BMO Global REIT Fund Active ETF Series-BGRT

Top up your Monthly Cash Flow with Rental Income

Jun. 24, 2024

May Recap:

Global REITs delivered positive returns in May, with Healthcare, Self Storage, and Data Centers leading the group, as Office, Diversified, and Lodging/​Resort REITs lagged.

In Canada, CPI data released in May showed slowing momentum in year-over-year price growth, which lifted market implied odds of an interest rate cut to over 80% for a 25 basis point decrease by the Bank of Canada at its June 5th meeting. Similarly, in Europe, market implied odds of a 25 basis point cut by the European Central Bank exceeded 95% at the upcoming meeting on June 6th. In the U.S., while market implied odds of an interest rate cut in June remain slim to nil, the 10-year U.S. Treasury bond yield declined 18 basis points to reach 4.50% at month-end, amid more benign inflation data.

With Q1 earnings now in the rearview mirror, we’re looking forward to the Nareit’s1 annual REITWeek investor conference in New York, which brings together roughly 2,500 executives, investors, and industry professionals in midtown Manhattan. We have an action-packed schedule, with back-to-back meetings with REIT C-suite executives across a variety of property types, including Manufactured Housing, Self Storage, Apartments, Single Family Rental, Health Care, Industrial, Retail, and Office. In advance of the conference, a number of REITs released operating updates at month-end in advance of REITWeek, a few of which we’ll capture here-in. Encouragingly, operating updates were generally constructive and supportive of FY2024 guidance.

May brought some notable updates from the field: On May 8, Canada’s Department of Finance published an update on tax policy which confirmed no changes to the tax treatment of REITs are being considered at this time. Per the release, the government understands that REITs provide a critical channel for new investment in rental units.” We had assigned a low probability to tax changes impacting REITs, so we were not surprised – but pleased indeed.

In the U.S.:

  • Senior’s housing owner Ventas (NYSE: VTR) published a business update2 on May 28th, which showed continued strong growth in SHOP3 same-store average occupancy quarter-to-date in May. With the release, Ventas reaffirmed its full-year 2024 guidance, including $3.10-3.18 in normalized FFO per share4, 6.0-8.0% year-over-year total company same-store cash NOI growth, and 12.0-16.0% year-over-year SHOP same-store cash NOI growth5. Ventas remains in active discussions with key tenant Kindred (5% of Ventas annualized NOI, with lease expiration of April 30, 2025) and other parties, with greater clarity expected in Q2 2024. Ventas had previously extended Kindred’s May 1st renewal notification deadline to May 31st.
  • Rexford Industrial (NYSE: REXR) provided an operating and trading activity update on May 29th which showed Rexford has now completed 1.1 million square feet of leasing activity quarter-to-date at rates 51% above expiring rents on a cash basis and 68% above expiring rents on a net effective basis. Occupancy in its same property portfolio improved 10 basis points sequentially to 96.5% in Q2-to-date. We view these developments as a positive for the REIT as it should help to quell some concerns regarding supply impacts in its core Southern California markets. Concurrent with the release, Rexford announced the acquisition of two industrial properties for US$143 million at an average initial yield of approximately 5.8%, and the sale of three properties for $27 million. Year-to-date, Rexford Industrial has now completed $1.3 billion of acquisitions and $37 million of dispositions.
  • Stag Industrial (NYSE: STAG) released a business update on May 30, which showed 90.8% of expected 2024 new and renewal leasing has now been addressed, consisting of 11.9 million square feet, achieving cash rent change of 28.4% over expiring rents. Of note, leasing spreads strengthened sequentially, with cash and straight-line rent change of +36.8% and 51.8% in Q2-to-date tracking ahead of Q1 2024 results of 30.5% and 43.6%. Full year 2024 same store cash NOI (net operating income) guidance remained unchanged at 4.75-5.25%.
  • Also on May 30, U.S. single family rental owner/​operators American Homes 4 Rent (NYSE: AMH) and Invitation Homes (NYSE: INVH) published presentations ahead of NAREIT, which showed new lease growth accelerated in May versus April (an encouraging result!), while occupancy remained stable versus April. Full year guidance was maintained (unsurprising, as both AMH and INVH reported Q1 results in early May).
    • For AMH, preliminary reported May QTD new/​renewal/​blended lease growth came in at 5.4%/5.1%/5.2% as of May 29. May QTD occupancy of 96.6%.
    • For INVH, reported preliminary May QTD new/​renewal/​blended lease growth came in at 3.5%/5.9%/5.3%. May QTD occupancy of 97.5%.
  • Apartment owner/​operator Camden Property Trust (NYSE: CPT) published its June investor presentation on May 31. Looking to May, blended lease spreads on a date-signed basis improved to 1.0%, up from 0.6% in April. New lease rates held constant at -1.8%, unchanged from April’s result, while renewal rates increased to 3.9%, up from 3.4% in April. Occupancy held steady at 95.2%. Full year guidance was maintained. 

Overall, the operating updates preceding Nareit were encouraging with no major surprises – but some incremental positives. We look forward to sharing our key takeaways from our conference discussions with our June commentary.

1 Nareit (National Association of Real Estate Investment Trusts): is a trade association that represents the interests of real estate investment trusts (REITs) and other public companies that deal with the U.S. real estate market.

2 Ventas Business Update – May 282024.

3 Ventas (VTR)’s Senior housing operating portfolio (SHOP)

4 Funds from Operations per share (FFO) is calculated by adding depreciation, amortization, and losses on sales of assets to earnings and then subtracting any gains on sales of assets and any interest income. It is sometimes quoted on a per- share basis.

5 Net operating income (NOI) is a commonly used figure to assess the profitability of a property. The calculation involves subtracting all operating expenses on the property from all the revenue generated from the property. The higher the revenues and the smaller the expenses, the more profitable a property is.


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Publication Date: June 2024