Office REITs Earnings Beat Estimates, but Show Disconnect From Wider Market: Barclays


A number of public real estate investment trusts (REITs) with heavy exposure to the office market beat estimates in second-quarter earnings with assists from outside capital, according to new analysis from Barclays (BCS).

The Barclays research released Thursday morning looked at 18 REITs with “substantial exposure” to the office sector, 13 of which reported a year-over-year decline in occupancy. Eight of the REITs included in the analysis reported that net operating income (NOI) fell by more than 10 percent, “giving cause for concern, both for these specific REITs and for the broader office sector,” Barclays analysts Lea Overby and Anuj Jain wrote. 

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“We expect that operating metrics across the wider office market are weaker than those reported by the office REITs, as these institutional owners likely have better access to diversified funding sources, including the corporate market,” the analysts wrote. 

The largest office REIT, BXP (formerly Boston Properties (BXP)), reported a decline in occupancy across its portfolio in the second quarter to 88.3 percent from 89.5 percent, but its overall results were “better than consensus,” thanks to a 5.5 percent NOI jump.  

Alexandria Real Estate Equities (ARE), the second-largest office REIT, whose primary focus is on the life sciences sector, saw a year-over-year occupancy dip from 94.6 percent to 93.6 percent. But, similar to BXP, it saw its NOI jump 3 percent to beat estimates.

The REIT with the biggest occupancy improvement was Empire State Realty Trust, with a 3.1 percent jump to 86.6 percent. 

While some occupancy numbers were better than projected, three of the office REITs tracked by Barclays reported NOI fell by more than 10 percent year-over year in the second quarter. These REITs include Equity Commonwealth (down 14.8 percent), Paramount Group (a 13 percent decline) and JBG Smith (JBGS) (down 10.8 percent). 

Overby and Jain said these numbers give “cause for concern, both for these specific REITs and for the broader office sector.”

Andrew Coen can be reached at