According to Fraser Institute, inflation is coming to Canada, whether it’s transitory or not. The rate quadrupled in eight months, which is a quick pace not seen in recent years. Based on disclosures by the Bank of Canada, supply chain disruption is the causing the spike in inflation.
The central bank and economists argue on the use of the term transitory or temporary. But none of the debating parties can say when the high inflation will subside. Interest rate hikes will come first, perhaps sooner than later, to arrest inflation risks. Canadians will feel the financial strain in the next few months.
Because of higher borrowings costs, economists predict the demand for housing will decrease next year. Some even say the frothy market is one reason for rising inflation. The red-hot housing market also brought an affordability crisis. Real estate investors should remain cautious due to inflated prices.
If you want to insulation from an economic slowdown or recession, move your money to real estate investment trusts (REITs). Carefully select REITs in stable sectors like industrial and healthcare. The top picks in a recession-inflation period are Dream Industrial (TSX:DIR.UN) and NorthWest Healthcare Properties (TSX:NWH.UN).
High-quality industrial portfolio
Dream Industrial focuses on sourcing then acquiring attractive industrial opportunities not only in Canada but also in Europe and the United States. The $3.86 billion REIT has completed more than $3 billion of purchases in the last four years. Currently, its global investment platform consists of 326 income-producing properties.
The REIT’s tweet after reporting its Q3 2021 earnings results read, “Our high-quality urban portfolio continues to increase in value, driven by higher market rents and declining cap rates due to the strong outlook for further rental rate growth. The secular tailwinds supporting industrial fundamentals continue to underscore the advantages of owning a portfolio in markets with steep barriers to entry.”
Apart from completing $1.9 billion in acquisitions after three quarters in 2021, the REIT’s net rental income grew 27% to $418.37 million versus the same period in 2020. Notable during the period was Dream Industrial’s leasing momentum and 98% committed occupancy rate.
Global expansion to meet increasing demand
NorthWest Healthcare’s competitive advantage is that it’s the only REIT in the cure sector. As of September 30, 2021, the total assets under management (AUM) increased 15% year over year to $8.5 billion. The portfolio has 192 properties with an occupancy rate of 96.9%, while the weighted average lease expiry is 14.1 years.
In Q3 2021, this $2.9 billion lessor of medical office buildings, hospitals, and clinics reported a 556% increase in net income versus Q3 2020. Paul Dalla Lana, NorthWest’s CEO, said it was another strong quarter due to the solid operating results. He also noted the progress in key strategic priorities, particularly the value creation initiatives in the U.K.
NorthWest will continue to expand its global asset management platform given the increasing interest on healthcare real estate. It will also capitalize on the significant demand for long-leased inflation indexed assets.
Dividend machines
Apart from lower cash outlay, Dream Industrial and NorthWest Healthcare are dividend machines and reliable passive-income providers. At $16.83 and $13.52 per share, the dividend yields are 4.16% and 5.92%, respectively.
