Passive-income investors should take advantage of the bargains they spot in the REIT (real estate investment trust) scene before they disappear once the COVID-19 pandemic ends and the pandemic recovery plays have a chance to correct to the upside. Many hard-hit REITs surged earlier this month following promising news of Pfizer’s effective vaccine. With Moderna pulling the curtain on its own approximately 95% effective vaccine, it was off to the races for names within the hardest-hit sectors of the economy.
With many REITs now in rally mode, I’d encourage investors to buy on strength and on further weakness as we inch closer to the end of this pandemic. Sure, it’s tough to miss out on double-digit upside, but given many REITs are still miles away from their pre-pandemic levels, I’d argue that backing up the truck on REITs is still a wise idea, given the odds that the pandemic could end as soon as 2021, with the handful of effective vaccines in hand.
Of course, a lot of negative surprises could happen between now and the end of this pandemic. It could be a bumpy road en route to herd immunity. That said, many REITs, especially those in the retail and office sub-industries, are far less risky than they were all year, even after their vaccine-driven bounces.
Two bargains for passive-income investors
This piece will have a closer look at two REITs that I believe are among the best deals on the TSX today. Without further ado, consider shares of SmartCentres REIT (TSX: SRU.UN) and CT REIT (TSX: CRT.UN), which currently sport bountiful yields of 7.5% and 5.4%, respectively.
Both REITs have safe payouts that can withstand the worsening second wave of COVID-19 cases. Once the pandemic finally ends, both REITs could also be in a spot to deliver double-digit percentage upside for those willing to step in while there are still a bit of nerves surrounding the real estate space.
SmartCentres REIT: A bruised REIT whose headwinds are greatly exaggerated
Forgive the pun, but SmartCentres REIT is a smart investment here. The rich distribution isn’t as bountiful as it was a month ago, but the yield is still well above its historical averages. With its Wal-Mart anchor, SmartCentres is better positioned to ride out another wave of partial lockdowns with its relatively robust cash flow stream, thus securing its distribution until the bending of the COVID curve can be achieved.
Thinking longer term, SmartCentres is also in a good spot, as it looks to diversify into non-retail real estate. In the meantime, all focus will be the leasing headwinds up ahead and the pressure that some of Smart’s more vulnerable tenants may fall under during the second wave.
Management sees occupancy retreating by as much as 150 bps over the next two quarters. As focus returns to post-pandemic normalcy, though, I suspect passive-income investors will be more forgiving of less-than-stellar results over the coming months.
CT REIT: A safe payout for passive-income investors
CT REIT is a diversified REIT that’s most famous for being the landlord of Canadian Tire since being spun off a while back. Canadian Tire demonstrated tremendous resilience in the first wave of the pandemic and is likely to continue doing so in the current one. The retailer is also absurdly liquid, making missing a month’s rent highly unlikely, regardless of how bad the second wave becomes over the coming months.
Fellow Fool Brian Paradza is a big fan of CRT.UN, going as far as saying the REIT has one of the “safest yields.”
“If distribution safety is proven by how well a trust has managed to survive a perfect COVID-19 storm without cutting the payout, then CT REIT pays one of the safest 5.4% yielding distributions in Canada. The trust actually increased its distribution twice for 2020.” wrote Paradza.
I think he’s right on the money and would encourage passive-income investors to scoop up shares while there are still some jitters about the name.
