The CEOs of some of the largest real estate investment trusts participating at a conference this past week said they're seeing new optimism about the potential for a recovery in investor demand.
The REIT leaders also said during RealREIT, the annual conference for real estate investment trust professionals, that they learned to ignore the headlines and to focus instead on their operations after four years of seeing REIT stock prices take a beating during the pandemic. The shutdown of industries that began in March 2020 immediately affected REITs and real estate operating companies that trade on the Toronto Stock Exchange.
The first advice Nitin Jain, president and chief executive of Sienna Senior Living, said he got from the firm's public affairs team when he became CEO was "to stop reading the news," he said during a roundtable discussion about the future of the sector.
Sienna is a Toronto-based company that provides range of senior living options and has a market cap of about $1.4 billion.
The past couple of years have been a rough ride for REITs in Canada. The S&P/TSX Capped REIT index never fully recovered from a pre-pandemic high of almost $209. It dropped almost overnight to close to $130 in March 2020 and more than four years later it still sits more than 15% below its peak.
Things start to look up
But Jain noted the news is looking up as three successive interest rate cuts from the Bank of Canada have created new enthusiasm for REITs as a higher yield alternative.
On the seniors housing front, once under siege because of fears of COVID, Jain said his properties are nearly fully occupied with long waiting lists for openings at government-funded facilities and a population of people over 85 that is expected to double by 2036.
"Everybody understands now these homes are full," he said. "I have never felt more optimistic about our sector."
Mark Kenney, chief executive of Canadian Apartment Properties REIT, the country's largest publicly traded residential landlord, quipped that the advice he has gotten is to not to avoid the news, but to stay out of it.
Kenney has been a staunch defender of public REITs with strong opinions on the problem of housing affordability being the need for more supply and not the profitability of landlords, often noting his company's yield is about 3%.
"Business is good. The housing crisis is tragic for Canada but providing demand for our business," Kenney said. "That part is extraordinary stable." Kenney also said that current market conditions have created an opportunity to improve CAPREIT's portfolio by buying newer buildings and selling older ones.
Kenney has actively supported his REIT in selling its older and cheaper units to government and non-profit groups so they can address affordability issues in Canada.
Adam Paul, CEO of First Capital REIT, said his current feelings about the retail real estate market are based on two trends. "There has been tremendous population growth with very little (new) supply (of retail space)."
Paul said tenants will have the ability to pay more rent in the future. "But we get sobered up pretty quick looking at the stock screen;" he said. "We have learned a lot of lessons the last few years."
Cecilia Williams, president and CEO of office REIT Allied Properties, said she feels much more optimistic than she did in January.
"If we are not at the inflection point now, we are certainly approaching one," Williams said. "More and more we have users that have been coming to us saying we need that space back."
The next three quarters are important, she said. "I feel there is only upside in the office sector," Williams said.
Kevan Gorrie, the chief executive of Granite REIT, whose 63.3 million-square-foot industrial portfolio has performed well, said he still has felt the sting of an adverse reaction to his company's unit price.
The CEO noted since the end of 2021, Granite's funds from operations are up about 30%, but the company's units are down 30%.
"We are feeling very confident in our business and the fundamentals of industrial," said Gorrie.
In meetings with investors, he said he is hearing about inflow into funds in the second quarter for the first time in two years. "I think as GIC (guaranteed investment certificate) rates continue to fall, we are going to see a sizeable rotation out of money markets and into other dividend-paying securities like REITs," said Gorrie.