BMO BMO real estate analyst Michaeil Markidis described the ‘lunch bag letdown’ of the first Bank of Canada rate cut for REITs,
“The S&P/TSX Capped REIT Index was down 1.5% for the week ended June 14, despite a 18bps decline in the 10-year GoC (to 3.28%). Notable outperformers included PMZ (+0.7%) and DIR (+0.5%); outliers at the other end of the spectrum were AP (-5.7%) and MHC (-4.3%). Canadian REITs continue to work through a prolonged period of adjustment to higher interest rates. The simple average FFO yield spread (~580bps) and implied cap rate spread (~350bps) for the 16 index constituents continue to grind higher from the cyclical lows observed in April 2022 and are in-line/closing-in on historical averages. First interest rate cut turns out to be a “lunch bag letdown”. For the first time in four years, the BoC implemented a 25bps cut on June 5, taking the key overnight rate to 4.75%. The S&P/TSX Capped REIT Index was up 2.0% on the same day. Market enthusiasm, however, was short-lived as the Index subsequently sold off and is now down 1.8% from the close on June 4″
Mr. Markidis has a lot of “outperform”-rated REITs – Flagship Communities REIT, Granite REIT, Dream Industrial REIT, Canadian Apartment Properties REIT, Boardwalk REIT, Killam Apartment REIT, Interrent REIT, Minto Apartment REIT, Crombie REIT, BSR REIT, First Capital REIT and Choice Properties REIT.