Which Top TSX REIT Is a Safer Pick?

TSX REITs have been bouncing around with the stock market. At these lower levels, the yields are sky-rocketing. Which TSX REIT is a safer play now?

| More on:
question marks written reminders tickets

Image source: Getty Images

Stocks have been bouncing around recently, and REITs have been no exception. While some TSX REITs offer insane yields at the moment, they also carry additional risk.

With so much uncertainty in the economy, rent strikes and deferrals are starting to become reality. So, before any investor dives into a REIT, they must consider the cash flow capabilities in the near term.

Now, not all REITs will be impacted equally, since the safety of the cash flow is going to come down to the type of tenants in place. Obviously, any business that’s been closed due to the pandemic is going to have a tough time making rent. Meanwhile, a tenant deemed to be essential will still be operating and may be able to make rent on time.

Today, we’ll take a look at two top TSX REITs and see which one might be a safer pick for the time being.

H&R REIT

H&R REIT (TSX:HR.UN) is a large commercial REIT operating in Canada and is the third largest in the country by market cap.

It owns over 41 million square feet of property across North America. However, most of that is office and retail space.

Right now, those two sectors are getting hit hard as non-essential businesses are closed for the time being. As such, cash flows for H&R could be in peril.

To reflect this risk, H&R’s share price has taken a drastic nosedive. It currently trades at $9.20, while it traded at $20.56 as recently as March 4.

Due to the massive drop off in price, this TSX REIT is now yielding an unbelievable 14.98%. However, it’s important for investors to avoid this potential yield trap, as it’s highly unlikely that yield can be sustained given current conditions.

Besides the looming rent-deferral risks, the current payout ratio for H&R is also simply too high at 116.01%. For now, H&R seems to be in for too much of a bumpy ride to entice investors.

Choice Properties

Choice Properties REIT (TSX:CHP.UN) is the largest REIT in Canada by market cap, with a total enterprise value exceeding $16 billion.

While Choice has dipped its toes into residential and office holdings, its main source of cash flow, retail, is what makes it a safe pick.

Now, that might seem contradictory, as we just talked about how retail is in peril right now. However, Choice’s retail properties are almost entirely made up of Loblaw locations.

As an essential business, Loblaw is staying open and experiencing consistent demand through these tough times. As such, it should not be in danger of missing a tonne of rent payments. We know the same can’t be said for most retail stores.

As of writing, Choice is trading at $12.61 and yielding 5.87%. It’s important to note it was trading at $14.50 on March 4. So, its fall has not been nearly as drastic as H&R’s.

This is probably due to the fact that Choice is anchored by such a solid tenant that accounts for the vast majority of its revenue.

TSX REIT strategy

For investors looking at TSX REITs, H&R and Choice are two of the biggest names in the Canadian market.

However, while H&R seems to be in a precarious position, Choice is firmly entrenched as a market leader due to its strategic relationship with Loblaw.

For investors seeking passive income, Choice seems to be the safer pick while still offering a solid 5.87% yield.

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 Jared Seguin has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »