Real Estate Investment Trusts (REITs) provide a means for investors who would not be able or are not willing to invest in traditional real estate. There are more than a few great Canadian REIT investments that fit that criteria.
Not only do REITS offer significant upside for income seekers, but they can also provide long-term growth and defensive appeal, too.
Here’s a look at one Canadian REIT that should be on every investor’s shopping list.
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RioCan is the REIT you need
RioCan (TSX:REI.UN) is one of the largest REITs in Canada. The company has catered to the commercial retail sector, but in recent years that mix has shifted to include mixed-use residential properties.
That shift is significant and represents a unique opportunity for investors.
Canada is in the midst of a housing crisis. Home prices are skyrocketing. Interest rates remain higher than what most current mortgages are locked into. This means that there are fewer available buyers and fewer motivated sellers.
Throw in the rapid growth that Canada has seen in recent years, and you can add an inventory shortage to the list.
Concurrently, the market has experienced a decline over the past decade in traffic to traditional brick-and-mortar retail. Instead, consumers are increasingly turning to mobile commerce and delivery services.
RioCan’s transition into more mixed-use residential properties caters to that exact problem.
The company is actively developing newer mixed-use properties situated in major metro markets. Not only does this provide residents with shorter commute times, but it also translates into better access to staples, especially when compared to similar properties located in suburbs.
The mixed-use properties, which the company labels as RioCan Living, comprise residential towers sitting atop several floors of retail. This caters to both segments while ensuring consistent foot traffic.
What this means for investors
Investors looking to invest in this Canadian REIT will gain exposure to the largest real estate market in Canada, the Greater Toronto Area.
As additional undervalued retail sites are redeveloped into mixed-use properties, the growth potential is huge.
While the focus is on the residential side of those mixed-use properties, the retail side shouldn’t be dismissed. Those tenants are weighted heavily towards necessity-based retailers complementary to those residential units.
Specifically, grocers, pharmacies, and other retailers that provide daily needs. This adds a layer of stability and, by extension, recurring, stable revenue generation into the mix.
This helps RioCan maintain a typically healthy FFO payout ratio in the 70–80% range. This means that RioCan’s distribution is covered, reinforcing this Canadian REIT as a superb option to own.
What about that income?
RioCan offers investors a monthly distribution, which it has paid out without fail for nearly three decades. This stellar Canadian REIT has provided increases over that time, but they aren’t planned annual upticks like some other stocks.
As of the time of writing, RioCan offers a yield of 5.9%. This means a $35,000 investment would generate approximately $170 per month, or about $2,040 annually.
For investors contemplating investing over owning a rental property, this option comes without a mortgage, a lower initial investment, property taxes, or tenant issues.
Finally, keep in mind that investors who aren’t ready to draw on that income can choose to reinvest it, allowing that eventual income to continue growing.
Will you buy this Canadian REIT?
RioCan offers investors a unique opportunity to invest in real estate without owning and paying for that real estate. That means that the upfront cost is lower and the risk is lower, while the income still flows in monthly, just like a landlord.
In my opinion, a small position in this Canadian REIT should be part of any larger, well-diversified portfolio.
