The 3 Best REITs to Buy As Inflation Climbs

Inflation has reached an 18-year high in Canada, which has boosted REITs like Slate Grocery REIT (TSX:SGR.UN) and others.

Ambrose O'Callaghan ❯

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published October 30, 2021 10:25 am EDT

Last September, I’d looked at some of the top dividend stocks to snatch up as inflation was on the rise. Inflation ticked up to 4.4% in the month of September, representing an 18-year high. Canadians have been burdened by higher prices for essentials like food, transportation, and shelter. Today, I want to look at some of the best real estate investment trusts (REITs) to own in this environment. Canadians can make up some ground that has been lost by inflation by gorging on tasty income.

Why I’m stashing this grocery REIT right now

Grocery stocks were one of my favourite targets at the onset of the COVID-19 pandemic. Food prices have been a major driver for inflation in 2021. This should drive investors to scoop up a REIT like Slate Grocery (TSX:SGR.UN). Slate is an owner and operator of U.S.-anchored grocery real estate.

Shares of this REIT have climbed 16% in 2021 as of close on October 28. It is up 25% from the prior year. Investors can expect to see its third-quarter 2021 results in the first week of November. In Q2 2021, Slate delivered rental revenue growth of 10% to $33.3 million. Meanwhile, net operating income (NOI) climbed 8.5% to $24.0 million. Adjusted funds from operations (AFFO) jumped 14% to $10.3 million.

Slate is trading in favourable territory in comparison to its industry peers. It offers a monthly distribution of $0.072 per share. That represents a monster 8.1% yield.

High inflation should drive you to target this REIT

Automotive Properties (TSX:APR.UN) is a Toronto-based REIT that is focused on owning and acquiring income-producing automotive dealership properties across Canada. Its shares have climbed 24% in the year-to-date period. Moreover, the stock is up 36% year over year.

Transportation costs have shot up in recent months. This has gone beyond the massive jump in the price of gasoline. Statistics Canada recently estimated that prices for new cars rose by 7.2% over the past year. In Q2 2021, Automotive Properties delivered rental revenue growth of 4.1% to $19.5 million. Meanwhile, AFFO increased 11% to $10.9 million. It collected 100% of its contractual-based rent in the quarter.

This REIT possesses a very attractive price-to-earnings ratio of 7.5. Automotive Properties last paid out a monthly distribution of $0.067 per share, representing a strong 6% yield.

This is a security you can trust in an inflationary environment

Canadian Apartments REIT (TSX:CAR.UN) is the largest apartment REIT in Canada. Shares of this Toronto-based REIT have increased 22% so far this year. The stock is up 40% from the same period in 2020.

Rents have broadly increased in Canada in 2021. They have now increased to within 10% of pre-pandemic highs. In the second quarter of 2021, this REIT reported 99% rent collection. Net operating income (NOI) rose 2.9% to $143 million. Net income for the first six months of 2021 rose to $557 million – up from $140 million in the prior year.

Shares of this REIT last had a very favourable P/E ratio of 7.7. Better yet, it offers a monthly distribution of $0.121 per share. That represents a 2.4% yield.