2 REIT Stocks to Ride the Real Estate Bull

Industrial REITs are the hottest investments in 2021 if you want to earn rental-income without owning physical properties. Nexus stock and Summit Industrial stock are the top choices of income investors looking for safe, rock-solid dividends.

| More on:
Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House

Image source: Getty Images

Demand for real estate is rising such that organizations like RE/MAX Canada believe Canada’s housing market is at a critical point. The bull run is still on, and home prices could rise 20% by year-end 2021, says the Canadian Real Estate Association’s (CREA).

Despite home sales dropping 0.5% in August versus July, the average selling price went up by 13.3%. Because of the unprecedented supply and demand imbalance, CREA estimates the average price to be $680,000. Its recent report also predicts a 5.6% increase in home prices in 2022, driving the national average to $718,000.

Real estate investors should hold off purchasing properties given the precarious market conditions, including inflated prices. If you want to earn rental-like income, consider investing in real estate investment trusts (REITs). Nexus (TSX:NXR.UN) and Summit Industrial (TSX:SMU.UN) are top performers and reliable income stocks.

Leading growth-oriented REIT

Nexus debuted on the TSX on February 4, 2021. As of September 17, 2021, the real estate stock trades at $12.89 per share — a gain of 60.56%. The current dividend yield is 4.96%. A $125,000 investment will deliver $6,200 in passive income that translates to $516.67 every month.

The $564.16 million REIT owns a high-quality portfolio of industrial, office, and retail properties. However, the focus of this growth-oriented REIT is the industrial sector. About 61.5% or 56 of the 91 income-producing assets are industrial properties. Also, Nexus acquired 13 of them this year.

Nexus’s industrial portfolio contributes 68% to net operating income (NOI), followed by retail (20%), which boasts national tenants offering necessity-based products and services. Besides long-term, stable cash flows, lease contracts have yearly rent-escalation provisions.

In Q2 2021, property revenues, NOI, and net income rose 24.4%, 24.6%, and 781% versus Q2 2020. According to Kelly Hanczyk, Nexus’s CEO, the industrial weighting should increase to more than 70% of the REIT’s NOI soon. The company has a strong pipeline of further potential acquisitions in various stages.

Proactive leasing program

Industrial REITs are thriving due to the e-commerce boom. Summit Industrial enjoys a tremendous boost, as evidenced by its most recent quarterly results. In Q2 2021, net rental income and same property NOI rose 19.3% and 5.5% compared to Q2 2020. Liquidity-wise, Summit had over $800 million in cash after the first half of the year.

The $3.66 billion REIT didn’t have problems with rent collections throughout the pandemic and has maintained a high occupancy rate of 98.8%. Summit owns and operates 158 industrial properties. The high-value generic-use space of its portfolio is a competitive advantage.

Besides the low-operating and maintenance costs, the REIT enjoys lower market rent volatility against the commercial, office, and retail properties. The weighted average term of the properties under the progressive leasing program is approximately 5.7%. You get value for money at $21.70 per share and 2.6% rock-solid dividends.

Affordability crisis

CREA chairman Cliff Stevenson said a big spotlight has been shone on the red-hot housing market in the last 18 months due to the COVID-19 pandemic. The election has had candidates share ideas on fixing the housing market. For RE/MAX Canada, there must be a collaborative national housing strategy to arrest the affordability crisis. The result should be a more normal rhythm with the economy.

Real estate investors can take the cue and instead invest in Nexus or Summit Industrial to earn rental income.

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 SUMMIT INDUSTRIAL INCOME REIT.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »