3 Top-Performing Canadian REITs for Income Investors

The Canadian REITs we’ve identified have all outperformed their benchmark index

SmallCapPower | November 15, 2018: Today we have discovered three Canadian REITs that may be promising plays for income-oriented investors. These Canadian REITs have all experienced share-price appreciation relative to their benchmark index, the iShares S&P/TSX Capped REIT Index ETF (TSX:XRE). As the Bank of Canada continues to hike rates going into 2019, the real estate sector has taken a beating as it tends to be very sensitive to changes in interest rates. This may present, however, an opportunity to seek REITs that may have been oversold, offering investors a high dividend yield. Outperforming their benchmark, the three REITs on our list offer investors an opportunity to include a high-yielding dividend security in their portfolios. For reference, the benchmark ETF (TSX:XRE) has returned 6.2% (before dividends) YTD. NOI (Net Operating Income) is a commonly used metric in real estate valuation that ignores depreciation expense, a major non-cash expense for real estate companies.

*Market Cap and Closing Prices as of November 13, 2018

Killam Apartment REIT (TSX:KMP.UN) – $16.65

Killam Apartment REIT develops and operates residential apartments and manufactured home communities in Atlantic Canada, Alberta, and Ontario. The Company’s strategy to maximize shareholder value centers around three pillars: (1) increasing earnings from the existing portfolio; (2) expand and diversify the portfolio through strategic acquisitions; and (3) developing high-quality properties in core markets. The Company’s $2.6 billion portfolio consists of 15,364 apartment units and 5,304 manufactured home community sites, with Nova Scotia generating the largest share of Killam’s NOI.

  • Market Cap: $1.4 Billion
  • YTD Returns: +17.4%
  • Dividend Yield: 3.8%

Dream Office Real Estate Investment Trust (TSX:D.UN) – $24.19

Dream Office Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust. The Company manages over seven million square feet of office space throughout Canada, with an emphasis on downtown Toronto and the GTA. In fact, nearly 70% of the Company’s portfolio consists of assets in Toronto. Over the past few years, Dream Office has executed on its strategic plan of selling non-core assets to reduce its leverage, with Q2 2018 debt to assets at 48%. The downtown Toronto office market vacancy rates are at historical lows, hitting 2.9% in Q2 2018, allowing the Trust to continue to raise lease and rent payments as businesses compete for office space.

  • Market Cap: $1.4 Billion
  • YTD Returns: +9.6%
  • Dividend Yield: 4.1%

Allied Properties Real Estate Investment Trust (TSX:AP) – $44.81

Allied Properties manages and develops urban workplace projects in major cities across Canada and has achieved a 29% CAGR on its total assets since inception. The Company’s office rental portfolio consists of 148 properties spanning 11 million square feet, with the majority of the office space clustered in Toronto and Montreal. Allied Properties generates 69% of its NOI through its office portfolio, and an additional 18% from its urban data centres. The Company’s revenue streams are fairly diversified, with Top 10 users of its urban data centres comprising only 19.4% of revenues. The Company’s debt to asset ratio was 27.6% according to the Company’s November 2018 investor presentation.

  • Market Cap: $4.7 Billion
  • YTD Returns: +6.8%
  • Dividend Yield: 3.5%

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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