Daily Buy/Sell Adviser 2 REITs for growth and income
Here are two REITs to buy. One is focused on residential properties; the other has a portfolio of office, retail, industrial and residential properties.
CAP REIT (TSX—CAR.UN)
Despite the impact of the COVID-19 pandemic on its business and markets, CAP REIT performed well in the first quarter. Occupancies remained strong and stable at 97.3 per cent, though they were down from 98.2 per cent in the first quarter of 2020. Average monthly rents, meanwhile, rose 0.9 per cent to $1,115. And the REIT saw solid growth in key performance benchmarks.
Canadian Apartment Properties Real Estate Investment Trust, or CAP REIT, is Canada’s largest publicly-traded provider of rental housing. The REIT currently owns or has interests in, and manages, about 67,600 residential apartment suites, townhomes and manufactured housing community sites across Canada, in the Netherlands and Ireland.
Normalized funds from operations, or NFFO, is the key measure of the REIT’s performance. For the three months ended March 31, 2021, CAP REIT’s NFFO was $95.9 million, or $0.56 a unit, compared with $93.1 million, or $0.55 a unit, in the same period of 2020.
The increase was due primarily to the contribution from acquisitions, continuing stable occupancies, increased average monthly rents and a focus on operational efficiency.
The distribution to NFFO payout ratio improved to 62.3 per cent from 63.3 per cent. That means NFFO more than adequately covers the monthly cash distributions, ensuring their strength and stability.
As the economy recovers, CAP REIT stands to profit from further acquisitions, a focus on strong suburban markets, rebounding immigration and the return of international students to Canada, as well as the increasing size of the seniors population.
The REIT will probably earn $2.35 a unit in NFFO in 2021. The units trade at a high 26.3 times that figure, reflecting the premium multiple attached to apartment REITs and their stable cash flow and lower risk. The annual distribution of $1.38 a unit yields 2.2 per cent.
CAP REIT is a buy for growth and some income.