Three of the apartment REITs to your Own Income portfolio

I love the notion of owning property. Looking after property? Not so much.

Between maintenance bills and tenants, there are too. But for individuals that want the advantages of owning income property with the hassles, there is a solution: residential real estate investment trusts (REITs).

Among the largest landlords of Canada, CAP REIT owns sites for homes, townhomes and more than apartments. CAP REIT has an increasing presence in six states, also nearly 1,500 suites in the Netherlands and a minority stake in the IRES REIT of Ireland though Ontario accounts for 45 percent of its units. Further improving diversification, its portfolio includes “affordable,” “mid-tier” and “luxury” units.

CAP REIT’s occupancy is excellent at 98.6 percent, and the payout ratio was a conservative 71.8 percent of normalized capital from operations, or NFFO — a measure of cash flow — during the first six months of 2017. The return may seem modest, but its supply has improved and, I am betting there are increases as a unitholder myself.

As 7 percent rose during the first half of 2017, reflecting acquisitions rents and revenues from laundry, parking and other sources, second-quarter results showed strength. CAP REIT’s consistent results have made it a favorite of Bay Street, where eight of the 12 analysts who follow the stock rate it a “buy,” with four “holds,” according to Thomson Reuters. The typical 12-month price target is $35.48. (On a sad note, CAP REIT announced the departure of long-time chief executive and co-founder Thomas Schwartz, 68, after a battle with prostate cancer. Chair Michael Stein will continue to head up CAP REIT’s management team until a new CEO is named.)

InterRent REIT ()

Cost: $7.82
Yield: 3.1 percent

With roughly 8,300 units in Ontario and Quebec, InterRent is a growth-oriented REIT with a proven money-making formula: It accelerates outdated properties with below-market rents and invests in package enhancements, energy-efficiency updates and common-area enhancements that let it charge incoming tenants greater rents (or apply for gains above rent-control guidelines for tenants).

Due to this earnings tailwind, the operating income — basically revenue minus costs of InterRent — has climbed by more than 4 percent for 11 consecutive quarters, according to BMO Nesbitt Burns analyst Troy MacLean. In a recent note, he mentioned InterRent’s pricing power, densification chances and possible growth in occupancy (now at 95.7 percent) one of its key strengths.

InterRent’s places are another incentive: “With strong presence in high-growth areas (GTA, Ottawa and Montreal), and no footprint in Western Canada, the REIT’s geographical vulnerability is perfect,” CIBC World Markets analyst Dean Wilkinson stated in a recent report. Even as InterRent has been increasing its supply annually in recent years, the payout ratio is a comfortable 71 percent of adjusted funds from operations (AFFO). Analysts are usually bullish, with 10 “buy” recommendations and three “holds,” and an average price target of $8.80.

Killam Apartment REIT ()

Cost: $12.95
Yield: 4.8 percent

Killam, another REIT owns about 20,000 apartment suites and sites for homes in Alberta, Ontario and Atlantic Canada. Besides a hectic acquisition schedule — it’s declared $180-million of prices so far this season, blowing past its full-year goal of $75-million — Killam has a strong development pipeline of over 1,700 units, which typically generate higher yields compared with possessions it buys.

“In the Canadian people apartment REIT world, in our opinion Killam is way ahead of the pack so far as development expertise. Layering on accretive acquisitions should help create better than anticipated growth, too,” Raymond James analyst Ken Avalos said in a note. Killam also gets a good deal of love from analysts, who have 10 “buy” recommendations, one “hold” and a mean price target of $13.77. The REIT — that has a payout ratio of about 89 percent of AFFO — increased its distribution by 3.3 percent in February and has indicated that it “expects to continue to grow and sustain distributions.”

Disclosure: The writer personally owns units of CAR.UN and IIP.UN

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  • Updatednbsp;Augustnbsp;17nbsp;3:59nbsp;PMnbsp;EDT.nbsp;Delayed by at least 15 minutes.

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