CIBC NotesQ2 results saw almost all REITs maintain their outlooks, reflecting consistent operational performance. Retail REIT fundamentals were the most intact with
high-90% occupancy and sustained large leasing spreads. CHP units
notably lead the sector on valuation and are within 5% of NAV, reflecting the
market’s preference for defense. In retail we like CRR for its defensive
positioning and potential for valuation to catch up to concentrated-tenant
peers. Normalization was once again the theme for industrial REITs, and
valuations suggest to us that occupancy declines are garnering more
attention than consistently high leasing spreads. The FFO growth outlook
remains well ahead of peers and DIR is our preferred industrial name.
Takeaways From Industrial Earnings
• GRT units are now close to where they were before the REIT issued guidance in
February, and we believe an improvement in U.S. occupancy is a likely catalyst. Q2
commentary indicated that most of the improvement is expected in 2025. The U.S.
portfolio continues to achieve strong leasing spreads (23% in Q2) despite the slip in
occupancy. Nearly 90% of 2024 maturities are finalized with an anticipated renewal
spread of ~16%. Renewals on space maturing later in 2025 have generated >30%
increases in rent;
• DIR reiterated its guidance of mid-single-digit growth in each of SPNOI and FFO/unit,
and high-single-digit percentage growth in in-place rents.. While in-place occupancy is
expected to see a downtick in Q3, market rents were consistent from Q1 and
management foresees that trend holding in. DIR expects an uptick in subleasing to
pressure availability while vacancy remains mostly stable. New supply, and 3PL users
looking to optimize their footprints explain part of the trend in subleasing. We saw similar
commentary from CHP regarding a modest occupancy decline on known vacancies,
however the embedded rent growth outlook is intact, and the vacancies are built into
their outlook