The Motley Fool

2 REITs That Will Help You Build a Property Empire

Christopher Liew, CFA | June 29, 2021| More on:

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Real estate is a long-term and rewarding investment. You can build a property empire if you have tons of money. The returns would come from rental income or price appreciation when you sell them in the future. While real estate is a superior investment, not everyone can afford to accumulate properties in their portfolios.

However, a property enthusiast with limited resources still has options in real estate investment trusts (REITs). You can become a pseudo-landlord without the attendant risks and expenses in owning physical properties.

Since the industrial real estate sector is the hottest right now, Dream Industrial (TSX:DIR.UN) and Summit Industrial (TSX:SMU.UN) can form your initial mock property empire. Both REITs are consistent dividend payers and, therefore, are worthwhile investment options.

Dream portfolio

The Q1 2021 (quarter ended March 31, 2021) earnings results prove Dream Industrial’s business resiliency. Net income from 186 properties rose 127% to $95 million versus Q1 2020. In addition, the REIT’s pipeline for future acquisitions remains strong, notwithstanding the sale of lower-quality assets in the last two years.

Management’s ongoing concern is building and executing a development program in North America and Europe that capitalizes on its predominantly urban portfolio. This year, Dream will acquire assets worth over $500 million in 2021, which should increase its gross leasable area (GLA) by three million square feet.

Dream commenced projects in Las Vegas, Nevada, Montréal, and Québec, covering nearly 700,000 square feet. An integral part of the REIT’s capital strategy is to increase financial flexibility. “We continue to deploy capital at a robust pace while maintaining significant financial flexibility,” said Lenis Quan, chief financial officer of Dream Industrial REIT.

The competitive advantages of this real estate stock are high-quality tenants and significant rental rate growth. At $15.35 per share, the dividend yield is an attractive 4.6% dividend.

Strong fundamentals

Last year was a record year for Summit Industrial. In Q1 2021 (quarter ended March 31, 2021), net income increased 208% to $132.4 million versus Q1 2020. Because of its proactive leasing program, this $2.98 billion REIT’s occupancy rate is a high of 98.2%.

Summit has 154 income-producing assets as of May 11, 2021. During the first quarter of 2021, the fair-value gains on these light industrial properties reached $104.8 million. Apart from a solid and stable rent collection, Summit’s liquidity position is robust. It has around $600 million in cash and an unutilized unsecured revolving credit facility. The REIT could pursue new financing opportunities.

This REIT trades at $17.75 per share and pays a decent 3.15% dividend. The positive trends plus strong fundamentals of the light industrial sector are the compelling reasons to own shares of Summit Industrial in 2021.

More choices in the recovery period

When the economy reopens, you can expand further your collection of REITs. Some top names that lease out residential, commercial, and office spaces should make a resounding comeback. Even landlords in the retail and hospitality sectors could bounce back in the recovery period.

Would-be investors can filter through the list to identify the REITs can help achieve their financial goals. The bottom line is that you can earn rental income like a true landlord without necessarily purchasing physical properties. For now, industrial REITs are your best options to start a property empire.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends DREAM INDUSTRIAL REIT and SUMMIT INDUSTRIAL INCOME REIT.

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