter, six of which were among the biggest losers list while the remaining nine posted annual gains.

Office-focused Creative Media & Community Trust Corp. posted the largest year-over-year drop in same-store NOI among all REITs in the analysis, declining 35.5% year over year to $6.4 million. Office REIT Empire State Realty Trust Inc.'s same-store NOI increased 12.5% and COPT Defense Properties' increased 9.4%, some of the biggest year-over-year gainers in quarter.

The industrial and residential segments posted slower growth in same-store NOI, while the retail sector recorded better gains during the third quarter.

Residential REITs logged a median year-over-year increase of 2.1%, compared with 2.9% in the prior quarter. The industrial segment's median year-over-year growth slowed to 5.4% in the third quarter from 6.7% in the second quarter. Meanwhile, retail-focused REITs booked a 3.7% median year-over-year growth, following a 3.0% median hike in the second quarter.

Same-store occupancy across all US REITs was at a median of 94.1% in the third quarter, an improvement from the prior quarter's 93.7%.

The median same-store occupancy rate across all REITs has stood above 94% for most years since 2015, though the rate fell to 93.3% in 2020 amid the COVID-19 pandemic. The rate bounced back to 94.2% in 2021 before slipping to 94.0% in 2022. In 2023, the same-store occupancy rate fell to 93.8%.