2 Undervalued REITs to Back Up the Truck on

Passive-income investors should check out Automotive Properties REIT (TSX:APR.UN) and another undervalued REIT in August 2021.

| More on:

Many undervalued REITs on the TSX have still yet to recover from the damage brought forth by last year’s brutal stock market crash. Indeed, retail and office REITs have felt most of the pain. And with their valuations still at the lower end of the historical range, I think there are opportunities for income investors to lock in a higher yield alongside greater capital gains potential. Undoubtedly, such hard-hit REITs are some of the many reopening plays in this pandemic-plagued market, and they come with their own share of risks.

Still, many REITs are positioned to do relatively well in the new normal, even if Delta or other variants lead to further waves over the next 18 months. Some REITs, like SmartCentres REIT (TSX:SRU.UN), held up quite strong through the worst of last year’s pandemic headwinds. And it’s these names that are among some of the more prudent reopening plays out there. While such REITs have partially recovered on the back of normalizing quarters, I still think there’s value to be had in the real estate space for value investors who are willing to go against the grain.

Undervalued REITs to buy

Over the past few years, we’ve seen U.S. firms continuing to acquire REITs on this side of the border. I think that’s a testament to how much value is in the thinly traded Canadian REIT scene these days. Undoubtedly, industrial REITs have been scooped up by alternative asset managers south of the border. But in the less-certain retail and office space, I still see some pretty deep value for those willing to take a chance.

Consider SmartCentres REIT and Automotive Properties REIT (TSX:APR.UN), which command 6.2% and 6.3% yields, respectively, at writing.

SmartCentres REIT

SmartCentres is a retail REIT that did a remarkable job of weathering the storm last year. Amid lockdowns, shopping malls felt immense pain. But those that housed essential retailers were mostly spared. Smart was in the latter category. Although it was fortunate, one must not discount the firm’s recovery potential and its long-term growth profile, which has gone largely unnoticed by hasty investors.

With rent-collection rates nearly at normal, Smart’s distribution looks to be on some of the steadiest footing in all of the retail real estate scene. Moreover, the company’s move to diversify into mixed-use properties (that’s retail and residential), I believe, could be a source of long-term distribution growth.

In any case, I think Smart is still misunderstood by investors and wouldn’t be surprised to see the names outperform over the next year.

Automotive Properties REIT

Automotive Properties REIT, an auto dealership REIT, has mostly recovered from its 2020 lows. Amid the pandemic, few places have been hotter than the local dealership. And as the REIT’s tenants prosper, so too will it ahead of this booming market environment.

The REITs payout is more than safe, with an incredibly long average lease term of nearly 13 years. That means the REIT will hold up and continue paying handsome distributions to shareholders, even once the auto boom peaks out and reverses, as it tends to do in accordance with the economic cycle. I’m a big fan of how the REIT is run and would encourage bargain hunters to check out the name if they seek income and appreciation over the next decade and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Smart REIT. The Motley Fool owns shares of and recommends AUTOMOTIVE PROPERTIES REIT. The Motley Fool recommends Smart REIT.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »