The Canadian REITs (real estate investment trusts) are starting to look quite interesting, not just because they’re beginning to pick up a bit of momentum in recent weeks, but because they stand out as some of the bigger winners from a lower-interest-rate world. Indeed, the Bank of Canada has been slashing away at rates, and it’s probably not done with the 25-basis-point cuts, even if food inflation isn’t in an ideal spot.
Ultimately, the economy appears resilient in the face of a number of macroeconomic challenges. However, as the Bank of Canada stays more accommodative, I think that the tailwind of lower rates could drive dividend stock and REIT yields lower by some amount.
When you consider how much the REITs give back in the form of a distribution and the capital expenditures needed to maintain and grow their property books, I view low rates as a much-needed tailwind to propel the many Canadian REITs out of their rut and perhaps closer to their highs.
In this piece, we’ll have a look at two REITs that I think are getting too enticing to overlook. So, whether you’re an income investor or just looking for a lower-beta alternative asset that’s going for a modest valuation, consider the following pair.
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Canadian Apartment Properties REIT
First, we have shares of Canadian Apartment Properties REIT (TSX: CAR.UN), which used to be a growth REIT, yielding a substantial amount of capital gains, distributions, and distribution hikes. Indeed, the residential REIT provides meaningful exposure to the Greater Vancouver and Toronto rental markets, which have been among the priciest in the country. While I continue to think CAPREIT (as it’s known by many) is in a prime location and will eventually benefit from capital appreciation again as the tailwind of lower interest rates moves in.
Indeed, CAPREIT is “growthier” than your average REIT. The yield sits at 3.8% today, which is pretty much in line with a dividend stock. With shares down 35% from its 2021 highs, I see value in a name that may not be all too far off from a bottom at around $40 per share. With high occupancy rates and new developments that can boost the income stream, I’d look to consider starting a position at these depths, while most other investors are busy chasing hotter trades.
Choice Properties REIT
Choice Properties REIT (TSX: CHP.UN) has been relatively resilient over the years, now down just over 8% from its 2021 highs. While it’s been quite the roller-coaster ride over the past few years, I continue to view Choice Properties as one of the higher-quality retail-focused REITs out there. Indeed, Choice isn’t a pure retail REIT, as it also has quality industrial properties.
Either way, the REIT is incredibly well-diversified, and with a steady flow of traffic moving through its properties, thanks in part to its supermarket anchors, I view Choice as relatively recession-resilient compared to most of its rivals. Sure, Choice isn’t the growthiest choice in the REIT space, but it is one of the steadiest. As such, I’d look to lock in the 5.23% yield before shares have a chance to breakout past a very lengthy consolidation channel.
