The continued underperformance of the real estate sector reflects the impact of rising interest rates. Real estate investment trusts (REITs) belong to the sector and are in negative territory, too. However, income investors can mitigate the risks and choose REITs that can endure the downturn.
Summit Industrial (TSX:SMU.UN) and Dream Office (TSX:D.UN) are smart real estate stocks to buy right now. The recent quarterly results are compelling reasons to pick either one over other REITs. Their dividend yields are also attractive if you’re looking for recurring passive-income streams to cope with rising inflation.
Solid fundamentals
Summit Industrial owns and manages a portfolio of light industrial properties (60) in Canada. According to management, it will capitalize on the REIT’s solid fundamentals to achieve a record property performance in 2022. In the second quarter (Q2) 2022, revenue and net rental income increased by an identical 13.8% versus Q2 2021.
Its chief executive officer (CEO) Paul Dykeman said, “Revenue continued to increase in the second quarter, driven by portfolio growth, occupancy rising to near-full levels, and significant rental rate increases on renewals.” On the operations side, same property net operating income and funds from operations grew by 7.7% and 39% year over year.
Notably, the occupancy rate was a high of 99.1%, while the average lease term stands at 5.5 years. Dykeman added, “Looking ahead, demand remains exceptionally strong in all of our target markets with record low availability rates and significant market rent increases.”
Summit has a lower risk profile because the light industrial sector has stable fundamentals. Moreover, the properties are highly marketable due to the multi-use spaces. They are ideal for tenants with warehousing and storage needs. Other lessees can set up light assembly and shipping plants or call centres and professional services.
If you invest today, a share of $3.66 billion REIT costs $19.30. The dividend yield is a decent 3.01%.
Recovery mode
Dream Office is on recovery mode from COVID lockdowns and shift to work-from-home environment due to the global pandemic. This $938.35 million REIT is a premier office landlord in downtown Toronto (28 active properties). It also has an ownership stake in Dream Industrial, a REIT with a high-quality logistics portfolio.
However, total portfolio in-place occupancy declined to 81.6% from 83.9% in the same quarter last year. Management said it has secured commitments for 90% of full-year 2022 natural leases expiries. It added that the successful redevelopment program that began in 2020 has significantly increased the value of the assets and delivered significant incremental income.
Michael Cooper, CEO of Dream Office, said, “Despite recent uncertainties with cost inflations and rising interest rates, we believe Dream Office REIT is well positioned to manage these economic challenges and deliver great long-term value to its unitholders.” At only $19.95 per share, you can partake of the 5.01% dividend.
Market correction
Homebuyers and real estate investors are staying on the sidelines and holding off purchases because the housing market is contracting. Prices are falling due to the impact of rising interest rates. If you want exposure to the real estate sector, REITs are alternative options to direct ownership. The dividends from Summit Industrial and Dream Office can take the place of rental income.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
