Falling interest rates are tailwinds for all sectors in general — and real estate in particular. Real estate investment trusts (REITs) could have a bull run in 2025 when interest rates eventually settle between 2.5% and 2.75% from a peak of 5% at the start of 2024.
We can already see this in the real estate sector’s performance so far. As of this writing, the sector’s year-to-date gain is 10.24%. It seems the terrible years for REITs are over and recovery has begun.
Here, I want to highlight three REITs from different real estate sectors that are strong buys today. Beyond their potential for positive returns, the stocks also have dividend yields of 5% or more and pay out monthly. Investing in any one of these would give you an additional income stream in your monthly budget.
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Retail
Investors wouldn’t touch retail REITs with a ten-foot pole during the pandemic. Leasing activity soured because of government-mandated lockdowns and social distancing. However, Primaris (TSX: PMZ.UN) has been showing signs of life.
At $15.59 per share, its year-to-date gain is 18.23%, and its trailing one-year return is 24.72%. Current investors enjoy a 5.34% dividend yield.
Primaris is the only enclosed shopping centre-focused REIT. The $1.51 billion institutional landlord owns 38 large format shopping centres in Canada’s growing mid-sized markets. In Q2 2024, rental revenue, net operating income (NOI), and net income increased 25%, 24.4%, and 29.6%, respectively, compared with Q2 2023.
Management sees a consolidation opportunity on the horizon, and Primaris could buy up properties as the sector rebalances.
Residential and industrial
Like Primaris, H&R (TSX: HR.UN) is outperforming in 2024. H&R is a $2.86 billion fully internalized REIT that owns residential, industrial, office and retail properties in North America. However, a strategic plan to change that mix is in motion.
CEO Tom Hofstedter said H&R is repositioning as a more simplified growth and income-oriented REIT. The primary focus will be on residential and industrial properties. In Q2 2024, net operating income decreased 5.3% year over year, to $144.5 million, following a $774 million sale of properties. Nevertheless, overall portfolio occupancy remained high at 96.9%.
Commercial and residential
Choice Properties (TSX: CHP.UN) owns, operates, and develops commercial and residential real estate. The $4.78 billion REIT has more than 700 income-producing properties and takes pride in its national footprint. Its retail assets account for 77% of the total portfolio, and its lease contracts are mainly with necessity-based grocery-anchored tenants. A competitive advantage is its long-standing strategic relationship with Loblaw (TSX: L).
Choice Properties has been profitable in the past two years ($770.5 million average net income) even in a high interest rate environment. If you invest today, the share price is $14.57 (an 8.88% gain year-to-date) with a corresponding 5.2% dividend yield.
Back in investors’ radars
Many market analysts see further runways for REITS as the rate-cutting cycle continues. They expect yield-chasing investors to return and plow their money into generous dividend-payers like Primaris, H&R, and Choice Properties.
