So far, real estate has been one industry that’s seen a massive difference from best to worst performers. It’s paramount for you to understand the full scope of the impact on TSX REITs.
Some TSX REITs, such as retail, were massively impacted when the coronavirus pandemic hit. Some, such as residential REITs, saw almost no negative impact. Then there were the REITs, such as those in the industrial sub-sector, that have been benefiting somewhat from the new trends.
Before you invest in a TSX REIT, it’s essential to know what you are looking for. Are you looking for a distressed REIT that has been beaten up and is undervalued?
As I mentioned before, there is a huge divergence between the real estate sub-sectors that have been heavily impacted by the pandemic and those that have gone relatively unscathed.
There has also been a significant difference within the same real estate sub-sectors. In retail, most REITs suffered heavy losses in the first two quarters of the year, while some, such as CT REIT, have seen only a small setback.
CT REIT could be a good option for investors. It’s considerably less risky than its retail REIT peers. However, it’s still down roughly 15% on the year.
Conversely, you may want to buy one that’s a little more impacted, such as First Capital REIT.
There is no doubt there is more risk with First Capital. However, the REIT has one of the strongest portfolios on the market, and with its bigger discount and longer growth pipeline, First Capital could be the perfect long-term investment today.
If retail REITs aren’t for you, you may way to think about a high-growth apartment REIT.
TSX apartment REITs
There’s no question that the Canadian real estate market has been hot for years. Many TSX REITs acknowledged this and were taking advantage. This resulted in rapid growth by several high-quality REITs.
InterRent REIT was one of the top performers on the TSX, up roughly 100% in the last three years.
This massive and consistent growth doesn’t happen by accident. Plus, InterRent is still down 30% since the start of the pandemic. So, this may be the perfect opportunity to buy into that impressive growth at a significant discount.
Another option would be to buy a more heavily impacted apartment REIT. Residential real estate is generally safer and more defensive than retail real estate. If you’re looking for an extremely cheap REIT to buy, you may decide the residential route may be the better bet.
Boardwalk REIT (TSX:BEI.UN) would be a perfect example of a high-quality opportunity. The residential REIT has been heavily sold off due to its high portfolio concentration in Alberta. The REIT is now down nearly 40% from the start of the pandemic.
With the oil markets being heavily impacted by the global pandemic, Alberta has felt the economic pressures two-fold in 2020. This has caused the stock to underperform significantly, creating an excellent opportunity for savvy investors who see the opportunity.
The REIT averaged 98% of collections in the second quarter.
Plus, it’s also been recycling some money and investing it in Ontario. I think that’s important for the REIT to diversify away from its core market in Alberta.
Plus, looking at the actions of the REIT, it doesn’t look like management is too concerned with the short-term impact of the pandemic. Growth investment projects remain on track, which only adds more value to this extremely cheap TSX REIT.
TSX industrial REITs
If you aren’t interested in apartment REITs, the last thing to consider would be the emerging growth industry of industrial REITs.
Over the last few years, the trend in retail has increasingly been moving online. As businesses close their brick-and-mortar stores and go strictly e-commerce, there has been more and more demand for warehouse space to store inventory.
This trend has only been sped up by the coronavirus pandemic, and businesses like Granite REIT are taking advantage.
Granite is one of the only TSX REITs back near or above its pre-pandemic high, and the top performer in the TSX real estate sector.
So, if you’re looking for the next long-term growth stock, Granite may be the perfect stock for you.
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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 Daniel Da Costa has no position in any of the stocks mentioned.