The Canadian real estate market’s troubles in 2023 could overshadow some lucrative long-term investment opportunities hidden under the radar of a potentially fearful investing community. Despite the confidence-draining housing market reports of weaker real estate prices, some Canadian real estate investment trusts (REITs) have produced up to 24% in capital gains so far this year. Let’s discuss three top, under-the-radar Canadian REITs investors could buy for reliable passive income and capital growth in 2023.
Canadian Net REIT
Canadian Net Real Estate Investment Trust (TSXV:NET.UN) is rare among Canadian REITs. It leases properties on a net lease basis, so tenants incur property maintenance costs, property taxes, and insurance expenses. It incurs no management expenses, its cash flows have lower volatility risks, and the trust can afford to pay increasing distributions as soon as it consolidates acquisitions.
Canadian Net REIT is on a strong growth spree after closing 10 acquisitions during the past year to grow rent revenue by 30% in 12 months and increase net operating income (NOI) by 28% year over year.
The REIT pays a monthly distribution that currently yields 6% annually. Its distributions are well covered by recurring distributable cash flow. The trust paid out 57% of its adjusted funds from operations (AFFO) in 2022. It has been consistently raising its distributions since its inception in 2011 and its five-year distribution growth rate averages 13.7% per year.
Insiders’ interests are well aligned with investor interests. Insiders owned more than 14% of the trust’s units in 2022. Insiders purchased 104,300 more units on the public market during the past three months. They seem bullish about the trust’s future returns prospects.
Nexus Industrial REIT
Nexus Industrial REIT (TSX:NXR.UN) is a fast-growing $664 million industrial property trust that owns a portfolio of 113 properties, comprising 11.6 million square feet of gross leasable area. The trust reported a strong 71.2% year-over-year growth in NOI in 2022, it’s increasing its exposure to highly sought industrial space, as it recycles out of retail properties, and it completed $316.8 million industrial property acquisitions last year.
During the fourth quarter of 2022, industrial assets generated 88% of Nexus Industrial REIT’s total NOI for the REIT; 90% could come up in 2023. Occupancy rates improved from 96% in 2021 to 97% in 2022, as the trust inches towards full portfolio occupancy.
Income-oriented investors should love Nexus Industrial REIT for its high-yield monthly distributions that should yield 6.55% annually. The distributions are well covered, given a normalized AFFO payout rate of 91.7% for 2022, which is an improvement from 94.7% for 2021. The REIT’s distributions are increasingly much safer in 2023, as they are well covered by recurring distributable cash flows.
To boost total investment returns further, the trust offers a 4% bonus to investors who reinvest their monthly distributions through its distribution-reinvestment program (DRIP). It deserves a place among top DRIP stocks.
What’s more, a price-to-book value multiple of 0.76 screams cheap! Units are trading at a deep 24% discount to their book value.
Industrial properties owner Granite Real Estate Investment Trust (TSX:GRT.UN) is a $5.3 billion trust with soaring units in 2023. A solid 20% year-to-date gain on Granite REIT units so far this year may not be as high as Dream Industrial REIT’s 25% surge; however, Granite REIT is flying high under the shadow of an overall weak REIT asset class this year.
Client demand for industrial properties remains strong in North America and Europe, as companies continue to invest in their supply chains to avoid the logistical nightmares that caught the world off guard during and soon after the COVID-19 pandemic. Granite REIT achieved a 24% average rent growth on new leases and lease renewals in 2022, led by a 78% renewal spread in Canada. Its properties remain fully occupied at a 99.6% occupancy rate going into 2023.
Investors could scoop a 3.8% distribution yield on Granite units today. The trust’s monthly distributions were well covered in 2022 given a 77% AFFO payout rate, which improved from 80% in 2021.
Investors can still buy Granite REIT units in 2023, as they still trade at a price-to-book multiple of 0.97. Units are trading at a discount to their most recent book value.