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2 Growth-Focused Apartment REITs With Stable Yields

Everyone must find a place to live in. If you don’t own a place, you must rent one. That’s why residential real estate investment trusts (REITs) are a stable asset class.

Here are two residential REITs that have higher growth potential than the industry.

Interrent Real Estate Investment Trust (TSX:IIP.UN) is focused on generating value and growing a sustainable distribution with a portfolio in Ontario and Quebec.

Interrent REIT’s primary markets contribute about 80% of its net operating income (NOI). The company also has a capital-recycling strategy, which looks to refinance at favourable rates and to sell non-core assets.

At the end of September, Interrent REIT had 8,059 suites and a portfolio occupancy of 94.2%.

The current management has been with the company since 2009. Since then, it has rebuilt and repositioned the company. It took a little over a year for the management to start turning the company around with amazing results.

Interrent REIT was trading at $1.80 per unit when the management took over. The units are more than 300% higher now. Additionally, the units paid an initial yield of nearly 6.7%, which has grown to a yield on cost of 12.9%!

apartment building

Photo: Ian Poellet. License: https://creativecommons.org/licenses/by-sa/3.0 Source: https://commons.wikimedia.org/wiki/File:American_Apartment_Building_-_Portland_Oregon.jpg

Although Interrent REIT only yields a little more than 3.3% at $7.24 per unit, since 2011, it has hiked its distribution by 94% from an annual payout of 12 cents to 23.3 cents per unit. That is very strong growth of nearly 14.2% per year!

That said, in the last two years, it has increased its distribution by about 5% each year. So, recent growth has slowed down but is still higher than most REITs. After all, it’s not a common practice for Canadian REITs to hike their distributions.

Interrent REIT’s payout ratio is about 63%, and it’s at the low end compared to six other peers. So, the REIT has room to grow its distribution.

Killam Apartment REIT (TSX:KMP.UN) has $1.9 billion of assets, including 13,952 apartment units and 5,165 manufactured home community (MHC) sites.

It earns 89% of its NOI from apartments, 9% from MHCs, and 2% from commercial properties. Geographically, it earns 83% of its NOI from three provinces: 43% from Nova Scotia, 22% from Alberta, and 18% from Ontario.

Killam’s growth strategy includes increasing earnings from its current portfolio, making accretive acquisitions, and developing high-quality properties in its core markets.

At about $12, Killam yields nearly 5% with a sustainable payout ratio of about 71%.

Summary

Interrent REIT and Killam offer safe yields of about 3.3% and 5% in the stable multi-family REIT asset class. Both companies are fairly valued to fully valued. So, they would be especially great buys for income on any further dips.

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 has no position in any stocks mentioned.

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