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Real estate investment is an essential component of a long-term investment portfolio. However, investors do not necessarily need to take on debt to gain exposure. From the pool of real estate investment trusts (REITs) available, TFSA investors can generate tax-free monthly income as passive owners!
When purchased at reasonable valuations, quality Canadian REITs should provide at least market returns over the long term. Many Canadian REITs also offer above-market yields, which is an essential part of total return.
Here are some Canadian REITs that pay monthly cash distributions.
Choice Properties REIT
In 2021, Choice Properties REIT (TSX:CHP.UN) recorded a 1.6% increase in rental income. Growth in net operating income (NOI) of 3.2% and growth in NOI like-for-like of 2.5%. Its occupancy rate is 97.1%. Its funds from operations (FFO) per unit rose 3.6%. At $15.60 per writing share, it is valued at fair value and yields 4.7%.
Andrew Moffs gave a brief overview of the stable REIT:
“Choice Properties REIT is a stable income provider that you can add to any portfolio. We like that. It has great real estate nationwide. Its largest tenant is Loblaw, he therefore has secure cash. An element of growth, which is unique to the industrial sector. Nice combination of safety and growth. Hold on and sleep well at night with delivery performance.
Andrew Moffs, senior vice president and portfolio manager at Vision Capital
If possible, interested investors should try to buy on the bottom if the Canadian REIT fell to around $14.50 per unit, for example.
Chartwell Retirement Residences
Both Chris Blumas and Greg Newman love Chartwell Retirement Residences (TSX:CSH.UN).
“Chartwell is made up of long-term care homes and retirement homes. It has a terrific population growth profile. We believe it is trading at very cheap valuations. A lot of American money goes into the space. More supply will be built.
Chris Blumas, portfolio manager at Raymond James Investment Counsel
“The Russian-Ukrainian conflict and the interest rate situation favor quality names like this. Chartwell is trading around 15x with a growth rate of 16% and a return of 5%. It’s a defensive title, so it should move smoothly with growth and distribution.
Greg Newman, Senior Wealth Advisor and Portfolio Manager at Scotia Wealth Management
I would like to add that the Canadian REIT’s growth rate is strong in the short to medium term as it is on the road to recovery from reduced cash flow due to the impacts of the pandemic. At the time of writing, Chartwell is trading at $12.14 per unit, trading at a sharp discount of around 14% and yielding around 5%.
Canadian Net REIT
Canadian Net REIT (TSXV: NET.UN) acquires and owns high-quality triple-net, non-management commercial real estate properties in approximately 92 properties. This means he gets savings on insurance costs, taxes and maintenance which are paid by his tenants instead. In other words, it benefits from a more stable and predictably growing cash flow.
Due to its small size and acquisition nature – buying suitable real estate properties one at a time – it has grown its FFO per unit at a higher rate than others. Its five-year FFO per share growth rate is around 18%, while it has increased its cash distribution by around 13% per year.
At $7.85 a share, the high-growth Canadian REIT is about 14% undervalued and offers a yield of 4.3%. Mark the calendar March 23 for the latest updates (Q4 2021 results) on Canadian quality REITs!