High-Yield Heavyweight: 1 REIT That Packs a Punch

SmartCentres REIT (TSX:SRU.UN) is a yield king with a long-term growth plan that could benefit from much lower rates!

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With the Bank of Canada (BoC) slashing rates, investors seem quite excited to put a bit of new money to work on various stocks and real estate investment trusts (REITs) that stand to benefit. Indeed, lower costs of borrowing are good for a wide range of firms that spend a great deal.

Capital expenditures (capex) can really add up, and not just for the high-growth firms, either. The utility and telecom sectors are known to entail high infrastructure investments with no guarantee of the ability to raise prices. Indeed, hefty expenses and fierce competition are to be expected, especially in the telecom scene.

Finally, the Bank of Canada cut rates!

It’s not just certain capex-heavy firms that stand to benefit from lower interest rates. Indeed, many Canadians have heavy amounts of debt weighing on their personal balance sheets. Any 25-50 basis point cut in interest rates will help free up a bit of liquidity to reduce the strain.

Whether a handful of rate cuts will inspire some Canadians to spend a bit more, though, remains to be seen. As inflation backs down hand-in-hand with rates and there’s no sudden uptick in unemployment, I certainly wouldn’t be surprised if we’re on the cusp of a big breakout for the TSX Index.

Doubt the resilience of this brand-new bull market if you will, but the stage certainly seems set for upside over the next two to three years. Of course, don’t count out a correction or two along the way! Even when the macro picture looks pretty, it does not mean the market won’t have its tantrums, sometimes over factors that mean very little in the grand scheme of things.

Lower rates: REITs could be on the cusp of a bullish move!

Without further ado, let’s check out the REIT scene, which, I believe, looks severely undervalued at this point in the rate cycle. With peak rates (likely) behind us, I view the REIT scene as having plenty to gain as they look to have a bit more financial flexibility to pursue growth opportunities or hike distributions for loyal long-term shareholders.

Here is one of my favourite yield-heavy real estate juggernauts to consider buying as we head into the heat of summer!

SmartCentres REIT

SmartCentres REIT (TSX:SRU.UN) is a well-run, high-yielding retail REIT that I own personally. Shares of the name look quite cheap, even after the latest Bank of Canada decision, which helped many REITs start moving into the green for a change.

At writing, shares of SRU.UN is up more than 3% in the past week, thanks in part to enthusiasm over the first (and likely not last) rate cut. Looking ahead, I’m a bull on the development pipeline, with millions of square feet worth of mixed-use space to come online over the coming years. Indeed, just because Smart is a retail-focused REIT doesn’t mean it’s not willing to venture into new property types (think residential) to build value for shareholders.

With a yield north of 8% and recent momentum to be encouraged about, I’d put SRU.UN shares atop my REIT buy list for long-term passive-income seekers. Perhaps what has me most intrigued are the new projects that should help jolt distribution growth through the next decade. And, of course, there’s the fat distribution, which is well-covered and punches well above its weight!

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 Joey Frenette has positions in SmartCentres Real Estate Investment Trust. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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