Canada’s housing market this year is beset by reduced home sales and declining because of exceedingly interest rates. Affordability is also a major concern for prospective buyers. On the investment side, many investors avoid the real estate sector because of a soft market.
However, selected real estate investment trusts (REITs) remain reliable passive-income sources, despite the elevated market volatility. Granite (TSX: GRT.UN) and Canadian Apartment Properties (TSX: CAR.UN) are excellent choices if you want exposure to the real estate sector and monthly dividends,
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Standout REIT
Granite stands out because of its diversified real estate portfolio. The properties of this $4.66 billion REIT consist of multi-purpose, logistics and distribution warehouses, and special-purpose facilities. Besides a solid management team and extensive reach (North America and Europe), Granite is a Dividend Aristocrat.
The REIT’s strategy is simple: it focuses on properties that support e-commerce development and ensures their locations are in the best markets with brisk business activities. While the share price ($73.20) is relatively higher than other REITs, the stock is up 10.12% year to date and pays an attractive 4.42% dividend.
In the third quarter (Q3) of 2023, the net operating income (NOI) rose 16.2% year over year to $109.2 million. Granite’s net income reached $33.1 million versus the $93.3 million net loss in Q3 2022. The REIT also completed developments and expansions at the start of the quarter and made contractual rent adjustments and consumer price index-based increases.
The REIT’s financial performance is consistent with its portfolio transformation strategy. Granite’s target markets boast superior economic conditions and market fundamentals. Its modern facilities meet the demands of e-commerce and traditional distribution users. The REIT also monitors e-commerce trends and invests opportunistically in evolving property types.
Regarding the lease profile, the occupancy rate is 95.6%, while the average weighted lease term is 6.4 years. The high-quality, creditworthy tenant base includes Magna International, Amazon, and Samsung.
Granite expects its incoming-producing properties (137) and soon the development properties (6) to deliver long-term total returns. The captive tenancy should likewise provide stability to the REIT.
Growth oriented
Canadian Apartment Properties, or CAPREIT, owns and operates residential properties, apartment buildings, townhouses, and land lease communities. The $8.4 billion REIT’s residential portfolio in Canada (98.9%) and the Netherlands (98.7%) enjoy high occupancy rates.
In the nine months that ended Sept. 30, 2023, operating income and NOI increased 5.7% and 6.2% year over year to $793.1 million and $516 million, respectively. Its president and chief executive officer, Mark Kenney, said, “Occupancies remained stable at our highest levels, with nearly 99% of our suites occupied at current period end, reflecting the ongoing tightening we continue to see across all of our Canadian rental markets.”
CAPREIT’s current focus is on its portfolio modernization program. Thus far, the REIT acquired over $200 million of newly constructed buildings. The locations are in strongly performing, high-growth geographies. Management disposed of non-core assets in Canada to fund the purchases, while downsizing the suite count and upsizing its quality.
If you invest in CAR.UN today, the share price is $50 (+20.5% year to date), while the dividend yield is 2.92%.
Profitable investments
The real estate sector is not without profitable investment prospects amid a depressed market. Granite and CAPREIT are sound choices this December. The former is industrial focused, while the latter benefits from the high demand for rental properties.
