The Canadian REIT (Real Estate Investment Trust) scene is a great place to look if you’re looking for well-covered distributions that sport higher yields. Undoubtedly, the REIT trade may have been rather turbulent in recent years. Still, with the Bank of Canada signalling lower interest rates, the broad basket of REITs may be up for a strengthening tailwind.
Of course, lower rates alone aren’t enough to propel all REITs higher. With promising valuations across the board and hopes for new growth projects to come online to help supply meet heated demand, perhaps it’s time to start nibbling back into the REIT trade. For passive income investors looking for a secure payout, the space may very well be where the value is. In this piece, we’ll have a closer look at two Canadian REITs I think could help income investors do well over the next two to three years.
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Canadian Apartment Properties REIT
First up, we have Canadian Apartment Properties REIT (TSX: CAR.UN), a very well-run residential REIT that’s been through quite a bit of volatility in the past five years. With a juicy 3.8% yield and one of the more promising growth pipelines out there, I’d not sleep on the name just because it’s fresh off touching multi-year depths. Of late, the REIT has been selling some of its non-core properties to trim away at its debt load.
With a quickly improving balance sheet and an opportunity to fund new apartment complexes, I wouldn’t dare bet against the name, especially if the Bank of Canada follows through with its interest rate cuts. All considered, CAPREIT is doing a decent job of navigating a harsh environment.
With an impressive property portfolio that’s getting more impressive with time, perhaps it’s time to give the shares the benefit of the doubt while they’re going for less than $42. Though the REIT landscape isn’t out of the woods yet, I do see deep value in one of Canada’s largest and best-run residential REIT plays.
SmartCentres REIT
Up next, we have a retail REIT that’s also been through some rough patches in recent years. SmartCentre REIT (TSX: SRU.UN) seems to be stuck in limbo after sinking more than 11% in the past five years. And while shares have had a somewhat decent past year of performance, gaining over 12%, I still think there’s some deep and unrecognized value in the name at just over $25 per share.
Of course, strip malls and other retail properties aren’t exactly the most exciting places to be these days. That said, Smart has some very high-quality tenants.
However, the real value, I believe, lies in the REIT’s growth projects. Moving forward, Smart is expanding into real estate outside of the retail realm. Of course, Smart will remain a retail REIT at its core, but as it branches further into residential, I’d be inclined to view Smart as a smart REIT to hang onto for the long haul if you seek above-average distribution growth.
As rates descend and Smart has more wiggle room to pursue forward-looking growth projects, I’d be inclined to stick with Smart for the next decade and beyond. Believe it or not, the towering yield (currently at 7.3%) isn’t the most exciting thing about this REIT.
