Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this month.

Kay Ng

Author Bio Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt. Education Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting Areas of Expertise Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies. Social Media Profiles LinkedIn Favorite Investment Quotes “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published May 20, 2022 12:15 pm EDT

Real estate investing doesn’t come as easy as this. Become a passive landlord by buying Canadian real estate investment trusts (REITs) and leave the work to the professional teams behind the REITs. The REIT management will take care of property management and decide what properties to invest in or take profit from. Oh, and passive landlords don’t have to worry about the burdens of mortgages — leave that to the REIT management as well.

Lazy landlords invested in Canadian REITs can simply sit back, collect monthly income, and watch their wealth swell. Just make sure to buy the REITs on discounts. Here are three cheap Canadian REITs to consider buying in May.

InterRent REIT

InterRent REIT (TSX: IIP.UN) is a growth-oriented, multi-residential REIT. It’s focused on growing the funds from operations (FFO) and net asset value (NAV) on a per-unit basis. Additionally, it’s committed to paying out sustainable and growing cash distributions while maintaining a conservative balance sheet.

In the first quarter, InterRent experienced FFO-per-unit growth of 16.7%. Its year-over-year occupancy also improved 4.2% to $95.5%. Its financial position remains healthy with a weighted average interest cost of 2.51%, 71% of CMHC-insured mortgages, and interest coverage of 3.31 times. Furthermore, at the end of the quarter, it also had approximately $255 million of available liquidity.

Its FFO payout ratio is estimated to be about 60% this year, which provides ample room to protect its monthly cash distribution. At $13.54 per unit at writing, the Canadian REIT yields 2.5%. Importantly, analysts think InterRent REIT is discounted by about 27%. Therefore, the REIT can potentially appreciate 36% over the next 12 months.

Dream Industrial REIT

To diversify away from residential real estate, lazy landlords can invest in Dream Industrial REIT (TSX: DIR.UN) for a yield of just over 5%. The industrial REIT invests, operates, and manages a $6 billion portfolio across Canada (63% of portfolio) and Europe (37%). This portfolio is comprised of 244 properties that has a high committed occupancy of 98.7% and a weighted average lease term of 4.6 years.

Management sees strong rent mark-to-market potential, which can drive organic net operating income growth. Dream Industrial REIT also has embedded indexation to support rent growth over time. Additionally, its development pipeline and value-add investments should support a rising NAV.

Its 2022 FFO payout ratio is estimated to be about 79%. Importantly, analysts estimate the REIT is undervalued by about 26%. Consequently, Dream Industrial REIT has a 12-month upside potential of 34%.

Canadian Net REIT

To round up a nice, diversified REIT portfolio, I’d like to introduce Canadian Net REIT (TSXV: NET.UN), which is invested in about 95 commercial properties. Its portfolio is largely (close to 87%) located in the populous provinces Ontario and Quebec. Because it owns quality triple-net and management-free real estate properties, it’s able to keep costs low, which leads to more stable cash flow generation.

Its yield of approximately 4.6% is competitive. Further, its monthly cash distribution is sustainable and growing. Its 2022 FFO payout ratio is estimated to be 52%. And its five-year dividend-growth rate is incredible at 13.3%. At $7.33 per unit, the Canadian REIT is discounted by about 21%. It has almost 27% near-term upside potential.