The median implied capitalization rate of real estate investment trusts in US equities increased in the second quarter, reaching 6.3%. The figure marks a jump of 44 basis points from the previous quarter and a slight increase of 6 basis points year-over-year, according to data from S&P Global Market Intelligence.
The analysis included all US REITs that trade on the Nasdaq, NYSE or NYSE American with market capitalizations of at least $200 million at the end of the quarter.
Market Intelligence calculated the implied capitalization rate as net operating income generated over the past 12 months divided by the REIT’s implied real estate value – calculated as market capitalization including operating partnership units plus total debt , preferred stock, mezzanine items and non-controlling interest, less non-controlling shareholders real estate assets such as cash, securities or loans.
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Hotel REITs see the biggest year-over-year increase
The hotel sector posted the strongest year-over-year growth in its implied cap rates, up more than 5 percentage points on a median basis. Within the hospitality sector, Braemar Hotels & Resorts Inc. recorded the largest increase, up 8.5 percentage points from a year ago. Xenia Hotels & Resorts Inc. and Ashford Hospitality Trust Inc. followed, with their implied cap rates rising 7.7 and 6.7 percentage points respectively.
At the other end, REITs in the specialty sector – advertising, casino, communications, energy infrastructure, farmland and forestry REITs – experienced the largest year-over-year compression of their implied capitalization rates, a median more than 1 percentage point. Data center REITs also saw cap rates compress by a median of 75 basis points.
The median implied cap rate for the retail sector fell 77 basis points year over year. In the retail sector, implied capitalization rates for regional shopping center REITs fell 69 basis points on a median basis, while Shopping center REIT cap rates compressed by 77 basis points. The “other retail” sector, which includes sole-tenant REITs and outlet centres, saw its cap rates fall by a median of 96 basis points.
Highest Implied Cap Rates
Among US equity REITs with a market capitalization of at least $200 million, advertising REIT OUTFRONT Media Inc. held the highest implied capitalization rate at the end of the quarter, at 18.5%.
Two forestry REITs, PotlatchDeltic Corp. and Weyerhaeuser Co., followed, with implied cap rates of 17.6% and 15.9%, respectively.
Information storage company Iron Mountain Inc. and communications REIT Uniti Group Inc. round out the top five, at 15.0% and 14.3%, respectively.
Lowest Implied Cap Rates
On the other end, Market Intelligence calculated Casino REIT VICI Properties Inc. at the lowest implied capitalization rate of 0.2%. During the last quarter, VICI completed its acquisition of MGM Growth Properties LLC.
IStar Inc. and Safehold Inc. were in second and fourth place at 1.1% and 2.3%, respectively. The two REITs announced their merger on August 11.
In third place was CTO Realty Growth Inc., with a calculated implied cap rate of 1.5%.