Most financial experts advise you to create multiple passive-income streams, which helps individuals to grow wealth at an accelerated pace. So, if you have amassed enough dry powder amid the stock market carnage of 2022, it makes sense to put it to use in May 2023 and derive inflation-beating returns.
Investors can look to create a passive-income stream by purchasing a portfolio of top-notch REITs, or real estate investment trusts (REITs). Typically, REITs own and operate a widening portfolio of cash-generating properties allowing them to pay shareholders attractive dividends.
Here, I have identified two such quality REITs in Killam Apartment REIT (TSX:KMP.UN) and InterRent REIT (TSX:IIP.UN). Let’s see why.
Killam Apartment REIT
One of the largest residential REITs in Canada, Killam Apartment owns, operates, and develops apartments as well as manufactured home communities or MHCs. Its real estate portfolio is located in Ontario, British Columbia, Alberta, and Atlantic Canada.
In 2022, Killam Apartment grew its portfolio on the back of new acquisitions. Its same-property net operating income grew 4.7%, while funds from operations were up almost 5% at $1.11 per unit.
It ended the year with an occupancy rate of 98.3% while recording its lowest tenant turnover rate of 22%.
Canadian residential REITs, including Killam Apartment, are well poised to benefit from secular tailwinds such as the influx of new immigrants and associated lower-age cohorts.
Killam REIT has increased its revenue from $261.9 million in 2020 to $328.8 million in 2022. Its adjusted funds from operations have increased from $0.83 per unit to $0.93 per unit in this period. Comparatively, it pays investors a dividend of $0.70 per share, indicating a forward yield of 3.7%.
The company’s growth has continued in the first quarter (Q1) of 2023, as net income surged to $83.5 million, up from $60 million in the year-ago period. This increase is attributable to fair value gains on investment properties of $66.8 million.
In addition to its dividend, Killam Apartment REIT stock is also trading at a discount of 20% to consensus price target estimates.
Another REIT part of the residential sector, InterRent, aims to increase shareholder value by focusing on growing and sustaining dividend distributions through the acquisition of properties. Its strategy is to widen its portfolio in markets that have stable market vacancies, allowing the company to improve revenue and cash flows consistently.
InterRent REIT ended Q1 of 2023 with the same property occupancy of 96.9%, an increase of 140 basis points compared to the year-ago period. This allowed the REIT to increase net operating income by 11.4% to $35.8 million.
InterRent REIT pays investors an annual dividend of $0.36 per share, indicating a yield of 2.8%. While its forward yield is not too attractive, the REIT has delivered cumulative returns of 140% in the last 10 years.
Moreover, its average monthly rent has increased by 7% annually in the last four years, allowing the company to increase dividends by 7% each year since 2017.
Down 27% from all-time highs, shares of InterRent are priced at a discount of 18.4% to price target estimates.