U.S. REITs Raise $23B From Public Markets in Third Quarter

Investors continued their dive into the CRE landscape, as real estate investment trusts (REITs) raised more than $23 billion from secondary debt and equity offerings in the third quarter of 2024, according to new data from the National Association of Real Estate Investment Trusts (NAREIT). 

U.S. REITs raised $15.4 billion from secondary debt offerings — corporate debt — and $2.8 billion from common equity and preferred equity, or stock offerings, in the second quarter of 2024. An additional $5.1 billion came from the initial public offering (IPO)  of Lineage, owner of 480 temperature-controlled warehouses across the globe. The IPO is the largest ever recorded for a U.S. REIT. 

This heady activity in the public markets compares to the $12.5 billion from secondary debt offerings and $4.1 billion from equity stock offerings that REITs raised in the second quarter of the year. 

“Capital issuance in the third quarter significantly increased year-over-year from the third quarter of last year,” said John Barwick, vice president of index management & industry information for Nareit. “That’s because equity prices have improved and issuing debt is more attractive to REITs now than it was a year ago.”

So far this year, REITs have raised $40.8 billion through secondary debt offerings and generated $10.8 billion of common and preferred equity issuance. This compares favorably to the $23.9 billion in secondary debt raised during the same time in 2023, according to Nareit.  

The equity and debt secondary offering metrics provide an inside look at the health and activity in the REIT ecosystem. As landlords who lease space and collect rent on their properties, REITs distribute that income as dividends to shareholders. Their tax structure requires them to pay a minimum of 90 percent of taxable income to shareholders as dividends each year.  

But to grow, REITs must also raise capital through a combination of equity and debt offerings. While corporate debt issuance indicates the belief that bond buyers — typically insurance companies, pension funds and endowments — have in the REIT market, equity issuance is a better indicator of overall REIT health, as REITs are loath to issue shares of equity when their stock price is low. 

Even though secondary debt issuance is growing compared to the previous quarter, the transaction landscape is still muted. Thus far in 2024, there has been only one acquisition: Blackstone REIT’s $9.2 billion purchase in June of Apartment Income REIT Corporation, known as AIR Communities.  

All told, the popularity of REITs is often tied to interest rates. The federal funds rate was cut in the last quarter and now sits at 4.75 percent, while the 10-year Treasury has been fluctuating at just over 4 percent in recent weeks, after having reached 5 percent last year. 

The average yield to maturity (the interest rate on secondary debt) for REIT unsecured debt offerings increased from 4.5 percent in the second quarter to 5.2 percent in the third quarter, with an average spread to similarly dated Treasurys of 1.4 percent, according to Nareit. 

“Looking at the debt market, the decline in the 10-year Treasury since last October, combined with the decrease in interest rates, has created an extremely favorable debt issuance landscape for REITs — especially given their well-structured balance sheets,” said Barwick. 

Brian Pascus can be reached at bpascus@commercialobserver.com