Real estate investment trusts (REITs) own and manage income-producing properties. These companies raise capital by selling shares to investors, thereby offering real estate exposure to investors in a convenient and accessible manner. Since REITs are mandated to return at least 90% of their taxable income to shareholders, they are attractive options for income-focused investors. Against this backdrop, let’s look at my three top picks.
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CT Real Estate Investment Trust
CT Real Estate Investment Trust (TSX: CRT.UN) owns 377 income-producing commercial properties, with a total gross leasable area (GLA) of 31.2 million square feet. Canadian Tire is the company’s principal tenant, occupying approximately 92.8% of its total GLA. Supported by long-term lease agreements (with a weighted average lease term of 7.5 years) with a solid tenant base, the company enjoys a healthy occupancy rate, which stood at 99.5% in the recently reported second-quarter earnings.
Moreover, the company has a solid development pipeline with approximately 1.14 million square feet of development activities, totalling around $433 million. Along with these expansions, contractual rent escalations could support the company’s financial growth in the coming years, thereby enhancing its future dividend payouts. CT REIT currently distributes a monthly dividend of $0.079 per share, representing a forward yield of 5.86%. Additionally, it currently trades at a reasonable next-12-month (NTM) price-to-earnings multiple of 12.3, making it an attractive investment opportunity.
SmartCentres Real Estate Investment Trust
Another top Canadian REIT I am bullish on is SmartCentres Real Estate Investment Trust (TSX: SRU.UN), which operates 197 strategically located properties across Canada. Approximately 90% of Canadians live within 10 kilometres of a SmartCentres shopping centre. Its tenant base looks solid, with 95% having national or regional presence and 60% offering essential services. Amid these favourable factors, the company maintains a healthy occupancy rate, which stood at 98.6% as of the end of the second quarter.
Moreover, the demand for retail space is growing amid population growth and sluggish supply due to elevated construction expenses and higher interest rates. Amid rising demand, the company is expanding its asset base, with 58.9 million square feet of developmental approvals. Of these approvals, 0.8 million square feet of properties are already under construction. Along with these expansions, the lease-up and renewal activities could boost its cash flows, thereby allowing the REIT to continue paying dividends at a healthier rate. Meanwhile, SmartCentres currently pays a monthly dividend of $0.1542 per share, translating into a forward yield of 7.04%.
Riocan Real Estate Investment Trust
RioCan Real Estate Investment Trust (TSX: REI.UN) owns and operates 178 properties with a total gross leasable area of 32 million square feet. The company has most of its properties in major Canadian markets, which have high entry barriers. Additionally, it has a well-diversified tenant base, with no single tenant contributing more than 4.7% of its revenue collections. Therefore, the REIT enjoys a healthy occupancy rate, which stood at 97.5%. The company’s same-property net operating income rose 2% during the second quarter, while also enjoying a healthy blended leasing spread of 20.6%.
Amid rising demand from high-quality retailers, the REIT continues to expand its portfolio of assets. It has a solid developmental pipeline of 43.8 million square feet of properties, with 0.7 million square feet currently under construction. These expansions could drive its financial growth, thereby supporting its future dividend payouts. It currently offers a monthly dividend of $0.0965 per share, yielding a forward dividend rate of 6.11%.
