REITs (real estate investment trusts) have been some of the worst-performing assets in Canada over the past year. Interest rates have risen, the economy has slowed (to an extent), and REITs have been in investor’s crosshairs.
Yet, the worst is likely past. Buying in the trough could present opportunities if you think long term. Real estate is an essential asset. As the economy grows, demand for quality real estate will continue to grow as well.
If you are wondering what REITs could be worth long-term holds, here are three to buy today.
A safe and solid industrial real estate stock
Industrial real estate has been one of the most resilient real estate assets over the past few years. While demand has slowed since the pandemic, it is still a landlord’s market. With a market cap of $4.8 billion, Granite REIT (TSX: GRT.UN) is Canada’s largest industrial REIT. It has 137 properties in Canada, America, and Europe.
Most of its properties are focused on e-commerce/distribution, but it also has some industrial and manufacturing facilities. It has 95.6% occupancy, which means there is some room for improvement.
This is largely due to its development pipeline hitting the market for lease. There could be upside if it can fill up its vacant space.
This REIT has one of the best management teams in the industry. Likewise, it has a balance sheet that is made to last through almost any economic environment.
Granite stock yields 4.4% today. It has increased its distribution for 13 consecutive years. For high-quality assets, a top management team, and a very safe distribution, it is hard to go wrong with this stock.
A cheap retail REIT
With a market cap of $3.4 billion, First Capital REIT (TSX: FCR.UN) is one of Canada’s largest grocery-anchored REITs.
Nearly half of its portfolio is made up of credit-grade tenants focused on essential services like grocery, hardware, liquor, pharmaceutical, daily essentials, and banking. First Capital has focused on very well-located urban properties located in Canada’s top cities. As a result, it has seen strong low-teens rent rate growth on new and renewed leases.
The company has a lot of excess land that could be re-developed and create substantial value. Right now, the market doesn’t recognize this.
First Capital trades at a substantial 25% discount to its net asset value. The company has some investors pushing for value maximization, so there are some nice catalysts for upside in the year ahead. This REIT yields 5.2% today.
An undervalued apartment REIT
Another bargain-priced REIT that the market may not be appreciating is BSR REIT (TSX: HOM.U). Not many Canadians will recognize this stock because 100% of its assets are in the United States. It operates 31 garden-style residential communities across Texas, Oklahoma, and Arkansas.
The REIT has affordable rents in the $1,500 range. While some of its markets should see an increase in supply in 2024, its attractive value proposition to renters should help conserve occupancy.
Many of its properties are in top American regions for economic and population growth. Consequently, that should help push rental rate (and cash flow) growth over time. The REIT has a strong management team and a good balance sheet.
It pays a nice 4.6% dividend here. It still trades at a big discount to its net asset value, so it might be a good bargain today.
