Investing in real estate provides you with an opportunity to diversify overall risk. While purchasing a house requires a significant amount of capital, including mortgage debt, investors can look to buy real estate investment trusts (REITs) and gain exposure to the real estate market.
REITs own a portfolio of real estate assets, and these income-generating properties allow companies to distribute profits via dividends to shareholders.
We’ll take a look at three Canadian REITs that should be on the radars of income-seeking investors right now. All three REITs have forward yields of more than 3% making them ideal for dividend investors.
Killam Apartment REIT
Canada’s housing sector has been on an absolute tear in the last decade. Despite the onset of COVID-19, a low-interest-rate environment provided Canadians access to cheap debt capital, driving overall prices higher.
If you want to get exposure to the residential space in Canada, Killam Apartment REIT (TSX:KMP.UN) seems a solid bet. The stock offers investors a tasty forward yield of 3.3%, and it has gained over 100% in dividend-adjusted returns in the last five years.
Killam Apartment is one of Canada’s largest residential landlords and manages a portfolio of close to $4 billion, which includes apartments and manufactured home community properties. The REIT continues to grow via acquisitions, and more than one-third of its net operating income in 2020 was derived from properties built in the last 10 years. This acquisition-based model has allowed Killam to increase net operating income at an annual rate of 11.8% in the last five years.
WPT Industrial REIT
This REIT acquires, develops, and manages distribution and logistics properties in the United States. WPT Industrial REIT (TSX:WIR.U) provides investors a forward yield of 4% and has gained over 40% in market value since it went public last year.
In the first quarter of 2021, WPT created a new joint venture with 13 investment properties valued at $370 million. It generated $8.5 million in private capital fee revenue and collected 99.8% of billed rent for Q1.
WPT’s same property NOI rose 2.5% year over year on the back of strong leasing spreads. Its funds from operations and adjusted funds from operations rose by 62% and 87% respectively year over year in Q1. The company also decreased its debt-to-assets ratio to 43.1%, providing it with increased financial flexibility going ahead.
One of the largest REITs in Canada is RioCan (TSX:REI.UN), which provides investors with a yield of 4.3%. It owns, manages, and develops retail-focused, mixed-use properties in high-density, transit-oriented areas. RioCan was heavily impacted amid COVID-19 and the stock lost close to 40% in market value during the bear market of 2020. However, since March 2020, RioCan stock has surged 54% and recovered a significant portion of its losses.
As the economy reopens, RioCan will benefit from increased retail traffic allowing it to maintain its dividend payout. It has already reduced monthly dividend payouts from $0.12 in December 2020 to $0.08 per share in January 2021.