2 Canadian REIT Stocks to Buy at a Discount

Get paid monthly income while you wait for price appreciation in these discounted Canadian REITs.

| More on:

Canadian real estate investment trusts (REITs) are an excellent way to invest in real estate passively. The idea is that you’ll get paid monthly income while you wait for price appreciation. At the same time, investors need to treat Canadian REITs like stocks. The stock prices are bound to go up and down, sometimes creating excitement and other times stirring fear.

Since 2022, interest rates have gone up, pressuring stock valuations, including triggering a selloff in Canadian REITs. Here are a couple of top Canadian REITs that investors can consider buying at a discount today. Notably, it’s possible that the REITs will continue to be weighed down until we are in a new interest rate-cutting cycle.

Residential REIT stock trading at a discount

Residential REITs tend to command a premium valuation because of the defensive nature of their assets. Everyone needs a place to live. If they don’t own the place they live in, they must rent.

InterRent REIT (TSX:IIP.UN) is a multi-family residential REIT that owns, manages, and develops homes in four core regions — the Greater Toronto and Hamilton Area, the Greater Montreal Area, the National Capital Region, and the Greater Vancouver Area — totaling about 13,907 suites.

Particularly, InterRent REIT commands a long-term normal valuation of about 23.4 times funds from operations (FFO). This is not surprising seeing as it delivered double the industry growth in revenue and net operating income (NOI) over the past 10 years. Specifically, its revenue and NOI growth rate in the period was 14.7% and 15.8%, respectively, versus the peer average of 7.1% and 7.6%.

At about $12 per unit at writing, the stock is down more than 17% from its 52-week high, putting it at a discount of roughly 10% from its long-term normal valuation. Analysts think it trades at an even bigger discount of 19% with a 12-month price target of $14.81. The stock also offers a safe cash-distribution yield of close to 3.2%.

Industrial REIT stock also on sale

Industrial REITs are another defensive slice of the real estate sector. Unlike other areas of the market that may be experiencing no growth with the weight of higher interest expense, this industrial REIT is set for growth.

Particularly, Dream Industrial REIT (TSX:DIR.UN) continues to enjoy a high occupancy of about 96%. Demand is strong for its properties as the market rent is 30% higher than its in-place rent. It means that, for example, when it’s signing a new tenant to replace an old one, it would be able to get higher rental income. Importantly, its balance sheet is also conservative, with a net debt-to-asset ratio of about 36%, providing financial flexibility to grow its portfolio.

At about $12.80 per unit at writing, the stock has fallen more than 12% from its 52-week high. At this quotation, analysts think it offers a meaningful discount of 20% from the consensus target of $16.07. The stock also offers a cash distribution yield of almost 5.5%, which is quite desirable and sustainable, with a payout ratio of about 69% of its FFO this year.

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.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends Dream Industrial Real Estate Investment Trust. The Motley Fool has a disclosure policy.

More on Dividend Stocks

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Here’s the Average TFSA Balance at Age 44 in Canada

You can invest your TFSA in funds like the BMO Canadian High Yield Dividend ETF (TSX:ZDV) to grow the balance.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

The Best Telecom Stock to Buy Before 2025

Choosing the safest stock from a decimated sector can be tricky, but if there is a reasonable chance of full…

Read more »