One way to create a passive-income stream is by owning real estate and becoming a landlord. But this strategy requires a huge amount of capital. For instance, the average home price in Toronto is around $1 million, which suggests a majority of homeowners will have to use debt to fund the purchase.
Moreover, you have to find a tenant, post rental ads, complete paperwork, allocate funds towards maintenance and constantly supervise the property, which is time consuming. However, investing in real estate investment trusts, or REITs, is a low-cost and easy way to gain access to the real estate sector.
Here, you can invest in several REITs across sectors such as residential, commercial, industrial, and even healthcare, which offers you diversification. A majority of the REITs trading on the TSX provide you with attractive yields, making them solid bets for income-seeking investors.
Here are two top REITs to get you started toward your own passive-income goals.
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Slate Grocery REIT stock
A retail-focused REIT, Slate Grocery (TSX:SGR.UN), currently offers you a dividend yield of 8.9%. With an asset value of $2.4 billion, Slate Grocery owns 117 locations in 24 U.S. states. It’s a necessity-based REIT, making Slate Grocery almost recession resistant.
Slate Grocery emphasizes that strong demand for grocery-anchored centres and limited new construction in this space have resulted in robust rent growth. Its portfolio comprises of the world’s largest credit-worthy grocers, such as Walmart and Kroger.
The company’s historical leasing spreads have outpaced inflation. Slate Grocery completed 590,000 square feet of leasing in the first quarter (Q1) with a weighted average rent spread of 10%. Moreover, leases for 34% of its gross leasable area will expire in the next three years, providing near-term upside for the REIT. Further, 96% of tenants are on net leases, which offers protection against rising operating expenses.
Since 2021, Slate Grocery has allocated $900 million to expand its base of cash-generating properties, allowing it to pay shareholders a monthly dividend of $0.098 per share. The REIT completed five redevelopment projects in 2022 for $25 million, resulting in a net operating income of $3.3 million and a yield of 13.3%.
Priced at 10 times forward adjusted funds flow, Slate Grocery is trading at an attractive multiple. It’s also priced at a discount of 25%, given consensus price target estimates.
Killam Apartment REIT
A REIT that currently yields 4.2%, Killam Apartment (TSX:KMP.UN) is valued at a market cap of $2 billion. Its real estate portfolio is worth close to $5 billion, making it one of the largest residential REITs in Canada. It owns, operates, and develops apartments as well as manufactured home communities in Atlantic Canada, Ontario, British Columbia, and Alberta.
Killam Apartment is focused on growing its portfolio via accretive acquisitions and expanding its profit margins to enhance shareholder wealth. It has a development pipeline of $1.7 billion to support future growth and higher dividend payments.
The REIT is one of Canada’s youngest apartment portfolios, as 33% of net operating income is earned from properties built in the last 10 years.
In the last five years, Killam Apartment has returned close to 50% to shareholders. But the stock is also down 27% from all-time highs, allowing you to buy the dip.
