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Generous dividends are the main draws of real estate investment trusts (REITs). But this year, interest rate hikes have not been good for the asset class. The Bank of Canada has already raised its key interest rate four times and, as a result, real estate prices are starting to fall. It also reinforces the idea that real estate stocks tend to fall when rates rise.
However, not all REITs are in a precarious situation in 2022. Three REITs show strong rental dynamics and show no signs of slowing down. Real estate stocks can help you receive easy passive income every month.
The metamorphosis is underway
The TSX real estate sector is in a bear market (-21.63% since the beginning of the year), even if HOUR (TSX:HR.UN) outperforms. The $3.6 billion REIT beats the broader market at +4.12% vs. -8.92%. Its current price is $12.68, while the dividend yield is an attractive 4.33%. H&R has a portfolio of high quality residential, industrial, office and retail properties in North America.
In the first half of 2022, net operating income (NOI) decreased by 22.9% to $238.5 compared to the same period in 2021. However, it was offset by the increase of 325.47% year-over-year in net income to $1.08 billion. In the second quarter (Q2) 2022, net income increased by 18.54% to $112.5 million compared to Q2 2021.
Tom Hofstedter, CEO of H&R, said the quarterly results highlight the quality of properties and the embedded growth within the portfolio. Investors should be happy to know about the REIT’s five-year strategic plan. The ongoing repositioning will transform H&R into a streamlined, growth-oriented company that focuses on residential and industrial properties.
Crombie (TSX:CRR.UN) is one of Canada’s largest commercial property owners. This REIT’s portfolio of $2.75 billion (294 in total) consists of industrial and residential properties related to a grocery store and retail. Empire Companyan iconic food retailer in the country, owns 41.5% of the REIT.
Don Clow, President and CEO of Crombie, said the diversified portfolio continues to deliver consistent operational and financial performance, including high occupancy and healthy renewal growth.
He cited the 45% increase in NOI in Q2 2022 compared to Q2 2021 and committed (96.3%) and economic (95.9%) occupations at the end of the quarter. Crombie trades at $15.55 per share and pays a hefty 5.55% dividend.
Automotive properties (TSX:APR.UN) owns 73 revenue-generating auto dealership properties and belongs to an industry with strong fundamentals. In Q2 2022, the $631.5 million REIT reported total cash NOI of $17.1 million, an increase of 6.7% from Q2 2021. Rental income also increased 6.5% year over year to $20.83 million.
According to CEO Milton Lamb, Automotive Properties is well positioned to pursue future acquisition opportunities due to its low debt-to-GBV (gross book value) ratio and strong liquidity position. In addition, Dilawri, Canada’s largest automotive group, recently announced an increase in its stake in the REIT. If you invest today ($12.88 per share), the dividend offer is a hefty 6.23%.
Some industry analysts say higher borrowing costs would prevent REITs from pursuing expansion plans. Others warn that highly leveraged REITs could even reduce their dividend payouts. Still, monthly dividend payouts from H&R, Crombie and Automotive Properties look safe.
In addition to leasing dynamics, the three Canadian REITs have resilient portfolios and strong liquidity positions.