3 Income-Producing REITs for Reliable Cash

Three income-producing REITs from different real estate sub-sectors can be your sources of cash.

Christopher Liew, CFA ❯

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published June 25, 2023 9:15 am EDT

Income-producing real estate investment trusts (REITs) are new sources of funds for most investors. You can choose individual REITs from various sub-sectors that can provide you with reliable cash.

Industrial

Nexus Industrial (TSX:NXR.UN), a $740.75 million growth-oriented landlord, rose to prominence in 2021 due to strong demand for industrial properties amid the e-commerce boom. The current corporate name reflects the REIT’s focus on quality, in-demand industrial properties.

While the portfolio is diversified, 79 of the total 112 properties or 70.5%, are industrial. Also, the industrial portfolio generates stable cash flows and accounts for 85.1% of net operating income (NOI). The weighted average lease term is 6.6 years.

Nexus leverages its strategic relationship with RFA Capital Partners Inc. and its vast network to identify potential acquisitions. The goal is to increase the portfolio’s weighting to in-demand industrial properties.

In the first quarter (Q1) 2023, property revenues and net operating income (NOI) increased 18.2% and 16.8% year over year to $37.47 million and $25.72 million. However, net income fell to $3.71 million from $18 million in Q1 2022.

Since Nexus began trading on the TSX, it hasn’t missed paying monthly dividends. If you invest today, the share price is $8.53 (-9.08% year to date), while the dividend yield is 7.47%.

Office

The office sub-sector is least attractive at the moment due to weak demand. However, Allied Properties (TSX:AP.UN) is palatable to yield-hungry investors. At $22.76 per share (-8.43% year to date), you can partake in the juicy 7.91% dividend. This $2.91 billion REIT is one of Canada’s largest office landlords.

Allied Properties owns and operates workspaces and urban data centres (UDCs). However, it’s on the cusp of selling the network-dense UDC portfolio to supercharge the balance sheet and be a low-capital REIT by reducing dependence on capital markets.

In Q1 2023, rental revenue and operating income rose by an identical 14.5% to $138.5 million and $77.16 million versus Q1 2022. However, the office REIT incurred a net loss of $3 million compared to the $7.73 million net income a year ago.

Its president and chief executive officer (CEO) Michael Emory said the uptick in operating income was to development completions and contributions from acquired properties in 2022. The goal to consolidate and intensify distinctive urban workspace in major Canadian cities remains unchanged.

I don’t think the underperforming REIT is a dividend trap. Its dividend history shows it has paid dividends every month since 2013.

Residential

Residential REITs benefit from the ongoing affordability crisis in the housing market, Boardwalk (TSX:BEI.UN) is a top performer with its 22.42% market-beating return thus far in 2023. The $3 billion REIT owns and operates multi-family rental communities.

Boardwalk’s downside is the higher share price ($60.01) and very modest dividend yield (1.97%). Nonetheless, the REIT outperforms because of strong rental housing fundamentals. In Q1 2023, rental revenue and NOI rose 10.4% and 16.8%, respectively, to $130.5 million and $75.8 million versus Q1 2022.

Notably, profit soared 218.9% year over year to $221.4 million. Management is aware of the impact of high-interest rates and expense inflation on community providers. Still, Boardwalk’s chairman and CEO Sam Kolias remains confident the REIT will deliver strong organic growth in the years ahead.