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The long-term outlook for the Canadian housing market remains positive, although it is currently trending lower due to rising interest rates. A report of Toronto-Dominion Bank predicts that the average home price could fall between 20% and 25% between its peak at the start of this year and the first quarter (Q1) of 2023. Meanwhile, real estate investors are more cautious, because if they buy today property value could depreciate.
If you’re looking to gain exposure to the real estate industry, the best option right now is real estate investment trusts (REITs). You won’t own any physical property, but you will still receive investment income each month from the top three Canadian REITs in different sub-sectors.
North American Residential Morguard (TSX:MRG.UN) owns high-quality multi-suite residential properties (12,983 suites in 42 properties) in Canada (two provinces) and the United States (nine states). The $962.4 million REIT posted impressive financial results in the first two quarters of this year.
During the six months ended June 30, 2022, rental income and net operating income (RON) increased by 10% and 14% compared to the same period in 2021. Notably, net income jumped by 608% year over year to $337.7 million. Morguard’s main objectives are to generate stable and growing cash distributions and to increase the value of its portfolio.
The REIT’s asset base is also expected to expand through acquisitions and real estate improvements. If you invest today ($17.06 per share), the dividend offer is an attractive 4.07%.
One of the best choices in the office market is Allied properties (TSX:AP.UN). This $4 billion REIT owns and operates urban workspaces in major cities across Canada. It also leases network-dense urban data center (UDC) space. A recovery in business from the pandemic-induced closures is underway.
In the first half of 2022, rental income and net income increased by 7.1% and 63.2% compared to the same period in 2021. Allied President and Chief Executive Officer (CEO), Michael Emory , said rental activity has continued to accelerate this year. At the end of Q2 2022, let and occupied space increased by 160 (90.9%) and 120 basis points (89.5%) compared to Q1 2022.
According to management, upgrade activity is now constant across all of its markets. The objective is to stabilize occupancy in three to five years and to have a weighted average lease term of 12.2 years. Allied Properties trades at $32.24 per share and pays a fantastic 5.43% dividend.
US hotel properties (TSX:HOT.UN), or AHIP, was a dividend titan until the global pandemic wreaked havoc on the hospitality industry. Due to government-mandated closures, business has suffered tremendously. The REIT had to stop dividend payments to stay afloat.
However, dividend payments resumed in 2022 due to strong revenue growth and rising occupancy. This $271.74 million REIT operates high-end branded hotels offering select services. Locations are in secondary metropolitan markets across the United States.
In the second quarter of 2022, net income climbed 2,502% to $13.68 million compared to the second quarter of 2021. AHIP’s cash flow from operating activities jumped 172% from year over year to reach $14.7 million. At just $3.50 per share, the projected annual dividend yield is 6.68%.
Increase disposable income
Many income investors are turning to REITs instead of buying investment properties. Additionally, potential investors can increase their disposable income through monthly dividends from Morguard, Allied Properties or AHIP.