The Canadian real estate investment trusts (REITs) have been faring quite well in recent months. Undoubtedly, rate cut hype has been partially priced into various names, but as the Bank of Canada moves forward with its rate reductions, I still think the next 12–18 months could prove prosperous for today’s slate of higher-yielding REIT plays, specifically the ones that are most sensitive to changes in interest rates.
Indeed, it’s not hard to imagine that many income investors are starting to take an interest in Canadian REITs again. Though they’ve been dead money since the Bank of Canada began raising interest rates just a few years ago, it’s tough to look past the potentially deep value to be had in some of the more battered names. With a no-landing (no recession) scenario potentially in the cards for the Canadian economy, perhaps the great REIT rally is just getting started. Indeed, whenever central banks are in cut mode, the rate-sensitive names may have more runway to the upside than you think.
In this piece, we’ll check in with two great Canadian REITs that still look incredibly cheap, even after bouncing slightly off their recent lows. So, if you seek value, yield and, more recently, share price momentum, the following two look worth picking up or stashing on one’s radar as we approach the year’s end.
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Killam Apartment REIT
Killam Apartment REIT (TSX: KMP.UN) is a residential REIT that specializes in apartments and manufactured home communities (MHCs). With real estate in Atlantic Canada, Ontario, British Columbia, and Alberta, the REIT is nicely diversified. Of course, the main attraction to Killam, I believe, has to be its longer-term expansion plan. Indeed, Killam is more than just another residential REIT.
With a focus on top-tier management, amenities, and more, Killam is all about improving the rental experience in the markets it operates in. At just shy of $20 per share, the residential REIT is looking like a huge bargain. The summer melt-up has since faltered with KMP.UN shares more recently falling 9% in a hurry.
As KMP.UN corrects, I think it’s a smart idea to think about buying or adding to a position. Indeed, the 3.5% yield is generous, and as rates fall further, I do think shares could be in for a strong finish to the year. If you seek a high-quality residential REIT, it’s tough to top Killam, whether you’re in for the growth or the value.
SmartCentres REIT
SmartCentres REIT (TSX: SRU.UN) is a popular REIT behind various strip malls located across the country. Indeed, retail REITs have taken big hits to the chin in recent years. Not only did they have to grapple with high interest rates, COVID’s impact, and the rise of e-commerce rivals, but they’ve also had to navigate a rough, high-rate climate.
Now that rates are retreating, I see Smart as having the means to really take its expansion plan to the next level. Indeed, Smart is shooting to jolt the residential side of its business. Though Smart’s still a retail-centric REIT, I would watch the name closely as it looks to diversify its portfolio in a meaningful way. The yield sits at a generous 7.2% after dipping 6% from its 52-week high. I think it’s an opportunity for passive income seekers looking to punch their ticket to the next big REIT rally.
