Inflation worries are real. And while real estate investment trusts (REITs) can be great long-term investments, it’s clear there’s some trepidation about owning top TSX REITs in this environment.
REITs are vehicles investors use to gain exposure to real estate, without the headaches of owning physical property. All the property management, water leaks, and bad tenants are the problem of the trust. However, investors receive rather steady income from these stocks, often set at a prescribed percentage of net income.
Thus, for long-term income investors, REITs are a great way to generate significant and (mostly) stable dividend income over time. Barring some sort of catastrophic event (what concerns investors now), these bond-like proxies act as they should. As a substitute for bonds, many institutional investors have flocked to REITs as “alternative investments,” though these stocks are publicly traded.
With hundreds of options out there, it may be hard for investors to narrow down the REITs worth buying. That said, here’s why I think Granite REIT (TSX:GRT.UN) and Dream Industrial REIT (TSX:DIR.U) are worth a look.
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Top TSX REITs: Granite REIT
Granite is a Canada-based REIT that owns, manages, acquires, and develops warehouse, logistics, and industrial properties in Europe and North America. This REIT owns 137 investment properties that represent a leasable area of around 57.3 million square feet. That’s a lot for those with no idea how to visualize those numbers.
Recently, Granite released its Q1 numbers, which were very solid. The trust announced as part of its earnings release that it has completed the acquisition of two income-producing properties, and one property under development, at a combined purchase price of roughly $193.6 million. This sort of development growth is why many investors like Granite REIT, with the hope this trust will continue to increase its distributions over time.
Granite’s net operating income came in at $91.2 million in the first quarter of 2022 in comparison to $81.5 million in the previous year period — that’s a hike of $9.7 million, primarily due to net acquisition activity starting in Q1 2021. Should this REIT continue along its path, investors have a lot to like about future dividend growth.
Dream Industrial REIT
As of the end of Q1, Dream manages, operates, and owns a portfolio of 244 industrial assets (358 buildings) that comprises around 44.4 million square feet of gross leasable area in key markets across Europe, the U.S., and Canada. Again, in terms of size, Dream is no slouch, particularly in the industrial real estate market.
I like industrial real estate for many reasons. However, perhaps the most pertinent reason is that the warehouses and distribution centres Dream owns are utilized mainly by blue-chip clients tied to high-growth industries. As the economy moves more toward an e-commerce focused supply chain, REITs such as Dream Industrial should get more attention.
Like Granite, Dream’s net income growth was impressive. In fact, Dream blew most of its competitors out of the water, posting net income growth of approximately 365% year over year this past quarter. Much of this is due to fair-value adjustments to the company’s properties. However, such an increase indicates just how undervalued the company’s assets were to begin with.
