Canada’s real estate sector has created billions in new wealth over the last decade, and I see the trend continuing for years to come.
Investors looking to get in on the action have a few different choices. Sure, they can buy physical houses or condos, but that’s a tough way to make any money — especially for a typical retail investor like you or me. It requires a big leveraged bet on your local market, and there’s so much work involved, you’ve basically bought yourself a part-time job.
I prefer a different method. I strive to own a diverse portfolio of Canadian real estate investment trusts (REITs): passive securities that allow me to get exposure to all different types of real estate. Smart management make all the buy, sell, and maintenance decisions. And I get to sit back, relax, and collect some of Canada’s best dividends.
Let’s take a closer look at three top REITs — stocks I plan to own for the next decade (or longer!).
SmartCentres
SmartCentres REIT (TSX:SRU.UN) has come a long way in the last decade.
The company has long been the landlord of choice for the world’s biggest retailer here in Canada, with some 30% of rents coming from Walmart stores. The company then slowly bought new locations and built more and made a big acquisition to nearly double its size back in 2015.
These legacy assets provide plenty of cash flow that management is putting to work in an ambitious development program. Projects include a huge multi-use development in Vaughn, Ontario, which will include office towers, retail space, and some 2,000 condos, as well as various other retail, residential, and mixed-use properties throughout Ontario and Quebec. The company plans to work with partners to build significant seniors living and self-storage divisions as well.
In total, the REIT plans some $5.5 billion worth of development in the short to medium term. That’s ambitious, but SmartCentres has shown it’s up to the task.
And while investors wait, they’re treated to a succulent 5.8% yield — a payout that should keep marching higher.
H&R REIT
H&R REIT (TSX:HR.UN) is one of Canada’s largest and most diverse REITs. Its portfolio includes retail, office, industrial, and residential property, with exposure to both Canada and the United States. It has more than 41 million square feet of gross leasable area worth some $15 billion.
Thanks to disappointing quarterly results and a little bit of bearishness for the REIT sector in general, H&R shares are currently trading at a very attractive valuation. Shares are comfortably under net asset value and trade at just 12 times 2019’s expected funds from operations.
The company’s main growth driver today is U.S. residential property. It has been acquiring assets in sunbelt cities and has an ambitious development portfolio, including properties in various stages of development in markets like Seattle, San Francisco, Long Beach, and Miami. Its New York City-area apartments were just completed in 2019, too.
And like SmartCentres, H&R pays a generous yield while you wait. The current payout is 6.6%.
Automotive Properties
Automotive Properties REIT (TSX:APR.UN) is one of the better growth opportunities in Canadian business today. The company acquires car dealerships and then leases them back to operating companies. This win-win situation allows auto dealers to secure long-term leases on desirable locations while shifting the capital requirements of ownership onto Automotive Properties, which secures an attractive cap rate whenever it buys assets.
The company has more than doubled the size of its portfolio since its 2015 IPO. It now owns 62 different properties spanning some 2.3 million square feet and has diversified its assets by location, operating partners, and vehicle brands. With underlying trends pointing towards further consolidation in the dealership business, as smaller operators sell to larger companies, look for this growth trend to continue for at least the next decade.
Automotive Properties stock has been one of the best performing in the entire REIT sector over the last year, with shares rocketing some 30% higher, as investors finally discover this hidden gem. Both new dealership acquisitions and solid results from existing assets should be enough to help push shares higher, too.
Finally, the stock pays a generous dividend, with the payout currently checking in at 6.4%.
