REITs (real estate investment trusts) are companies that own and operate income-producing properties. Since they are legally required to distribute at least 90% of their taxable income to shareholders, these companies serve as ideal investments for investors seeking income. Against this backdrop, let’s look at two top Canadian REITs that offer attractive buying opportunities.
Source: Getty Images
SmartCentres Real Estate Investment Trust
SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is a fully integrated REIT that operates 197 properties, with around 90% of Canadians having a SmartCentres shopping centre within 10 kilometres. Furthermore, the company benefits from a strong tenant base, with 95% having regional or national presence and 60% providing essential services. Given its strategically located properties, resilient grocery-anchored shopping centres, and solid tenant base, it enjoys a healthy occupancy rate. In the recently reported second-quarter performance, its occupancy rate stood at 98.6%.
Moreover, the demand for retail spaces has been solid amid population growth and sluggish construction. Meanwhile, SmartCentres has around 58.9 million square feet of developmental approvals, with 0.8 million square feet of properties currently under construction. Along with these expansions, the company’s lease-up and renewal activities could support its financial growth in the coming years. Therefore, I expect SmartCentres to sustain its healthy dividend payouts. At present, it distributes a monthly dividend of $0.1542 per share, representing a forward yield of 6.92%. SmartCentres also trades at a reasonable NTM (next-12-month) price-to-earnings multiple of 18, making it an attractive buy.
RioCan Real Estate Investment Trust
Second on my list is RioCan Real Estate Investment Trust (TSX:REI.UN), which owns and operates 178 properties, with a gross leasable area of 32 million square feet. The company leased 1.3 million square feet of retail space during the second quarter, including 1.2 million square feet of renewals. Amid these leasing activities, the company’s occupancy rate stood at a healthy 97.5%. The company’s same-property net operating income (SPNOI) increased 2% during the quarter. However, removing the impact of higher legal fees, property tax settlements, and provision reversal in the prior year, the company’s SPNOI increased by 4%.
The company’s blended leasing spread came in at 20.6%, marking the third consecutive quarter of spreads in the high teens or above. Amid these solid operating performances, the company’s funds from operations per unit stood at $0.47, up 9.3% from the previous year’s quarter. Its diluted net income per unit increased by 19.5% to $0.49. Further, the company has strengthened its financial position by disposing of its five RioCan Living assets this year, generating $230.4 million. Further, the company ended the quarter with liquidity of $1.34 billion. At the same time, its adjusted debt-to-adjusted earnings before interest, taxes, depreciation, and amortization ratio improved from 8.98 in the previous year’s quarter to 8.88.
Additionally, RioCan has a solid developmental pipeline of 43.8 million square feet of properties, with 0.7 million square feet of property currently in the construction stage. Considering its healthy occupancy rate and expanding asset base, I believe RioCan is well-positioned to continue paying dividends at a healthier rate in the coming years. Currently, it offers a monthly dividend payout of $0.0965/share, translating into a forward dividend yield of 6.1%.
