Market Correction? No Problem! Discover Top REIT Picks to Shine in 2024

Market Correction? No Problem! Discover Top REIT Picks to Shine in 2024
May 30, 2024

Remember that comfortable armchair you settled into for our previous deep dive into the world of REITs? This time, we're putting on our explorer hats and venturing deeper to uncover the sparkling gems – the top REIT picks for 2024!

Sure, the first half of the year saw a bit of a price correction for REITs after their late-2023 victory lap. Rising interest rates might have thrown some cold water on the party, but hold on to your hard hats – there are strong signs pointing towards a potential upswing.

Why We're Bullish on REITs

  • Peak Interest Rates in Sight: The Federal Reserve might be flexing its muscles, but that could actually ease pressure on property values. How? By potentially putting a cap on rising interest rates, which in turn could stabilize property capitalization rates. This translates to good news for REITs, especially those trading at lower implied cap rates compared to the private market. Expect a price convergence that could boost unit prices.
  • Fund Managers Feeling the FOMO: Hold onto your hats, because a recent BofA report reveals a surprising truth – fund manager holdings of REITs are near historic lows! This means there's a huge opportunity for a comeback as managers scramble to rebalance their portfolios. Increased demand? Check. Rising REIT prices? Likely!
  • M&A Mania on the Horizon: As the credit market gets its groove back, we might see a surge in transaction volumes and M&A activity. This could be particularly sweet music to the ears of REITs trading below their net asset value (NAV). Imagine a bidding war for undervalued gems!

Top Picks to Light Up Your Portfolio

Now that we've unearthed these exciting trends, let's get down to brass tacks and reveal our top REIT picks for 2024, each chosen for their unique strengths and potential:

1. Boardwalk Real Estate Investment Trust (BEI.UN TSX) - The Alberta Advantage

Boardwalk isn't just any REIT, it's the second-largest publicly-traded apartment owner in Canada. But what truly sets them apart is their strong presence in Alberta (think 63% of their stabilized NOI). This province boasts a booming population fueled by interprovincial migration, and offers a sweet spot of affordability compared to other regions.

Here's the clincher: Boardwalk operates in Alberta and Saskatchewan, provinces with minimal rent control restrictions (combined, they make up a whopping 74% of their stabilized NOI). This translates to the freedom to adjust rents closer to market rates, maximizing their earning potential. Plus, their units are currently trading at a significant discount (17%) to their NAV – a golden opportunity for savvy investors.

2. Digital Realty Trust, Inc. (DLR NYSE) - Riding the Data Wave

DLR isn't your average Joe in the REIT world.  They're global leaders in data center ownership, catering to the big boys – major corporations needing massive, wholesale/hyper-scale data storage solutions.

The data game is experiencing a surge in demand, fueled by the ever-growing need for information storage, especially with the rise of artificial intelligence (AI). This skyrocketing demand has created a supply shortage, pushing data center vacancy rates down and rental rates up significantly in key markets.

DLR is perfectly positioned to ride this data wave, boasting strong multi-year earnings growth prospects. They're not just sitting pretty either; they recently partnered with Blackstone on a US$7 billion hyper-scale data center development joint venture – a strategic move that solidifies their position as a frontrunner in this booming industry.

3. Chartwell Retirement Residences (CSH.UN TSX) - The Silver Lining

Chartwell takes the crown as the largest owner of seniors housing in Canada, with a geographically diverse portfolio. Here's the good news: their occupancy rates are on the rise, reaching a healthy 86% by March 2024.  This positive trend is a result of the fading effects of the pandemic and a growing senior population.

But wait, there's more! The limited supply of new retirement residences (only 1.2% of inventory) coupled with a high population growth rate for seniors paints a very promising picture for Chartwell. Their units are currently trading at a discount to NAV (10%), making them an attractive entry point for investors seeking to capitalize on the expected rise in occupancy and earnings.

The Final Word

These are just a few of the shining stars in the REIT galaxy. Remember, this isn't a one-size-fits all investment advice. Before you jump in with both boots, do your own due diligence, consider your risk tolerance and investment goals, and consult with a financial professional to craft a personalized plan. By strategically navigating the REIT landscape, you can transform these diamonds in the rough into the glittering gems of your portfolio.  Happy treasure hunting!

Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. While we strive to provide accurate and up-to-date information, it is not a substitute for seeking professional financial advice.

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