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Navigating the World of REITs: Dividend Gems in the Canadian Real Estate Sector

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The introduction of Canadian real estate investment trusts (REITs) in 1993 was a monumental financial engineering marvel that minted a new asset class. It afforded ordinary individuals cheap access to usually reliable rental income and exposure to the long-term capital-appreciation potential of Canadian real estate without the nagging hassles associated with direct property ownership.

Canadian REITs remain a proven source of generally reliable monthly income distributions and a source of long-term capital gains despite a steep drop in 2022 when a diversified iShares S&P/TSX Capped REIT Index ETF generated a 17.4% annual loss. Volatility happens in the asset class, too. Rising borrowing costs and higher discount rates drag REIT valuations down.

Regardless, Canadian REITs’ income-generating potential generally remains robust, and some individual REITs are Dividend Aristocrats that cultivated a strong track record of raising their distributions every year while growing investors’ capital.

Investors just have to navigate the REIT world as carefully as they do in other asset classes.

The best Canadian REIT industries to buy in 2024

Average yields and total returns on Canadian REITs may vary widely by property type over the next year.

Industrial REITs enjoyed full occupancy rates, fast rent growth rates and high property valuations as businesses rushed to bring back their supply chains onshore post COVID-19. Valuations may slightly correct as growing supply leads to lower occupancy rates in 2024. Residential REITs usually enjoy robust demand from a growing tenant base as the population grows and housing affordability declines. Retail property occupancy rates should continue recovering well.

Unfortunately, highly leveraged and beaten-down office REITs may remain under severe pressure in 2024, as occupancy rates continue to decline after companies fell for the allure of work-from-home flexibility.

Evidently, not all REITs are the same. It’s imperative that one navigates the Canadian REIT world carefully to find dividend gems in the Canadian real estate sector, unlock capital gains, and limit the potential of buying into a struggling trust that may cut its distributions as its sustainable distributable cash flows (usually measured by adjusted funds from operations (AFFO)) dwindle.

Two dividend gems in the Canadian real estate sector to buy 2024

The most appealing attribute of Canadian REITs is their monthly distributions, especially if payouts are well supported by recurring distributable cash flow. Trusts with low AFFO payout rates below 90%, strong or rising occupancy levels, growing net operating incomes (NOI), and low leverage should do well next year.

CT Real Estate Investment Trust (TSX:CRT.UN) is a favourite Dividend Aristocrat that has been a strong performer on both the distribution growth and the capital gains front since going public 10 years ago. It currently pays a distribution that yields 6.2% annually.

The retail property trust boasts a 99.1% in-place occupancy rate; its key tenant, Canadian Tire remains an ambitious, steady-growth, financially healthy retailer that’s still expanding its geographical footprint across Canada (and thus demanding more retail space), and the trust pays one of the most covered distributions going into 2024.

CT REIT reduced its AFFO payout rate from 95% a decade ago to 73.2% by September 2023. Net operating income has galloped ahead at rates above 7% annually, and AFFO per unit growth rates have averaged an impressive 5.7% annually since 2013.

After 10 years of consecutive annual distribution raises, the trust’s monthly distribution yields 6.2% annually, and there’s room for more payout growth given income growth and manageable payout rates.

CAPREIT to remain formidable in 2024

Canadian Apartment Properties Real Estate Investment Trust (TSX:CAR.UN) , or CAPREIT, is another dividend gem in the Canadian real estate sector worth your investment in 2024. The residential REIT holds about 64,500 residential property units located in Canada and the Netherlands and has cultivated a strong 11-year dividend-growth streak.

CAPREIT’s monthly distributions look well covered. The trust paid out 60.5% of its funds from operations (FFO) during the first nine months of 2023 — an improvement from an FFO payout rate of 62% a year ago. Distributions from the $16.5 billion property portfolio currently yield 3% annually.

Leverage looks okay at a 41% debt ratio. Units trade at a discount of 10% to the trust’s most recent net asset value estimate of $54.36 per unit reported at the end of September 2023.

 

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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