Money Reporter 4 REITs to buy
Despite the recent strength in real estate investment trusts, they still offer a compelling opportunity.
Real estate investment trusts, or REITs, have been market leaders this year. And they may continue to be winners, especially if the belief widens that inflation is on the rebound.
If you have a portfolio full of bonds, preferred shares and the most conservative of income trusts, you’re unwisely ignoring the threat of inflation. You may be right in the long haul, but you may be wrong. Can you afford to take that chance?
One security that brings some inflation protection while delivering an attractive current return is the REIT. Most forms of income-producing real estate include a significant degree of economic sensitivity. We’ve seen trouble in the retail segment (RioCan reduced its distribution), the office sector (H&R cut its distribution), and for a while back in early 2020, apartments REITs looked shaky before the government stepped in with support programs. Even residential real estate suffered early last year as the economy shut down due to the coronavirus. Real estate, quite simply, involves some risk.
But real estate does tend to produce steady, highly tax-advantaged cash flow over the years. It is, after all, a fundamental input to most forms of economic production. In this regard, then, real estate owners can fairly readily adjust their rents to inflation. There may be, typically, a five-year lag. But inflation escalators in renewal options are a standard part of most leases.
We recommend four REITs in our table of ‘Best Income Trusts for You’ which features trusts that should form the main building blocks of your income trust portfolio.
CAP REIT (TSX—CAR.UN) is Canada’s largest publicly-traded provider of rental housing. This REIT weathered the pandemic fairly well, thanks in large part to government support programs. Cash flow growth should be strong in coming years as immigration picks up and dorms at colleges and universities fill up. Buy.
Granite REIT (TSX—GRT.UN) owns and manages logistics, warehouse and industrial properties in North America and Europe. The increase in online shopping and supply-chain bottlenecks have increased demand for warehouse space and logistics expertise. Cash flow growth is expected to increase by double digits next year. Buy.