- U.S. REITs raised $12.5B in secondary debt and $4.1B in equity in 2Q24, signaling a healthy capital market.
- Year-to-date, REITs have issued $25.4B in secondary debt, with equity issuance trending higher than in 2023.
- The stable interest rate environment has facilitated REITs financing new deals and capitalizing on value-add opportunities.
Q2 marked a significant period of capital raising for U.S. REITs, as reported in Commercial Observer.
According to NAREIT, REITs raised $12.5B through secondary debt offerings and $4.1B via equity, signaling renewed confidence in the sector as capital markets begin to stabilize.
Favorable Debt Issuance
The strong showing in debt issuance reflects a more favorable interest rate environment. The federal funds rate has held steady at 5.25% throughout 2024, with the 10-year Treasury yield tumbling from its late 2023 peak.
This has led to reduced corporate debt spreads, making borrowing more attractive for REITs. The average yield on REIT unsecured debt fell to 4.5% in Q2, down from nearly 6% in Q1, facilitating a steady flow of transactions.
Equity Issuance Rises
Equity issuance has also shown resilience, with U.S. REITs raising $3.6B in common equity and $571M in preferred equity in Q2.
This brings the YTD total for non-at-the-market equity issuance to $8.1B, suggesting a stronger reliance on equity financing compared to the previous year.
NAREIT’s John Worth noted that 2024 is shaping up to be more equity-heavy, reflecting overall market confidence.
Financing Future
The rise in secondary debt issuance indicates REITs are positioning themselves for growth by financing new acquisitions and other value-add opportunities.
As higher-leverage borrowers step back from the market, REITs with well-managed balance sheets are taking advantage of the situation, engaging in $8B worth of acquisitions in Q1 alone.
Deal Delay
Despite the robust capital market activity, mergers and acquisitions among REITs have been limited in 2024, with only one major transaction—the $9.2B purchase of Apartment Income REIT Corp. by Blackstone (BX) in June.
This sluggish M&A activity is a stark contrast to previous years. The reasons for the slowdown remain unclear, but Worth suggests that the overall market may be entering a period of reduced M&A activity until the dust settles.
