Canadian real estate investment trusts (REITs) continue to trade at discounts to their fair values in 2023. Income-oriented investors have a chance to buy high-quality real estate at discounted prices, and earn respectable passive income distribution yields. Following their most recent quarterly earnings releases, Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) and Riocan Real Estate Investment Trust (TSX: REI.UN) earn their place among the top Canadian REITs to buy in August 2023.
Strong earnings, high occupancy rates, and growing distributable cash flow should help Dream Industrial REIT and Riocan REIT eliminate their fair-value trading discounts once the public markets warm up to the long-term high returns potential REITs offer. I will briefly highlight why the two REITs should belong to your portfolio this August.
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Dream Industrial REIT
The Canadian industrial property market remains the best performing real estate industry subsector in 2023. Dream Industrial Real Estate Investment Trust offers individual investors one of the best ways to play the industrial property investment theme in August 2023, following a 20.8% increase in second-quarter net rental income.
Dream REIT owns and manages a portfolio of 321 industrial properties. It’s the largest listed industrial property owner in Canada post its acquisition of Summit II. The trust is making the most of the current wave of strong industrial property demand by raising rental rates. It has raised rentals on new leases by 47% since April this year, including a 60.8% rent bump on new Canadian leases.
The REIT’s committed occupancy rates remain strong at 98%. Same property net operating income increased by 11.4% year over year during the last quarter. Good times are rolling, and the trust grew its second-quarter diluted funds from operations (FFO) per unit by 13.6% year over year.
Meanwhile, Dream Industrial REIT paid 68% of FFO in distributions during the past quarter, a significant improvement from 77.3% a year ago. Its monthly distributions look much safer than they were in 2022.
The trust’s monthly distributions should yield 5% annually. Given a current trading price of $13.98 per unit at the time of writing, the trust’s units trade at a 17.6% discount to their most recent net asset value (NAV) per unit of $16.97.
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Riocan REIT
An investment in Riocan Real Estate Investment Trust units in August 2023 could generate a recurring monthly income of $0.09 per unit that yields 5.5% annually. However, the potential upside is much bigger considering that Riocan units trade at a 24.6% discount to their latest net book value estimate of $26,00 released by the trust on Wednesday. Actually, there’s more to the REIT’s latest earnings report that makes Riocan REIT one of the top Canadian REITs to buy this month.
Riocan REIT is a Canadian retail property trust that’s diversifying into a mixed-use property giant through capital recycling, and management is executing the strategy very well. The trust reported 5.2% growth in same property net operating income (NOI) for the second quarter. It signed new leases at net rents 11% higher than old and renewed expiring leases at a 9% spread. Leasing economics are improving, and portfolio occupancy rates improved to 97.4%, up from committed occupancy rates of 97.2% at the same time last year.
Most noteworthy, the painful period of declining property values could soon be over. Riocan REIT’s quarterly net income surged 42.7% year over year to $112 million as fair-value declines on properties recede. The worst could be over.
Going forward, Riocan REIT expects to pay out between 55% to 65% of its funds from operations (FFO) for 2023 as monthly distributions to investors. Its FFO pay out rate looks safe following a 5.9% distribution increase for this year. There’s room for further distribution increases in the future.
