Over the past three years, the real estate industry has seen impressive earnings growth of 27% annually. However, real estate investment trusts (REITs) have only grown their revenue, on average, by 7.6% per year. This indicates that many of these REITs are more efficient and have been compensating investors accordingly.
That said, not all REITs are created equally. There’s plenty of variation across trusts, from a sector perspective, geographic orientation, and risk profile. In my view, industrial and residential real estate are the sub-sectors to be in, with a focus on urban metropolitan areas.
Here are two such REITs that fit into these categories, that I would put into the “buy-and-hold-forever” bucket.
Dream Industrial REIT
Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) has been a top pick of mine for quite some time. This trust focuses on high-quality industrial properties (warehouses and distribution centres) located near major metropolitan city centres. Thus, as the e-commerce boom continues, the demand for warehouse space in close proximity to buyers will continue to drive prices higher.
This REIT has been on a downtrend since early 2021, mostly due to rising interest rates. However, with the Bank of Canada signaling that rate hikes will be paused from here, REITs are starting to catch a bid. This is one such trust I think is worthy of keeping an eye on as a rebound candidate.
Additionally, fund manager GIC and Dream Industrial REIT purchased Summit Industrial Income REIT in an all-cash deal. Through a special distribution and redemption of units, Summit unitholders will receive a cash payment of $23.50 per unit. A limited partnership with an ownership structure consists of 90% for GIC and 10% for DIR.
The REIT boasts the highest dividend yield in its peer group (over 5%) and trades at around $13, which is quite cheap compared to its peers as well.
Canadian Apartment REIT
Canadian Apartment REITÂ (TSX: CAR.UN) released its most recent quarterly earnings report on Nov. 8. This report missed expectations, with earnings per share (EPS) coming in at 36 cents for the quarter (expectations were for EPS of 62 cents). Revenue of $252 million also did not excite investors.
That said, this REIT has among the highest-quality portfolio of residential properties in the market. The trust’s management team is also among the best in the business, growing in unique ways relative to its peers.
The REIT’s monthly dividend distribution of 12.1 cents per share is notable, as it provides investors with a regular monthly income stream. For those heading into retirement, such an income stream may be welcome, to help offset expenses. Indeed, while 3% isn’t anything to write home about, CAPREIT has raised its distribution consistently over its history.
Analysts at Raymond James released their predictions for CAPREIT stock’s EPS for the first quarter of 2024. For the quarter, Raymond James anticipates that the business will report $0.59 per share earnings. Analysts also provided forecasts for CAPREIT’s Q2 2024, Q3 2024, and Q4 2024 earnings to be pegged at $0.66, $0.67, and $0.63, respectively. These numbers suggest stable earnings over the coming year — something investors ought to like in this uncertain environment.
