US equity real estate investment trusts saw weaker gains on same-store net operating income during the second quarter.

S&P Global Market Intelligence prefers to take cash-based same-store net operating income, if available. However, a noncash-based net operating income will be used if not.

Same-store net operating income (NOI) across the entire REIT industry had a median growth of 4.3% year over year during the second quarter, slowing down from a 5.1% median growth in the prior quarter and a 6.1% year-over-year median increase for the entirety of 2022.

Industrial REITs see highest gains in Q2

The industrial sector saw the biggest year-over-year gains in same-store NOI for the second quarter, with a median increase of 8.2%. It was followed by the residential and healthcare segments, posting median gains of 6.3% and 5.9%, respectively.

Out of the 10 existing industrial REITs in the analysis, three were included in the overall list of US REITs with the highest same-store NOI gains during the second quarter. Terreno Realty Corp. had the largest increase among the three industrial REITs, with a same-store NOI year-over-year growth of 14.5%, which was also the third-highest gain across all property types during the recent quarter.

In its most recent Form 10-Q filing, Terreno mainly attributed growth of its same-store NOI during the second quarter to the increased rental revenue on new and renewed leases, higher occupancy in the same-store pool and contractual rent hikes on preexisting leases.

The two industrial REITs joining Terreno on the list of top 10 gainers were Americold Realty Trust Inc. and First Industrial Realty Trust Inc., which posted year-over-year same-store NOI increases of 12.7% and 11.0%, respectively.

Within the residential segment, multifamily-focused Veris Residential Inc. had the largest growth, reporting a same-store NOI of $41.3 million during the second quarter, a 21.8% hike from the previous year. This recent annual growth ranked Veris Residential as the second top-gainer across all property types during the second quarter. Manufactured homes-focused UMH Properties Inc., and multifamily-focused Centerspace and Elme Communities were three other residential REITs in the top 10 US REITs with the highest same-store NOI gains during the same period.

The biggest gainer among all US REITs in the second quarter was healthcare REIT Diversified Healthcare Trust, with same-store NOI year-over-year growth of 34.2%.

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Regional malls still negative

During the second quarter, the regional mall sector was the sole property type that posted a median year-over-year decline in its same-store NOI by 0.2%.

Regional mall operator CBL & Associates Properties Inc. saw a 0.8% year-over-year decline in same-store NOI, a slight improvement from the previous quarter's 1.4% annual drop. On the other hand, mall landlord Macerich Co. posted a 0.4% annual gain in same-store NOI during the same period.

While Simon Property Group Inc., the largest mall REIT, did not report same-store NOI for the second quarter and was excluded from the analysis, the REIT reported a portfolio NOI growth of 3.7% for the quarter. Simon's portfolio NOI excludes factors such as domestic lease termination income, interest income and land sale gains as well as its investment in Klépierre, J.C. Penney, SPARC Group, Authentic Brands Group LLC, Rue Gilt Groupe and Jamestown.

Office-focused Peakstone Realty Trust had the steepest year-over-year drop in same-store NOI across all property types. The REIT posted a 12.6% annual loss with a same-store NOI of $54.3 million during the second quarter.

Office slightly improves, slowdown in other major types

Office REITs continued to have the smallest gains out of the four major property types in the second quarter, with median same-store NOI growth of about 2.0% year over year. It was a slight improvement from 1.4% in the previous quarter but still a slowdown from the 2.2% median hike for the whole year of 2022.

Retail-focused REITs had slower growth from the previous quarter, reporting 2.3% median year-over-year growth in the second quarter, following a 3.7% median growth in the prior quarter.

Industrial and residential sectors also followed a similar trend with their respective annual gains of 8.2% and 6.3% in the second quarter, down from their same-store NOI hikes of 10.1% and 9.4% in the previous quarter.

Same-store occupancy across all US REITs was at a median of 93.8% in the second quarter, a slight increase from the prior quarter's 93.6%.

The median same-store occupancy rate across all REITs has been above 94% for most years since 2015; however, the rate dropped to 93.4% in 2020 amid the COVID-19 pandemic. In 2021, the median same-store occupancy rate bounced back to about 94.1% and was at 94.0% in 2022.