RBC June 9, 2025
Highlights from the RBC CM Investor Sessions for
Canadian REITs/REOCs in New York
Our view: We hosted investor meetings at the RBC Capital Markets Investor Sessions for Canadian REITs/ REOCs conference in New York held on June 4-5. In this note, we summarize key takeaways for the industrial, retail, and seniors housing names that attended, including Dream Industrial, Granite, Choice Properties, Crombie, First Capital, Primaris, RioCan, SmartCentres, and Sienna Senior Living.
Industrial: Confident messages, yet signs of stronger demand likely required to convince investors.
Against a backdrop of tariff-related macro uncertainty, questions around the ability to hit SP NOI and earnings growth guidance were understandably topical. Management teams expressed confidence in their outlooks, with pent-up demand, shrinking new supply growth, and a recent increase in RFPs in Canada a common thread across meetings. Of note, select tenants are hitting capacity limits, infill leasing velocity is outpacing large bay, while demand in Europe was consistently cited as strong. As well, no material changes in incentives were noted, although some tenants are seeking shorter renewals and more free rent. M&A and privatization likelihood were also topical in our discussions with investors, particularly with the recently proposed privatization of IIP. Considering the industrial REITs are trading at outsized 20%+ NAV discounts (~7% implied cap rates), we would not rule out the possibility. Bottom line, while investors seem to recognize value in the space, accelerating demand remains a likely prerequisite to drive stronger in-flows. Supported by above-average growth profiles and attractive valuations, our preferred picks remain DIR and GRT.
Retail: For the most part, operational outlooks remain solid in the face of a slowing economy. Tenant demand has held up well, particularly as grocers, pharmacies, pet, and other essential needs and value retailers work to catch-up to the substantial population growth of recent years. New supply will likely remain limited, as market rents would need to rise by ~50% to support sufficient returns. In short, while downside risks from a potentially harder economic landing are possible, the outlook for organic NOI growth among the retail REITs remains healthy at +2-4%. HBC was also topical, particularly for PMZ and REI where the larger relative exposures reside. While resolutions will require more time, we believe both are well-positioned to work through the process. As well, among the grocery-anchored and value- focused retail names, we continue to see good value in FCR and SRU. Questions on M&A/privatization were also common, particularly for FCR given the high quality of its assets and discounted valuation.
Seniors housing: Fundamentals are firing on all cylinders. Supported by robust demographic-driven demand, limited new supply, and its effective sales strategies, SIA remains confident in its ability to deliver >10% retirement SP NOI growth in 2025 and reach 95% SP-occupancy by Q1/26. Margins should also rise from a mix of higher rents, occupancy gains, improved care services billing, and stronger cost controls. In LTC, additional construction funding subsidies in the GTA should help alleviate development cost pressures; more details anticipated in the coming months. Available balance sheet capacity should also support more acquisitions with ~$200MM in SIA’s pipeline. Bottom line, we expect investor appetite in seniors housing to remain strong, particularly amid a lower visibility macro environment
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Sienna Senior Living (SIA-T, Sector Perform, $19 PT)
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Momentum in retirement fundamentals remains robust. SIA’s 95% SP-occupancy target by Q1/26 looks increasingly within reach, with May at ~92% (91.9% in April). In response to questions on its target retirement NOI margin improvement of +100-150 bps, SIA sees several drivers including higher occupancy, rent growth, improved billing of care services, and lower labour costs with improved availability. As well, demographic demand will likely continue to outpace new supply in both retirement and LTC amid high development costs.
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Expect more details on Ontario LTC funding in the coming months. The recent Ontario budget provided a ~2% funding increase in LTC, along with additional construction funding subsidies for GTA redevelopment projects. However, further details on the latter are not yet available. For existing LTC projects underway, management reiterated its 8-9% yield target on net project costs (~3% AFFOPS accretion per project).
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More acquisitions in the pipeline. We forecast $200MM of acquisitions through the rest of 2025, with SIA citing a similar level of deals in review in BC, AB, and ON. Cap rates are in the low-6% range, with ~50 bps of potential upside from synergies on select assets. We expect funding from SIA’s existing balance sheet capacity, with management indicating that it’s comfortable raising D/GBV to 45% and D/EBITDA to ~8x (vs. 38% & 7.4x at Q1/25).