The Top Canadian REITs to Buy in May 2024

These three REITs have envious growth potential and trade cheaply today, making them three of the top Canadian stocks to buy now.

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With interest rates still high and significant uncertainty in the markets, many Canadian REITs, including some of the very best, still trade cheaply. This gives investors a significant opportunity to load up on top Canadian REITs in May and buy them before the market turns around and these stocks ultimately recover.

It’s essential, though, as is always the case, but especially in the current environment, to not just research the REIT’s operations and growth potential but also its financials to ensure that the headwinds it’s facing in this higher interest rate environment are manageable.

So, with that in mind, if you’re looking for some of the top Canadian REITs to buy now, here are three of the best.

A top retail real estate stock to buy while it’s dirt-cheap

In this environment, there are several REITs trading undervalued. With that being said, though, there’s no question one of the cheapest REITs on the market is First Capital REIT (TSX:FCR.UN), as it continues to recover from the impacts it’s faced since the start of the pandemic.

As a retail REIT, First Capital has certainly been impacted in recent years. However, it’s now well on its way to recovering and could see a significant jump in price in the near term, especially considering that analysts are estimating its adjusted funds from operations (AFFO) per unit will jump over 16% this year.

Plus, with the REIT trading at a price-to-estimated net asset value (NAV) of just 0.8 times and forward price-to-AFFO ratio of 14.5 times, it’s certainly one of the cheapest REITs on the market. For comparison, its 10-year average forward P/AFFO ratio is 17.7 times.

Furthermore, with just 3% of its debt being variable-rate debt and 21% of its fixed-rate debt maturing this year or next, First Capital’s financing costs should remain stable and manageable in the near term, making it one of the top Canadian REITs you can buy with confidence today.

A top Canadian REIT to buy in the retail sector

In addition to First Capital, some of the top Canadian REITs to buy and hold for the long haul are residential REITs because they are highly defensive but also have considerable long-term growth potential.

While there are several high-quality residential REITs to consider today, there’s no question that Canadian Apartment Properties REIT (TSX:CAR.UN), the largest and most diversified REIT in Canada, is one of the best to consider.

Owning the largest and most diversified REIT is ideal because it both mitigates the risk of an underperforming property or region while also giving CAPREIT more opportunities to increase the value of its portfolio and grow sales.

Plus, with analysts expecting it to grow its AFFO/unit by 13.8% this year and 7.2% next year, CAPREIT has significant potential both in the short and long term.

Furthermore, just 22% of its fixed-rate debt is maturing in 2024 or 2025, and only 1% of its total debt is variable-rate debt.

Moreover, its interest expense was just 33% of its earnings before interest, taxes, depreciation and amortization (EBITDA) in 2023 and is expected to remain flat in 2024, showing that CAPREIT is weathering the storm well in this environment and should continue to both increase its distribution as well as the value of its portfolio for unit holders.

Industrial REITs are some of the best to buy for the long haul

Finally, another impressive stock that’s both cheap today and has years of growth potential ahead of it is Granite REIT (TSX:GRT.UN), making it one of the top Canadian REITs to buy in this environment.

As demand for industrial space consistently increases, Granite is well-positioned to take advantage of the growth. So, after two years of increased headwinds, 2024 could finally be the year that it starts to recover and earn investors significant capital gains once again.

Analysts estimate that Granite will grow its sales by 9.5% this year and 6.7% next year. More importantly, though, its AFFO/unit is expected to grow 5.7% this year and 8.5% next year, an attractive pace. Plus, with its interest expense only 20% of its EBITDA, Granite is well-positioned for this environment.

So, if you’re looking for top Canadian REITs to buy now, Granite is one I’d certainly consider soon, while it’s still trading at such a compelling valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends First Capital Real Estate Investment Trust and Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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