“REITs focus on having a diversified portfolio of assets, and generally spread a large pool of investment over a large number of properties, typically located in diverse geographical and demographic areas,” markets analyst Chris MacDonald wrote. “This helps spread out as much of the systematic risk as possible while retaining the same cash flow and earnings upside traditional real estate has provided real estate investors for decades.”
For instance, residential REITs like Killam Apartment REIT (TSX:KMP.UN) provide stable dividends (in Killam’s case, around 5 per cent), along with strong earnings growth and elevated profit margins. These especially apply to Killam, as its property portfolio is focused on Atlantic Canada.
“The maritimes provinces have seen slower, but stable growth over the long-term, and Killam has done a good job of growing its portfolio of assets over the years through acquisitions and property development,” MacDonald explained.
More importantly, REITs have the unique virtue of having their strength distributed across multiple sectors, essentially benefiting from the positives of all these segments.
MacDonald offered Dream Unlimited as a good example of this, with its Dream Office REIT (TSX:D.UN) and Dream Industrial REIT (TSX:DIR.UN) sub-arms. While “the headwinds office REITs have experienced will persist for some time, … these REITs are cheap and provide an interesting entry point for investors bullish on the Canadian economy.”
On the other hand, “Dream Industrial REIT owns a portfolio of highly sought after industrial real estate close to major city centers across Canada, and will benefit from continued growth in the e-commerce and distribution sectors in the long-term.”
The differentiated nature of real estate investment trusts makes them a fundamentally more reliable choice, according to a recent analysis by The Motley Fool Canada.