Nothing can replace the cash you need to pay the bills. Building a portfolio of high-income stocks is one way to generate the monthly income you need. Real estate investment trusts (REITs) conveniently pay monthly distributions, and some are especially generous.
Northview Apartment REIT (TSX:NVU.UN) offers a yield of 8.6%, which is much more compelling than its peers’. Boardwalk REIT yields 5.1% and Killam Apartment REIT yields 5%.
Northview Apartment is a large multi-family REIT. It has about 24,000 residential suites in more than 60 markets across eight provinces and two territories.
Northview earns about 85% of its net operating income (NOI) from its residential assets. Its remaining portfolio consists of commercial and execusuites assets.
Why have the shares been depressed?
Since late 2014, Northview Apartment’s unit price has been depressed due to its exposure to resource regions and lower commodity prices.
However, it has expanded its geographical reach due to the acquisitions of True North Apartment REIT and a $535 million multi-family portfolio in late 2015.
These acquisitions helped the REIT diversify away from resource-rich regions into provinces such as Ontario, Quebec, Nova Scotia, and New Brunswick. The diversification improves stability and reduces the impact of resource regions on its business performance.
Specifically, in the first nine months of the year, Northview Apartment generated 22% of its NOI from western Canada compared to 40% in the same period last year.
Since 2002 Northview Apartment has either maintained or increased its distribution per unit. Over time, it has also reduced its funds from operations payout ratio from 91% to 74%.
Moreover, its residential portfolio maintains an occupancy rate of above 90%. Its portfolio is more diversified and has a lower percentage of NOI earned from resource regions. So, the REIT’s distribution is safer than it was before.
At the end of October, the REIT completed an equity offering with gross proceeds of $74.8 million at $21.15 per unit, which was pretty good timing given that the units are trading 10% lower today.
Northview Apartment plans to use the proceeds to reduce debt, create value, and invest. For example, it repaid $25 million of debt.
The REIT is developing some properties in Alberta and Nunavut.
It completed a 140-unit development in Airdrie, Alberta, in March, and it’s currently 95% leased.
It also has a 261-unit development in Calgary; the first of two buildings is complete, and occupancy commenced in the fourth quarter. Its 36-unit development in Nunavut expects occupancy in the second quarter of 2017.
Northview Apartment yields 8.6%. Its distribution is as safe as it has ever been due to a lower payout ratio and a more diversified portfolio with reduced exposure to resource regions.
By building a portfolio of high-income investments, including Northview Apartment, you can keep the cash rolling in to pay your bills.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Kay Ng owns shares of Northview Apartment REIT.