Over the past few weeks, I’ve reported on several REIT sectors, with a particular focus on debt levels. It may be important to put this in context. According to NAREIT, over the past four years, every equity REIT sector tracked has shown a marked decrease in leverage relative to the market value of assets. Now, part of this stems from the very real run-up in real estate asset prices both during the pandemic as well as afterwards as investors sought hedges against inflation. Nonetheless, from our own observations, most REIT managers appear to be cautious in their use of debt right now, particularly as the quality of assets to be acquired remains questionable.

In a report last month for NAREIT, Edward F. Pierzak and Nicole Funari found that:

• Leverage ratios (debt to market) average below 35%
• Fixed-rate debt averaged about 91% of total
• Unsecured dent averaged about 79% of total

As of the 2nd quarter of this year, only the office and diversified sectors had total debt/market ratios above 50%. The authors posit that these favorable debt ratios give securitized REITs a significant advantage going forward relative to private equity holdings.

So that’s it for today, folks.  As always, I’m not an investment advisor, and this is not a solicitation or recommendation to invest in anything. Further, I and the entities I’m involved with may have positions or interests in one or more of the securities discussed here. However, if you have any questions about this, please don’t hesitate to reach out.

John A. Kilpatrick, Ph.D., MAI

[email protected]