Interest rates are dropping, and real estate stocks and REITs (real estate investment trusts) are moving to the inverse. In fact, the S&P/TSX Capped REIT Index is up 10% this month and 8.45% year to date.
As yields on ultra-safe investments like GICs (guaranteed investment certificates) and savings accounts decline, investors must look for income from riskier assets like stocks.
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Why buy private real estate investments when you can own a REIT?
Buying a REIT is an attractive option versus actually owning commercial real estate itself. Investment properties require a lot of capital and a lot of management. They are not a passive investment like many people think.
However, you can own just as good (or, in most cases, better) assets in a REIT and have zero management responsibility. Likewise, you can buy and sell a REIT for the cost of a brokerage commission.
That isn’t the case if you are buying/selling private real estate. There are significant costs to trade private real estate (legal, realtor commission, due diligence expenses, mortgage fees, and title fees).
If you don’t want to get bogged down in all of this but still want to own real estate, REITs are a great place to look. Here are two top REITs to buy in September.
Granite REIT: Great portfolio run by a strong team
Granite REIT (TSX:GRT.UN) is a great anchor for any income-focused portfolio. It has 138 industrial, logistics, and manufacturing properties across North America and Europe.
With a weighted average lease term of 5.9 years, it has a clear line of sight for its income in the coming years. Certainly, the REIT has seen a slowdown in the industrial market. Recently, its occupancy has dipped to 94.5%.
However, it has high-quality properties that are very well-located. It might just take some time (and incentives) for occupancy to recover.
Granite has a great record of growing funds from operations at an attractive, high single-digit rate. It has likewise grown its distribution for 13 consecutive years. With a very strong balance sheet, this is likely to continue. Granite stock yields 4.2% right now.
BSR: A real estate play for value, income, and even growth
BSR REIT (TSX:HOM.UN) is another REIT you don’t want to ignore. Its stock is up 17% this year but still down 30% from its all-time highs set in early 2022.
BSR owns and operates 32 garden-style apartment complexes, mainly in Texas but also in Oklahoma and Arkansas. Its assets are focused on some of the largest growth centers in North America. These are unregulated markets, so it is fully exposed to long-term growth tailwinds in the region.
After COVID-19, BSR enjoyed significant rental and income growth. That has pulled back as new supply flooded its markets.
Fortunately, BSR has maintained its rental rates. New supply is expected to dwindle into 2025. That could set up further strong organic growth in 2025 and beyond.
BSR stock has been trading extremely cheaply when compared to peers. Its portfolio is trading at a 30% discount to what private market assets have been trading for.
This REIT has a strong balance sheet and a great management team. While the stock has been cheap, it has opportunistically bought back stock. It also recently increased its distribution.
Today, BSR stock yields 4%. With BSR, you get modest growth, value, and income. The stock has recovered in 2024, but it could further rise in 2025 and beyond.
