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3 of the Best Canadian REITs to Buy While They’re Still Undervalued

Image source: Getty Images
Image source: Getty Images

Written by Daniel Da Costa at The Motley Fool Canada

Investing in real estate investment trusts (REITs) offers many benefits for Canadian investors. Buying high-quality REITs is a great way to diversify your portfolio, generate income, and take advantage of the stability and growth potential of the Canadian real estate market.

There are numerous high-quality REITs that investors can choose from that offer attractive potential returns. Plus, with the market and economic environments worsening over the last year, there is a tonne of opportunities for savvy investors to buy these stocks cheaply. Therefore, now is an opportune time to explore undervalued Canadian REITs that have promising long-term growth potential.


So if you’re looking to increase your exposure to real estate or take advantage of so many high-quality investments trading cheaply, here are three of the best Canadian REITs to buy now.

A massive residential REIT with properties across Canada

If you’re looking for some of the best REITs to buy, you’ll certainly want to consider an investment like Canadian Apartment Properties REIT (TSX:CAR.UN), the largest residential REIT in Canada.

CAPREIT’s massive size and diversification of its properties make it a highly reliable investment. Furthermore, residential real estate is already one of the most defensive industries that you can invest in. So while CAPREIT is trading at a discount, it’s one of the best Canadian REITs to buy now.

Over the last five years, CAPREIT’s average forward price to funds from operations (FFO) ratio is 22 times. However, you can buy the stock today at just 19 times its forward FFO. In addition, at the start of 2022, CAPREIT had a price-to-estimated net asset value (NAV) of 1.00 times. Meanwhile, today, it’s trading at just 0.84 times its estimated NAV.

So while you can get this high-quality stock at a discount, it’s one of the best Canadian REITs to buy now.

One of the best Canadian REITs to buy now

Another high-quality Canadian REIT you’ll certainly want to consider is Granite REIT (TSX:GRT.UN). Although Granite isn’t a residential REIT like CAPREIT, it owns industrial properties, which gives it a tonne of growth potential.

There has been a significant increase in the demand for warehouse space in recent years, especially with the rising popularity of e-commerce. So not only does Granite have growth potential from its development pipeline, but it’s also seeing a noticeable increase in rental rates on its existing properties as leases turnover.

In fact, in 2022, Granite reported same-property net operating income (NOI) growth of 6% year over year. Furthermore, it expects its same-property NOI in 2023 will be between 6.5% and 7.5%.

Therefore, with Granite trading undervalued, it’s one of the best Canadian REITs to buy. At the end of 2022, it was trading at 1.2 times its NAV. Today it trades at less than 0.9 times its NAV, creating an attractive entry point for investors.

A top residential REIT offering Canadian exposure to U.S. markets

Lastly, Morguard North American Residential REIT (TSX:MRG.UN) is another high-quality investment to consider in this environment.

The stock is attractive for Canadian investors as it offers significant exposure to U.S. real estate markets. With Morguard trading at an attractive discount, it’s certainly among one of the best Canadian REITs to buy now.

Having exposure to U.S. real estate not only offers investors diversification but it also creates the potential for more growth potential, as many markets south of the border offer better value than in Canada.

For example, in the fourth quarter, Morguard’s average monthly rents south of the border increased by more than 13% year over year, leading to same property NOI growth of 16% in its U.S. portfolio.

Plus, Morguard is trading unbelievably cheap, making it one of the best Canadian REITs to buy now. Currently, Morguard trades at just 0.5 times its estimated NAV. Furthermore, Morguard is currently trading at 11 times its forward FFO, below its five-year average of 13.6 times.

Therefore, while Morguard is trading undervalued, it’s a stock you’ll certainly want to consider adding to your portfolio.

The post 3 of the Best Canadian REITs to Buy While They’re Still Undervalued appeared first on The Motley Fool Canada.

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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust and Morguard North American Residential Real Estate Investment Trust. The Motley Fool has a disclosure policy.