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It was an eventful week for real estate investment trusts as investors digested chief executives’ business updates at the Nareit REITweek conference in New York City.
Overall, REITs closed out the week ended June 7 slightly in the red, with the Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE) slipping 0.2%, compared with the S&P 500’s 1.3% rise.
The mood was mixed at the Nareit conference, Citi Research analyst Nicholas Joseph wrote in a note, “with operating results and the overall businesses generally doing well, but fund flows and generalist interest in the sector continuing to lag mostly due to the macro and interest rate environment.”
In the office space, leasing momentum has continued from Q1, “with pipelines remaining relatively full,” Baird Equity Research analyst Nicholas Thillman wrote in a recent note after hosting several investor meetings with management teams. And, he added, “despite a relatively quiet transaction market, we did notice a material shift in companies starting to pick through potential acquisition opportunities.”
For industrials, the analyst observed that REITs broadly are facing a slowdown in demand, “but select space ranges and markets are faring better than others.” In all, the company meetings painted a mixed picture, from healthy tenant credit to strong renewal activity to cooling transaction activity
Below are key takeaways from the in-person event:
Industrial REIT Prologis (NYSE:PLD), which has the biggest weighting in XLRE, heralded promising prospects for investors, including generating positive rent growth over the next three years;
EPR Properties (NYSE:EPR) outlined a silver lining. CEO Greg Silvers said that while the experiential net-lease REIT’s cost of capital has been a challenge in the face of elevated borrowing costs, “our opportunities right now exceed our level of capital,” with movie theater coverage back to pre-Covid levels;
W. P. Carey (NYSE:WPC) CEO Jason Fox noted the net-lease REIT is on track to meet its full-year guidance for deal volume, as the current environment for sale leasebacks is favorable;
Ready Capital’s (NYSE:RC) multifamily loans, comprising 85% of its total book, are seeing inflated delinquencies, CEO Thomas Capasse said, as “we haven’t been able to modify loans” like other non-banks have. Still, he assured that multifamily delinquencies likely have peaked and should ease over time;
Extra Space Storage (NYSE:EXR) is “off to a good start” in spring leasing season, CEO Joseph Margolis said, though pricing is still not as favorable as last year, with new customers increasingly sensitive to price;
Apple Hospitality (NYSE:APLE) management noted that a number of its recently acquired assets have performed better than expected, thanks in part to a recovery in the return-to-office shift. The owner of hotels will continue to target business-friendly markets throughout the U.S., they added;
Boston Properties (NYSE:BXP) management talked up the office REIT’s leasing activity, noting it’s “substantially higher” now than at any point over the past four quarters;
Equity Residential (NYSE:EQR), the owner and developer of residential properties, feels “really good about the supply-demand of the market,” CEO Mark Parell said. Housing supply is low in the coastal markets that the REIT focuses on, he added; and
Similarly, Invitation Homes (NYSE:INVH) is confident that demand for single-family rentals will stay strong against a backdrop of high mortgage rates and low housing supply, said CEO Dallas Tanner.