Debt in Real Estate Investment Trusts (REITs)
- Adam Edwards
- Jan 2
- 4 min read
I thought I'd do a deep dive into REITs, they generally are high in debt so though they'd be a useful case study.
1. What Can You Learn About REITs Generally?
Real Estate Investment Trusts (REITs) operate across various sectors, relying on a mix of equity and debt to finance growth. From the graphs, we can observe the following key trends:
High Leverage – Most REITs carry significant debt, using leverage to finance property acquisitions and expansions.
Debt Growth Varies – Some REITs (like VICI Properties and Realty Income Corporation) have seen aggressive debt growth over the past five years, while others (such as Cousins Properties) have been more conservative.
Equity vs. Debt Balance – Some REITs maintain a more balanced approach to financing, while others rely heavily on debt. Digital Realty Trust has a high Debt/Equity ratio, while Cousins Properties has a more evenly distributed capital structure.
Sector-Specific Strategies – Industrial and retail REITs have different financing needs compared to hospitality or healthcare REITs, leading to differences in debt levels and asset bases.
Stable Cash Flow but Liquidity Risks – REITs generate steady income from property leases, but high leverage can create liquidity risks, especially in economic downturns.
Debt Ratios Highlight Risk Exposure – Some REITs have extremely high Debt/Equity and Debt/EBITDA ratios, meaning they could struggle to refinance or repay debt if interest rates rise.
Expansion Strategies Differ – Companies with high debt growth are likely pursuing aggressive expansion, while others are maintaining stable financial structures.
2. Company Overview
Apple Hospitality REIT, Inc.
Specialises in hospitality properties (hotels).
Relatively low debt levels compared to other REITs.
Steady but slow debt growth, suggesting a more conservative approach to expansion.
Cousins Properties Incorporated
Focuses on office real estate.
Balanced debt-to-equity ratio, meaning the company is not overly reliant on debt.
Moderate debt growth over time.
Digital Realty Trust, Inc.
A data centre REIT, one of the largest in the dataset.
Massive assets exceeding £40 billion.
Very high Debt/Equity ratio, meaning it relies heavily on debt financing.
High debt growth, suggesting rapid expansion.
Gaming and Leisure Properties, Inc.
Focuses on casino and entertainment properties.
Moderate debt growth over 3 and 5 years.
Sustainable debt levels, with a relatively balanced Debt/Equity ratio.
Medical Properties Trust, Inc.
Specialises in healthcare real estate.
Moderate asset size compared to Realty Income and Digital Realty.
Steady long-term debt growth, suggesting a sustainable but expansion-focused approach.
Realty Income Corporation
One of the largest REITs, primarily retail-focused.
Over £60 billion in assets, making it one of the biggest players in the dataset.
Very high debt levels, with aggressive debt-financed expansion.
High Debt/Equity ratio, showing dependence on borrowed capital.
STAG Industrial, Inc.
Specialises in industrial real estate.
Smaller asset base and lower liabilities than other REITs.
Moderate debt growth but lower leverage compared to companies like Digital Realty.
VICI Properties Inc.
Invests in gaming and entertainment properties.
Significant debt growth, especially over five years.
High asset and liability figures, suggesting aggressive expansion.
3. How Do the Companies Differ?
Debt Growth Strategies – Some companies (like Digital Realty, VICI Properties, and Realty Income) have expanded aggressively through debt, while others (such as Cousins Properties and Apple Hospitality) have maintained a more conservative approach.
Sector Focus Impacts Debt Levels – Companies in more capital-intensive sectors (like data centres and retail) have higher debt ratios, while those in hospitality and office spaces manage debt more cautiously.
Equity vs. Debt Financing – Some REITs, such as Cousins Properties and STAG Industrial, have a more balanced mix of equity and debt, whereas Digital Realty and Realty Income rely more heavily on leverage.
Size and Scale – Digital Realty and Realty Income are among the largest REITs, with significantly higher total assets compared to smaller firms like STAG Industrial.
4. How Do the Sectors Differ?
Hospitality REITs (Apple Hospitality)
Lower debt levels compared to other sectors.
More conservative debt growth, likely due to the cyclical nature of hospitality demand.
Office REITs (Cousins Properties)
Balanced debt-to-equity approach.
Moderate asset base, not as capital-intensive as other REITs.
Retail REITs (Realty Income)
One of the largest REIT sectors.
Very high debt levels, indicating aggressive property acquisitions.
Relies on long-term leases for stable cash flow but has high financing risks.
Industrial REITs (STAG Industrial)
Smaller debt loads compared to retail and data centre REITs.
Moderate debt growth, suggesting stable expansion rather than rapid acquisition.
Data Centre REITs (Digital Realty)
Most capital-intensive sector, requiring large upfront investments.
Very high debt-to-equity ratios, as data centre expansion is debt-heavy.
Rapid debt growth over time, making refinancing risks a concern.
Healthcare REITs (Medical Properties Trust)
Moderate debt and asset base, balanced between equity and debt financing.
Steady growth strategy, as healthcare real estate tends to be more stable.
Gaming & Entertainment REITs (Gaming & Leisure, VICI Properties)
High debt ratios, as casino and entertainment properties require substantial investment.
VICI Properties has particularly strong debt growth, suggesting a highly expansionary strategy.
Final Thoughts / Key Take Aways
These graphs highlight that REITs differ significantly by sector and financial strategy. Companies like Digital Realty and Realty Income rely heavily on debt, while others like Cousins Properties and Apple Hospitality take a more conservative approach.
Different REITs use different financial strategies, with some focusing on high leverage (Digital Realty, VICI), while others prefer conservative expansion (Apple Hospitality, Cousins Properties).
Sector type influences debt decisions—industrials and medical REITs often take on more debt due to predictable revenue, while hospitality and retail REITs are more cautious.
Debt growth varies significantly—some REITs expand aggressively, while others focus on financial stability.