The Canadian REITs (real estate investment trusts) were long overdue for the substantial bounce they got on Wednesday. Indeed, a dovish tilt by America’s central bank could be a sign that the Bank of Canada may also be nearing the end of its tightening cycle.
Low rates are good news for capital-intensive REITs, which can really benefit from lower costs of borrowing. Less cash paid in interest on loans means more cash to invest in growth projects and perhaps a bit more cash flows to distribute back to loyal shareholders.
Indeed, it’s been all too easy to overlook the Canadian REIT space after all the pain they’ve been through. However, as the tides begin to turn, I view the space as worth checking out, whether you’re looking for momentum, income, value, or all of the above!
Let’s have a closer look at two Canadian REITs that I’d be inclined to stash at the top of my passive-income-focused watchlist this December.
Canadian Apartment Properties REIT
Canadian Apartment Properties REIT (TSX:CAR.UN) isn’t a heavyweight yield contender, with its relatively puny 2.72% yield. That said, it’s one of the most compelling growth REITs that could be in for considerable gains over the next two to three years if rates do retreat further from current levels.
Growth REITs are similar to stocks when it comes to volatility. And after last week’s nearly 7% pop, I think it could be off to the races again for the residential REIT with impressive exposure in the Vancouver and Toronto rental scenes.
Sure, it’s hard to chase such a sharp spike in shares. But I view the residential property play as still relatively undervalued, given the type of lower-rate world that may still be ahead. Further, the rental property portfolio seems unmatched at this juncture. All considered, Canadian Apartment Properties REIT looks like one of the best (and perhaps timeliest) picks this December.
H&R REIT (TSX:HR.UN) shares touched down with the trough of 2020 just a few weeks ago. More recently, shares are warming up again, up over 8% in the past week. Indeed, it’s not hard to imagine the REIT broke many hearts when it was forced to slash its distribution. But as rates turn lower and management looks to improve H&R’s property portfolio, it may be time to get back in.
The REIT has also been very active in selling off some of its properties. Looking ahead, I’m a fan of the new H&R REIT and the current valuation. Yes, the REIT was put in a bad spot during the early days of the pandemic. But shares have been punished, and recent moves, I believe, have been heavily discounted by many investors.
The 6% yield seems ripe for picking, in my opinion, especially if you’re in the belief that rates are headed much lower from current levels.
The Foolish bottom line for REIT investors
I like the roadmap for the REITs going into 2024. It’s not just lower rates, either. Valuations still seem depressed, and as they pick up where they left off, I wouldn’t dare bet against them as they look to put in more days like the ones enjoyed this Wednesday.