If you’re looking for income, you wouldn’t want to miss out on safe, high-yield real estate investment trust (REIT) opportunities.
Specifically, I would like to bring your attention to Northview Apartment REIT (TSX:NVU.UN) and NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN), which yield north of 8%.
They earn rental income from their diversified portfolio of real estate properties.
Northview Apartment
Northview Apartment is the combined company of Northern Property REIT and True North Apartment REIT. The transaction occurred in 2015, making Northview Apartment the third-largest publicly traded multi-family REIT in Canada.
Northview Apartment has more than 24,000 residential suites in over 60 markets across eight provinces and two territories.
Its apartments, townhomes, and single-family apartment buildings make up the bulk of its portfolio, generating about 86% of its net operating income (NOI). On top of that, the company also owns and manages execusuites, hotels, and commercial properties.
Northview Apartment targets a long-term annual funds from operations (FFO) payout ratio of about 70%. Its latest payout ratio was 71%. So, the REIT maintains a conservative payout ratio, which can sustain its nearly 8.1% yield.
The market demands a higher yield from Northview Apartment because of its exposure to resource-based markets, which contribute about 22% of its NOI.
The company also earns about 27% of its NOI from Ontario, which is viewed as more stable. Moreover, its portfolio occupancy is about 90%.
Investors should note that since 2002, Northview Apartment has reduced its payout ratio from over 90%. As well, it has hiked its distribution eight times in that period.
NorthWest Healthcare Properties
NorthWest Healthcare has an international portfolio with interests in 136 healthcare properties across 9.2 million square feet of gross leasable area.
From its latest presentation in November, NorthWest Healthcare reveals that it earns 44% of its NOI from Canada, 29% from Brazil, 20% from Australasia, and 7% from Germany. And it earns 46% of its NOI from hospitals and 54% from medical office buildings and other asset types.
NorthWest Healthcare is underpinned by long-term leases with a weighted average lease term of 11 years, a high normalized portfolio occupancy of 96%, and a sustainable adjusted FFO payout ratio of 87%.
The quality units yield north of 8% at less than $10 per unit.
The takeaway
Both Northview Apartment and NorthWest Healthcare offer safe yields north of 8%. Income investors would be thrilled to know that REIT distributions can be more favourably taxed than their job’s income.
Here’s how it works.
REITs pay out distributions that are like dividends but taxed differently. In non-registered accounts, the return of capital portion of the distribution is tax deferred until unitholders sell or their adjusted cost basis turns negative.
REIT distributions can also contain other income, capital gains, and foreign non-business income. Other income and foreign non-business income are taxed at your marginal tax rate, while capital gains are taxed at half your marginal tax rate.
