2 REITs That Are Still Smart Buys

Even though we are more than a couple of years away from the 2020 crash, some REITs are still trading at a discount to their pre-pandemic price and, thus, are intelligent buys.

| More on:
Canadian stocks are rising

Image source: Getty Images

The housing market in Canada is still soaring, and the bubble is getting more prominent over time. However, the same trend is not reflected in the S&P/TSX Capped Real Estate Index, which peaked in Jan. 2022 and has been on a downward trend ever since.

And even though the correction is relatively minor (for now) and the bullish phase for part of the REIT pool might be over, there are still two REITs that are smart buys.

A residential REIT

The housing market is too hot to touch in Canada right now, but you can access it with an investment like Interrent REIT (TSX:IIP.UN). The REIT currently operates an extensive portfolio of 124 properties in four core markets, with Greater Toronto and Hamilton having the largest share. These properties translate to almost 12,877 residential suites — i.e., the REIT’s FFO sources.

The REIT is beloved by investors more for its capital-appreciation potential than its dividends. Even now, when the stock is trading at an 18% discount from its recent peak, the stock is only offering a dividend yield of 2.2%, which isn’t too low, but it’s not a compelling enough reason to buy a REIT. However, the capital-appreciation potential is a breed apart.

If you count till the last peak, the stock rose over 380% in the previous decade. If it keeps growing at this rate, it has the potential to double your investment capital in the next three to four years. That might be an even better growth rate than most physical real estate properties might offer.

An urban workspace REIT

Allied Properties REIT (TSX:AP.UN) doesn’t market itself as a simple office properties REIT, even though that’s what it essentially is. It’s an urban workspace REIT that focuses on consolidating Class I workspaces in various markets.

This naturally resulted in an aggressive yet strategic acquisition approach that the REIT follows, the most recent example is its acquisition of an office portfolio from another REIT (Choice Properties).

The REIT has seen phenomenal growth since its inception, and both its portfolio and stock have moved up at an incredible pace. It has about 195 rental properties on its portfolio spanning 14.2 million square feet and six major markets, though the bulk of it is in two markets: Montreal and Toronto.

The REIT offers a different combination of capital-appreciation potential and dividends. The yield is currently significantly more attractive compared to Interrent (3.9%), thanks mainly to the 25% discount the REIT is still offering. The growth potential is not as aggressive, but it’s significantly more predictable.

Foolish takeaway

There are a lot of REITs that are primarily cherished as dividend stocks. But the two REITs that are still smart buys are worth looking into for their capital-appreciation potential. One of them (Interrent) is a good option from a valuation perspective as well, though both are discounted.  

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 Adam Othman owns iSHARES SP TSX CAPPED REIT INDEX FD. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »