Real estate investment trusts (REITs) are the next-best alternatives if the prices of investment properties are sky high, like they are today. However, REITs are also the best options for Canadians who want to be lazy landlords. Apart from the lower cash outlay, you can earn regular income like actual rental property owners.
Crombie (TSX:CRR.UN) and Canadian Apartment Properties (TSX:CAR.UN) are established REITs with consistent dividend payouts. Would-be investors gain access to the real estate sector minus the headaches and costs that come with rental property ownership.
Food retailer Empire Company has a 41.5% ownership stake in Crombie. This $3.06 billion REIT has been in existence for 57 years and currently has 298 properties under management. Because the portfolio consists of high-quality grocery-anchored properties, cash flow growth is predictable.
Crombie derives 82% of annual minimum rent (AMR) from grocery and pharmacy-anchored properties. Sobeys, Empire’s subsidiary, is the REIT’s strategic partner. Also, 80% of the top 10 tenants have investment-grade credit ratings. In Q3 2021, the committed occupancy was 96.5%, while rent collection was 99%.
Apart from the retail and commercial properties. Crombie has office and retail-related industrial properties for lease. As of October 2021, the percentage of rent collection is 100%. Moreover, 70% of AMR comes from tenants in VECTOM providing essential services. VECTOM refers to the Vancouver, Edmonton, Calgary, Toronto, Ottawa, and Montreal markets.
The compelling reasons to invest in Crombie are its strong, stable high-quality properties and low-risk property portfolio. Notably, Empire is the anchor tenant in 85% of the retail properties. The weighted average remaining lease term of Empire is 12.7 years.
More value creation is on the horizon, given the major development pipeline in VECTOM and pipeline properties with zoning approval. Crombie expects to complete six development projects in the near term and 24 mixed-use properties in the medium and long term.
Performance-wise, Crombie outperformed the TSX in 2021 (+36.71% versus +21.74%). At $18.62 per share, the dividend offer is a 4.81%. Assuming you invest $50,000, the regular income per month is $200.42.
Canadian Apartment Properties, or CAPREIT, owns or has interests in residential apartment suites, townhomes, and land lease community sites in Canada, Ireland, and the Netherlands. In Q3 2021, this $10.38 billion, fully internalized, growth-oriented REIT reported 6.4% and 6.7% growth, respectively, in operating revenues and NOI versus Q3 2020.
CAPREIT has yet to present in Q4 2021 results. However, its president and CEO Mark Kenney said, “We continued to generate solid growth and strong operating performance in the third quarter, indicating another record year for CAPREIT in 2021.”
After three quarters in 2021, CAPREIT had $138 million in cash and $243 million in unutilized credit lines. Kenney added the unencumbered Canadian properties worth $1.2 billion can provide additional capacity if CAPREIT needs to fund its growth. Because of positive value drivers, management is confident that the REIT will generate strong and growing returns to unitholders in the long term.
The real estate stock’s total return in 2021 was 22.97%. If you invest today, the share price is $59.96, while the dividend yield is a decent 2.42%.
Canada’s housing market is red hot but riddled with uncertainty. Hence, established REITs like Crombie and CAPREIT are viable investment options if you need rental-like income in 2022.