Housing market analysts say the hot zones seem to be on steroids. The current housing boom in Canada is unprecedented, although high prices could hurt aspiring home buyers. Even real estate investors should beware of inflated property prices. You could lose money once the bubble bursts and prices plunge sharply.
Instead of acquiring physical properties, some investors prefer to be lazy landlords. Consider buying three Canadian REITs that can provide similar rental income but with less cash outlay and no headaches.
Hottest REIT
Industrial properties are the hottest items in the pandemic due to the e-commerce boom. If you were to pick the best stock in the real estate sector, Summit Industrial (TSX: SMU.UN) is the logical choice. The $2.63 billion REIT owns a portfolio of best-in-class light industrial properties.
Similarly, at $15.71 per share, the REIT pays a decent 3.42% dividend. Summit’s 158 properties (79 or roughly 50% are in Ontario) are all income-generating. The mostly one-story properties are for high-value generic use. Tenants use them as warehouses or storage facilities, light assembly and shipping plants or call centres.
Summit maintains strong fundamentals owing to low operating costs, low market rent volatility, low capital and maintenance costs. Light industrial properties generally have long-term strength and add stability to industrial landlords’ rental income.
Lone REIT in the cure sector
NorthWest Healthcare Properties (TSX:NWH.UN) also attracts income investors because it’s the only REIT in the cure sector. The defensive business model of this $2.55 billion REIT was very evident in 2020. Its 13.4% total unitholder return was better than the S&P/TSX Composite Index capped REIT index’s performance.
Remember that NorthWest owns and operates a portfolio of high-quality international healthcare real estate infrastructure. The rental properties are hospitals, clinics, and medical office buildings. NorthWest is present in the markets of Canada, Australia, Brazil, German, Netherlands, New Zealand, and the U.K.
Established hospital operators are the partners. NorthWest’s portfolio occupancy is stable at 97.1%. The rate in the international portfolio is a high 98%. The European footprint has expanded following the acquisition of 10 high-quality hospitals in the U.K. last year. The current share price is $13.15, while the dividend yield is 6.09%.
High-profile tenant base
True North Commercial (TSX: TNT.UN) is a dividend king with its 8.34% yield. This $616.51 billion REIT boasts a high-quality government and credit-rated tenant base. Its portfolio has 46 properties only, although the federal government of Canada is the anchor tenant in 13 of the leased commercial properties. The share price is $7.14.
For the full year 2020, True North’s revenue and net income increased by 31% and 64.4% versus the full year 2019. Other important figures include the strong occupancy rate of 98%, contractual rent collection of 99%, and 21% growth in net operating income (NOI).
The government and credit-rated tenants account for 75% of Northwest’s total revenue. Currently, the average remaining lease term is 4.7 years. Would-be investors can expect uninterrupted income streams and have capital protection as well.
Restoring sanity
Canada’s housing markets have been red-hot since June 2020. Many quarters, including the Canada Mortgage & Housing Corp. (CMHC), are concerned the bubble might burst anytime soon. The Bank of Canada is looking for ways to cool the heat and restore a semblance of sanity in the market.
