Written by Brian Paradza, CFA at The Motley Fool Canada
The idea that you should make your money work for you seems underrated at times. It’s one of the easiest formulas for getting richer and happier. Investors could deploy varying amounts of free capital, buy beaten-down top Canadian real estate investment trusts (REITs) and get paid loads of cash every month in passive income.
Publicly listed real estate stocks generally went down, as rising interest rates, soaring financing costs, and increasing property vacancy rates combined to bring down net asset values. However, some REITs are unjustifiably down. This means you can buy premium-quality real estate at discounted prices on the TSX today and lock in juicy income yields in a tax-advantaged account.
Investments in Canadian REITs, including CT Real Estate Investment Trust (TSX:CRT.UN), NorthWest Healthcare Properties Real Estate Investment Trust (TSX:NWH.UN), and Allied Properties Real Estate Investment Trust (TSX:AP.UN), could pay you cash every month for investing in their cheap offerings right now. Let’s have a look.
Best known as the landlord to Canadian Tire (CTC), CT REIT owns a portfolio of 370 primarily net-lease, single-tenant retail properties with about 30 million square feet of gross leasable area (GLA) in Canada. The trust boasts a strong portfolio occupancy rate of 99.3%, with most of its GLA occupied by a financially strong CTC representing 91.5% of its annualized base rent.
CT REIT pays a monthly distribution of 7.23 cents per unit, which should yield 5.3% on an annual basis. The trust is in a habit of increasing its income distributions every year and has done so for nearly a decade. Distributions raises have averaged 3.6% per annum over the past three years.
There’s room for CT REIT’s distribution to grow in 2023. The trust paid out 74.8% of its most recurring distributable cash flows, measured by its growing adjusted funds from operations (AFFO).
Units appear fairly valued relative to their most recently reported book value of $16.21 per unit. A robust development and intensification program should keep book values growing in 2023.
NorthWest Healthcare Properties REIT
NorthWest Healthcare Properties REIT is a fast-growing real estate portfolio manager with a $10.6 billion property portfolio comprised of 233 healthcare properties in Europe, North America, Australia, New Zealand, and Brazil.
The REIT’s units lost 10% of their value over the past three months, and this could be an opportunity to buy the dip. Units declined after the REIT reported a surprise drop in its AFFO during the third quarter of 2022, and its AFFO payout rate temporarily ballooned beyond 133%. Management blamed the situation on rising interest costs, temporarily high leverage, and a brief drop in property management fees, as deals declined.
However, subsequent to the quarter’s close, the REIT refinanced its debt at lower rates and signed new joint-venture deals in the U.K. and the U.S. that increased its assets under management. Expectations are that management fees will rebound back to a normalized run rate in 2023.
Portfolio occupancy rates remain strong at 97%. Same-property net operating income grew 2.5% year over year in the last financial report.
The REIT’s monthly distribution yields a juicy 8.2% annually after units dropped below the $10-a-unit mark recently. The trust will most likely maintain its current distribution. Investors may receive valuable, high-yield passive income every month for many years to come.
Allied Properties REIT
Canadian office properties remain under pressure due to increasing vacancy rates, but Allied Properties REIT’s $9.7 billion portfolio of office real estate stands out for its high and stable occupancy rates near 90%, growing rental rates, and ample room to sustain growing monthly distributions.
The trust recently increased its monthly income distribution by 2.9% for 2023 to mark 11 consecutive years of distribution raises.
Allied Properties REIT reported a 4% year-over-year growth in AFFO per unit for 2022, and the trust’s AFFO payout rate improved from 81.2% in 2021 to 80.4% in 2022.
Trustees decided to opportunistically dispose of the trust’s highly sought-after Urban Data Centre properties (called the UDC segment) and use the proceeds predominantly to retire debt. Allied Properties’s low leverage ratios will go much lower, further reducing finance costs and de-risk the trust’s monthly payout.
The trust’s monthly distribution yields 6.2% annually.
Canada’s inflation rate has skyrocketed to 6.9%, meaning you’re effectively losing money by investing in a GIC, or worse, leaving your money in a so-called “high interest” savings account.
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Fool contributor Brian Paradza has no positions in any of the financial securities mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.