Canada’s real estate market has been red-hot since the buying frenzy in Spring 2020 but started to cool in 2022. The aggressive rate hike campaign by the Bank of Canada to bring down inflation sent demand and prices crashing. After 10 hikes, the policy rate has gone up to 5% in July 2023, the highest in 22 years.
Real estate experts expect the market to rebound, if not heat up again, when the rate increases end. Meanwhile, select real estate investment trusts (REITs) remain appealing to investors, especially dividend earners. Three REITs from different sub-sectors are redefining the real estate market.
Industrial
Dream Industrial (TSX:DIR.UN) displays steady performance amid uncertainties. At $14.46 per share, the real estate stock is outpacing the broader market year to date, +26.8% versus +4.5%. If you invest today, the dividend yield is 4.84%.
The $4-billion REIT owns industrial properties across Canada, the U.S. and Europe. Dream is a pure-play industrial REIT owing to the predominantly industrial properties in its diversified portfolio. The properties in this sub-sector are distribution, urban logistics, and light industrial buildings.
Management’s sourcing of attractive industrial assets is ongoing. Because of strong operational fundamentals and low volatility, Dream generates stable, growing cash flows. In Q1 2023, net rental income and total assets grew 24.7% and 24.9% to $81.5 million and 321 properties versus Q1 2022, respectively. As of March 31, 2023, the occupancy rate (in-place and committed) is 98.6%.
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Residential
The demand for investment rental properties keeps declining as interest rates rise. Prospective investors or landlords want to avoid being burdened by escalating costs. According to a Rentals.ca report, the average asking rents in Canada have increased by 20% over the past two years.
However, Killam Apartment (TSX:KMP.UN) should benefit from the housing affordability crisis as more people choose to rent over buying a home. The $2-billion growth-oriented REIT owns and operates apartments and manufactured home communities (MHCs) in Alberta, Atlantic Canada, British Columbia, and Ontario.
At $17.73 per share, current investors enjoy an 11.6% year-to-date return on top of the 3.95% dividend yield. In Q1 2023, property revenue and net operating income (NOI) increased 9.6% and 12.3% to $84.9 million and $50.8 million versus Q1 2022, respectively. Notably, net income jumped 39% year over year to $83.5 million.
Given the supply shortage, Killam anticipates the robust demand for apartments to persist. Moreover, the REIT expects significant funds from operations (FFPO) growth with the completion of development projects in 2023 and 2024.
Retail
Primaris (TSX:PMZ.UN) is preparing for the recovery of the retail sub-sector space. The $1.3-billion REIT owns and operates shopping centres (enclosed and unenclosed) and mixed-use properties. Management’s mandate for growth is to acquire market-leading Canadian shopping centres.
Its President and COO, Patrick Sullivan, said, “There is significant growth to be captured over the next few years as we drive occupancy back to historical normal levels.” He notes the rebound in tenant sales and desire to expand store footprints. He adds that the recent acquisition of Conestoga Mall is a landmark transaction.
Primaris said the mall has significant growth potential. At 13.37 per share (-5.9% year-to-date), this REIT pays a juicy 6.13% dividend.
Monthly dividends
Dream Industrial is the best buy among REITs today, although Killam and Primaris are good options for their attractive yields. All three stocks pay monthly dividends.
