Real Estate Investments with REITs

real estate

REITs are a great way for small investors like me to invest in classes of property like shopping malls, offices and apartments . They have great dividends, generally 3-8%, paid monthly. I have done well with capital gains on REITs in the past few years, but they have been stalled for the past year or so, and some of the ones I own have even gone down. This could mean it’s a good time to buy – or not. REITs do well when interest rates go down because they will be able to make more money from rents as their expenses are lower. With rates now at rock bottom and likely headed higher at some point, the stock price of many REITs has come down as the market has priced in the fear of interest rate increases.

I have looked to this as a buying opportunity for Omega HealthCare (OHI:NY) and HealthCare Properties (HCP:NY). We have been talking about REITs at my investment club. One of our members dislikes real estate (he won’t even buy a home, he insists that being a renter in the Greater Vancouver area is the better way to go) and thinks that there might be further drops in the price of the REITs. However, he likes the healthcare REIT sector because if interest rates go up, they are better able to increase the rents they charge more quickly than commercial and apartment REITs can as they have longer term leases with their tenants.

Other members of our club are much more comfortable with all classes of REITs because their monthly payouts are generally quite secure and it is a good sector for an income investor. There is a degree of security as the REIT owns the underlying real estate.

I own a number of REITs in my pension and am reconsidering some of them. I own Cominar REIT (CUF.UN:T), which specializes in apartments and commercial property mainly in Quebec and the price keeps coming down. I don’t know why, but I am down 25% on it. My monthly dividend has increased slightly and I have been reinvesting the dividends and it turns into a new share every month. But – could my money be deployed better somewhere else? Dream Office REIT (formerly Dundee) (D.UN:T) has been another bad one. I’ve held it for over 5 years, it was a great performer in terms of stock price, but now I’m down 20%. I know that some of it has to do with a fear that a rise in interest rates could hurt the owners of office properties, but I also think the manager has issues with how they pay themselves for management. Will it turn around? It owns some great properties. I would be hard pressed to sell, especially after my experience of the meteoric rise of Loblaw (L:T) as soon as I sold it.

I’ve done much better with Chartwell Seniors Housing (CSH.UN:T), up 40%. Right now the market seems to like seniors’ housing in general. I’ve also looked to REITs doing business outside of Canada and have liked Pure MultiFamily (RUF.UN:T) which invests in high end rental apartments in the US sunbelt. That one is a small REIT that has been a good performer. I talked to the CEO about their strategy and he said they look to areas with lots of jobs (like Dallas-Fort Worth), no rent controls, and quality high end properties.

One of my REIT strategies is that I always reinvest the dividends through the synthetic DRIP offered by my discount brokerage, and that whenever the cash portion of my account is over $200 (which is the bits of dividends that weren’t enough to buy whole shares) I look  to reinvest it. Right now I’m mulling over more Retrocom (RMM.UN:T) yielding 12.5%, NorthWest Healthcare (NWH.UN:T) yielding 9.8%, Inovalis (INO.UN:T) yielding 9.1%, Pure Multi-Family (RUF.UN:T) yielding 7.4%, or a more conservative one like RioCan (REI.UN:T) yielding 5.3% or Allied Properties (AP.UN:T) yielding 4.1%.

Disclaimer: This is for information only and is not investment advice. Do your own research or consult a professional before making any investment decision.


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