U.S. equity real estate investment trusts are more liquid now compared to pre-pandemic levels as a result of the 2020 initiative to conserve liquidity during COVID-19 business disruption.
During the second quarter of 2021, total liquidity for all U.S. REITs, defined as cash and cash equivalents plus the revolving credit facilities that have not been drawn, has grown at a median of 14.1% compared to year-end 2019 levels and is up 5.7% year over year.
Equity REITs were able to save $40.60 billion, or 39.4%, more cash and cash equivalents in the second quarter of 2021 compared to $29.13 billion at 2019 year-end. However, the total was down 29.5% from the $57.63 billion in the same quarter of 2020.
In addition to drawing on existing credit facilities, the REITs' significant rise in cash was driven by saving measures implemented in 2020, such as suspending or cutting dividends, cutting top management's salaries or devising spending reduction plans.
REITs also expanded credit facilities in recent quarters, adding approximately $6.50 billion in total capacity over the past year. As of June 30, REIT credit facilities totaled $148.50 billion, of which roughly 14.1% was drawn.
Along with the expansion of liquidity over the recent quarters, REITs also managed to keep the overall leverage at almost the same level as it was at year-end 2019.
The median fixed-charge coverage ratio for U.S. equity REITs, excluding hotels, defined as recurring EBITDA for the last 12 months divided by interest expense and preferred dividend payments, was just below 3.7% as of the second quarter. It was almost at the same level as in the previous year, only above by 7 basis points than the 3.6% median at year-end 2019.
In the second quarter, the industrial and self-storage sectors consistently held the highest fixed-charge coverage ratios at medians 5.5% and 5.3%, respectively. Meanwhile, diversified REITs, along with the retail and residential sectors, held lower ratios compared to the more broad REIT sector.
Likewise, the same trend was observed in terms of net debt over last the 12 months recurring EBITDA, when the median ratio for all equity REITs went up by only 53 basis points to 6.8% in the second quarter of 2021 from 6.2% at year-end 2019.
The industrial sector continued to be the least-levered in the second quarter at a median of 5.1%, followed by self-storage at 5.3% and healthcare at 6.0%. In contrast, the diversified sector was the most-levered segment at a median of 8.7%, along with the office and retail sectors, at medians of 7.3% and 6.8%, respectively.
Overall leverage was seen to have no direct impact on REIT share price movement year-to-date. The self-storage sector, which was among the least levered sectors, had the highest surge in share price year-to-date. Meanwhile, retail and residential sectors have also shown solid share price growth year-to-date, although both have moderate levels of leverage among their peers. On the other hand, the healthcare sector saw a share price decline year-to-date, despite being the third least levered sector.
