The REIT (Real Estate Investment Trust) scene has seen increased volatility in recent months, thanks in part to concerns that rates will rise again. Despite the jitters, I continue to view the lower prices of admission and slightly higher yields as more of an opportunity for long-term income investors to put new money to work.
At the end of the day, it’s hard to know for sure how many Bank of Canada rate hikes we’ll have in the year ahead. For those looking to collect generous distributions over the next 10 years to fund a comfortable retirement, it’s more about getting steady cash flows from firms or REITs that have the means to hold up when a recession finally does come along.
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Choice Properties REIT
Choice Properties REIT (TSX: CHP.UN) is a $10.7 billion juggernaut with a well-covered 5.3%-yielding distribution. Indeed, higher bond yields have helped fuel a correction (shares of CHP.UN are down more than 11% as of the time of this writing), but one has to imagine that such concerns are already priced in.
While higher borrowing costs are never fun, especially for a REIT that’s a bit more sensitive to rate moves, I do find that Choice Properties stands out as one of the most economically resilient REITs in the country, thanks in part to its Loblaw (TSX: L) anchor tenant.
In a turbulent consumer climate, I like that the REIT has more eggs secured in the hands of one of the steadiest (and liquid) heavyweight defensive staples in the country. Perhaps it’s no mystery why Choice Properties has been able to maintain an impressive occupancy rate over time.
It’s been all about rates when it comes to Canada’s top REITs
While retail REITs aren’t exactly an exciting space to be in, Choice Properties has the means to really expand upon its industrial and residential footprint. While bigger might not be better in the world of Canadian REITs, I do find that the firm could unlock considerable value as it moves ahead with its industrial expansion while pursuing opportunities in residential as well. While such longer-term efforts are worth getting behind, it feels like it’s all about rates and what the Bank of Canada’s next move will be.
Playing rates is seldom a good idea, but I wouldn’t be so quick to conclude that the Bank of Canada will follow the U.S. Federal Reserve from here. Canada’s employment situation isn’t exactly firing on all cylinders, and given the longer-term deflationary impact of AI, perhaps more pauses could be in the cards for the Bank of Canada, rather than rapid-fire rate hikes.
The Foolish bottom line
Choice Properties REIT is a giant in the retail REIT scene with a solid, very well-covered payout. While you could get a richer yield elsewhere (most notably from shares of a pipeline firm), I do like the risk/reward to be had despite the rate risk. After a rough correction, one has to think the headwinds of higher rates on the horizon ought to be less of a concern for investors getting in on the dip.
