Gimme Shelter (and A Dividend): REITs

Allan Tong Posted On October 22, 2019

REITs as a good defensive option in 2019

You can’t escape hearing about interest rates, which are expected to remain low or decline in Canada and America. That means bond investors need to find yield in proxies like REITs, which typically pay over 4% dividends. Meanwhile, low rates make homes more affordable for consumers, thus driving the real estate market.

Now, those who remember the Great Recession will recall nothing great about it, but cling to a fear of another real estate crash. That’s reasonable. While anything is possible in the world of investing, the consensus does not see a crash on the horizon. So, if you want to invest in real estate, here are a few choices:

What Canadian REIT has Walmart as a tenant?

Smart REIT

A Canadian REIT anchored by main tenant, Walmart, SRU.UN pays a smart 5.57% dividend yield and is up nearly 6% for the year. Though Walmart‘s upcoming renewal slightly worries Joshua Varghese, he believes Smart should resist a downturn and reward you if you compound this holding.

James Telfser likes its approach of turning properties into multi-purpose units–storage, condos and commercial use.

Greg Newman decries the “death of retail” talk and sees only a sunny future for REITs like this, projecting 6.5% AFFO growth for Smart next year.

Jamie Murray likes Smart, but is less sanguine about the Amazon Effect, predicting more online retailer which will pressure retail rents.

Toronto Business Office Focussed REITs

Dream Office REIT

Allied Properties REIT

Both REITs hold mostly downtown Toronto, a place where demand for business office will continue to mushroom, predicts Barry Schwartz. Both REITs have been on a tear since June 25, with Dream Office leaping from $23.64 to the current $29.50.

Hap Sneddon wants to see it consolidate for a while before stepping in. Joshua Varghese notes that the CEO is buying up shares, which is always a good sign, but Michelle Wearing recalls that Allied cut its dividend a few years ago, so she doesn’t see a dividend increase for a while about its current 3.36%.

Allied REITs has also enjoyed a great run since late-June, so much so that Schwartz is wary that Allied has gotten expensive. Allied Properties has shot up from $43.37 since June 25 to the current $53.

It’s performing so well that analyst Keith Richards is considering taking some profits. Varghese suggests buying it on a pullback. Allied pays a decent 2.98% dividend yield, though that’s relatively low compared to other REITs.

U.S. Industrial Space REIT

WPT Industrial REIT

For those who want to invest in the U.S. industrial space, WPT Industrial REIT is it…or is it? The street is divided on this name, though WPT‘s defenders are passionate. WPT owns industrial warehouse in the America, occupied by the likes of UPS, FedEx and General Mills.

Because of this, Bryden Teich believes this is a good way to get exposure to the still-thriving American economy and e-commerce. They’re in the industrial sweet spot, developing properties in Chicago and Milwaukee.

Ryan Bushell likes their joint venture with the Canadian pension fund as well as their 5.5% dividend. However, Joshua Varghese would like them to stop raising equity to buy more assets and adds that WPT has been rangebound this year, currently trading on the lower end of that range.

Michelle Wearing sees better opportunities in larger industrial REITs. For WPT to grow, it needs to acquire. Consensus feels that the 5.5% dividend is safe for now.

Most Popular Canadian REIT

Canadian Apartment Properties REIT

One of the most popular Canadian REITs, CAP has been on a tear this year, up 23% so far. It’s been lifted by a housing shortage and ongoing worries over the Canadian real estate market. CAP mostly holds apartments in Ontario and no one doubts that the Toronto market is on fire with rents ever rising. Also, there are few apartment REITs around. The problem is, is CAP now too expensive? Is there any upside left?

Greg Newman suggests looking elsewhere. Though he likes it, Jamie Murray notes that CAP pays only a 2.49% dividend.

If there ever was a buy-on-dips candidate, this is it.