- REITs raised $64.9B through the first three quarters of 2024, surpassing the totals from each of the last two years, driven primarily by debt offerings.
- Lower interest rates and a September rate cut have made debt issuance more attractive, contributing to a 24% increase in debt fundraising in Q3 compared to 2023.
- Although debt markets are strong, equity issuances have yet to see a similar rebound. However, recent IPOs and spinoffs signal a renewed interest in the sector.
As reported by CoStar, publicly traded REITs have re-entered the capital markets in 2024, raising more funds in the first three quarters of 2024 than in the last two years combined.
According to Nareit, public REITs raised $64.9B through stock and debt offerings thanks mostly to favorable debt markets and lower interest rates, which encouraged REITs to seek more capital.
Debt in Focus
REITs have been primarily tapping into debt markets, with $40.8B raised through secondary debt offerings, significantly higher than the $23.9B during the same period last year.
The Federal Reserve’s recent rate cut played a key role in making debt a more attractive option for REITs. David Auerbach, Chief Investment Officer of Hoya Capital, highlighted that lower rates have encouraged REITs to issue debt, anticipating further declines in borrowing costs.
“REITs are being proactive,” Auerbach said, noting that lower interest rates could boost earnings and dividends, making the sector more appealing to investors. This renewed access to capital is expected to help REITs position themselves for future acquisitions as the property market stabilizes.
Signs of Life
While debt issuance has surged, equity offerings are still catching up. As of Q3, REITs raised $16.7B through stock issuances, up from $12.2B during the same period last year.
Notably, REITs saw their first IPOs in over two years. Lineage (LINE), the world’s largest cold storage provider, raised $5.1B, while FrontView REIT (FVR) brought in $251M. Additionally, Site Centers (SITC) spun off Curbline Properties (CURB), creating a new publicly traded retail REIT.
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Zooming Out
The 10-year Treasury yield, a key benchmark for interest rates, has decreased from nearly 5% in October 2023 to about 4% this year, improving market conditions for REITs.
John Barwick, Vice President of Index Management at Nareit, emphasized that the favorable debt market, combined with disciplined balance sheets, has positioned REITs as “advantage players” in the CRE sector.
As the sector benefits from lower borrowing costs, REIT stock prices have also performed well. The Financial Times Stock Exchange Nareit All Equity REITs Index has outpaced broader stock market benchmarks, rising 16.8% in Q3 and 14.2% YTD.
Despite the influx of new capital, REIT property acquisitions have slowed. Data from CoStar indicates that REITs sold $30B in properties through September 30, while acquiring just $25.6B. This marks a shift from last year when REITs were net buyers.
The slowdown is partly due to a decline in M&A activity. Only one major REIT M&A deal was completed in 2024, compared to six deals over $1B each in 2023.
Sector Outlook
The return of publicly traded REITs to the capital markets in 2024 marks a significant shift after years of cautious fundraising. Favorable interest rates have led to a surge in debt issuance, with equity markets also showing signs of recovery.
While property acquisitions remain subdued, improved access to debt and signs of recovery in equity markets mean that, as the market stabilizes, REITs are expected to leverage their stronger financial positions to pursue more acquisitions.
John Barwick noted that “as equity prices continue to improve, we’re more likely to see REITs issue more equity,” potentially positioning them for growth in the coming quarters.
