3 Cheap Canadian REITs to Buy in May 2022

Over the next months, rising interest rates can give excellent entry points to these quality Canadian REITs!

Image source: Getty Images

Regardless of capital appreciation, real estate investing generates real value from rental income. Unfortunately, it’s a lot of work to manage rental properties — particularly if you want to diversify. By investing in real estate investment trusts (REITs), you can invest in real estate passively by selecting the industries you want to invest in as well as determine if you like what management has done so far.

Here are three diversified Canadian REITs that are getting cheap, perhaps due to rising interest rates, and that will be increasing their borrowing costs over time. Consider building a position during the correction for passive monthly income and long-term price appreciation.

Summit Industrial Income REIT

Last week, Andrew Moffs chose Summit Industrial Income REIT (TSX:SMU.UN) as one of his top stock picks on BNN. He believes it is “the best way to play the strongest and tightest market in North America, and that’s the industrial market, specifically in Montreal. It has a track record of creating value. And is a good takeout candidate at some point. Summit Industrials Income REIT is trading at a wide discount to its net asset value.”

The Canadian industrial REIT stock has corrected more than 15% from its 52-week high. So, it’s a good time to take a closer look. It is focused on building and managing a portfolio of light industrial properties. It has interests in about 156 properties totaling approximately 20.7 million square feet of gross leasable area. Because of its defensive assets, it enjoys a high occupancy rate of about 99%. Furthermore, it should benefit from organic growth as well as growth from acquisitions.

It yields just over 2.8% at writing of $19.81 per unit. Analysts believe it’s undervalued by 20% such that it can deliver price gains of about 25% over the next 12 months.

Killam Apartment REIT

Let’s look to residential REIT Killam Apartment REIT (TSX:KMP.UN). Analysts also think the Canadian REIT is a buy. It’s in a defensive asset class — people either own or rent the place they live in. Killam Apartment REIT’s funds from operations (FFO) have been rising every year since 2015. And the company has been raising its cash distribution annually since 2017 with a five-year dividend-growth rate of 2.8%.

At $19.33 per unit at writing, the REIT provides a safe yield of 3.6% on an FFO payout ratio of about 63%. The 12-month analyst consensus price target suggests the stock is undervalued by roughly 25% and has upside potential of about 33% in the near term.

Canadian Net REIT

Canadian Net REIT (TSXV:NET.UN) is the smallest of the three Canadian REITs. It only has a market cap of about $160 million and low trading volume. It is a low-volatility stock that’s perfect for conservative investors. Once you get your hands on some shares, it makes a great passive, monthly income payer.

It invests in a high-quality portfolio of commercial real estate. Despite its size, it is diversified across 95 properties and has gross leasable area of about 1.3 million square feet. Some of its growth drivers include being involved in developing properties and active in making acquisitions.

What’s critical is that management has led the company to exceptional growth. Specifically, in the last 10 years, it has increased its FFO and cash distribution per unit at a compound annual growth rate of about 10%.

At $7.90 per unit at writing, analysts believe it’s discounted by 15%. To boot, it also provides a juicy yield of about 4.3%.

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.

The Motley Fool has positions in and recommends Killam Apartment REIT. The Motley Fool recommends Canadian Net Real Estate Investment Trust and SUMMIT INDUSTRIAL INCOME REIT. Fool contributor Kay Ng owns shares of Canadian Net REIT.

More on Dividend Stocks

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 »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

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

Don't get sucked in by BCE's 10% dividend -- the stock is a total yield trap. Buy this instead.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Consider Sienna Senior Living for a Stable Monthly Income

Buying this Canadian dividend stock could help you build a dependable monthly income portfolio for the long term.

Read more »

Female raising hands enjoying vacation, standing on background of blue cloudless sky.
Dividend Stocks

Best Beginner-Friendly Stocks to Buy Now in Canada

These top TSX stocks have delivered attractive long-term returns.

Read more »

customer uses bank ATM
Dividend Stocks

Here’s the Average TFSA and RRSP at Age 65 for Canadians

The TFSA and RRSP together make an ideal pairing for retirees, but is the average even enough?

Read more »