Retirees can’t hide from volatility these days, with stocks, bonds, gold, and almost everything fluctuating wildly by the day. Undoubtedly, REITs have been quite a choppy ride as well amid the recent slide in the TSX Index towards correction territory.
While REITs could easily continue slipping from here, I think their slightly swollen yields (remember, yields go up as share price fall) make for an intriguing contrarian buy right here.
With the Bank of Canada ready to raise the bar on interest rates, perhaps at a much quicker than expected pace, 2022 is shaping to be a write-off of a year. Indeed, it only seems like commodity stocks and staples can run higher. In any case, long-term retirees can benefit from the slightly higher yields, as the selloff in the REIT space continues over the coming weeks and months.
Though there’s no telling when REITs will bounce back (perhaps when the broader S&P 500 and TSX Index stop nosediving), some of the names are getting a tad too cheap after the latest round of selling pressure.
In this piece, we’ll have a closer look at popular diversified real estate play in RioCan REIT (TSX:REI.UN) and hard-hit residential play InterRent REIT (TSX:IIP.UN).
RioCan REIT
RioCan is one of the largest REITs in Canada. Shares were decimated during the COVID crash of 2020, but partially rallied back since bottoming out around two years ago. Recently, shares slipped around 15% off 52-week highs alongside almost everything else. The relief rally came to a correcting halt, but for no real good reason other than fear of higher rates.
Higher rates aren’t good for the REITs. However, I think the recent rate jitters are overblown, especially with a high-quality, diversified play like RioCan. At writing, shares of REI.UN yield just north of 4.6%. That’s a pretty good payout for retired investors seeking exposure to the province of Ontario, where a majority of revenues are derived from.
Though RioCan is a retail-flavoured REIT, I think that its resilience through the pandemic is noteworthy. Though it could take more than a year to see new highs again, I’d argue RioCan is a great dip-buy right here and on any further weakness. Shares are just getting too cheap, and the payout is more than sustainable, even as the economy runs the risk of falling into recession in the next 18 months.
InterRent REIT
For those looking for more growth in the REIT space, InterRent REIT may be one of the better bargains amid the latest market selloff. Shares are now staging to recover off a plunge that saw shares shed around a third of their value. That’s excessive, to say the least.
The relatively small residential-focused REIT has grown via strategic acquisitions in the past. In short, the firm finds bargains within its target market and tries to create value through renovations and other improvements. InterRent is one of the best at what it does. However, with rates surging, fears linger as to how InterRent will proceed moving forward.
Growth REITs tend to be a choppier ride than yield-heavy ones like RioCan, especially during market-wide panics. As IIP.UN shares look to flirt with 2020 lows, I’d look to be a buyer. Shares have gotten way too cheap, and the 2.6% yield is close to the highest it’s been in a while.
