Retirees: Add to Your CPP and OAS Payout With 2 High-Yield REITs

High-yield REITs such as Morguard and PRO REIT can generate a second stream of recurring income in your retirement.

Aditya Raghunath

Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.

Published February 27, 2020 8:33 am EST

| More on: MRT.UNPRV.UN

On average, Canadians earn $979.63 per month after combining payments from the Canada Pension Plan (CPP) and Old Age Security (OAS). The maximum monthly payout for 2020 from these pension plans stands at $1,789.36.

It will be difficult for retirees to sustain a comfortable lifestyle in large Canadian cities with just the CPP and OAS payouts. It’s therefore essential to have another stream of income to support you during retirement.

Investing in high-yield REITs provide investors with a viable option to diversify their investment portfolio and grow long-term wealth. Here we look at three Canadian REITs that you can add to your Tax-Free Savings Account (TFSA) or RRSP (registered retirement savings plan).

PRO Real Estate Investment Trust

PRO Real Estate Investment Trust (TSX:PRV.UN) is a Canada-based REIT. It has four segments that include Retail, Office, Commercial Mixed Use and Industrial. PRO owns a portfolio of diversified commercial real estate properties in Canada.

This REIT has returned 9.4% in the last 12-months compared to the S&P 500 gain of 12%. However, PRO REIT has a juicy dividend yield of 8.4%, making it an attractive pick for income investors.

PRO REIT has properties in primary and secondary Canadian markets of Quebec, Ontario and Atlantic Canada. Its diversified real estate portfolio generates stable cash flow with the retail segment accounting for 40% of revenue, followed by mixed use at 26%, industrial at 21% and office at 13%.

PRO REIT has grown sales at an inspiring rate over the years, driven by rapid growth in leasable space. Company revenue has increased from $23 million in 2016 to $40.9 million in 2018. Analysts expect sales to touch $56.4 million in 2019, $71.9 million in 2020, and $78.3 million in 2021.

PRO REIT has a price-to-sales ratio of 5.3 and an enterprise value to sales ratio of 12, which can be considered expensive, but the company’s growth metrics support a high valuation.

Morguard Real Estate Investment Trust

Morguard Real Estate Investment Trust (TSX:MRT.UN) is a closed-end trust. It aims to accumulate a portfolio of real estate assets to generate stable returns to unitholders.

Morguard owns about 50 commercial properties totaling a gross leasable area of nine million square feet in provinces of British Columbia, Alberta, Ontario, Quebec, Manitoba, and Saskatchewan.

Morguard has a portfolio of 30 office and industrial properties and over 20 retail properties. Morguard has underperformed the broader markets and has returned -1.5% in the last year because of its high exposure to Alberta’s sluggish real estate market.

About 25% of Morguard’s leasable space is located in Alberta. However, Morguard has an occupancy rate of 90% in this province. Morguard management believes the company shares to be undervalued by at least 50%. Morguard has a forward dividend yield of 7.6%.