Diversified REITs less prone to risks - analysis

REITs that have their strength spread across multiple sectors remain less exposed to risks

Diversified REITs less prone to risks - analysis
The diversified nature of real estate investment makes them far less prone to risks that would otherwise overwhelm portfolios dealing with just a single sector, according to a recent analysis by The Motley Fool Canada.

“[This characteristic] 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,” markets analyst Chris MacDonald stated.

As an example, 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 spread across multiple markets in 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 wrote.

REITs also tend to benefit from the positives of multiple segments, with Dream Unlimited being a shining example of this.

Writing about Dream Office REIT (TSX:D.UN) and Dream Industrial REIT (TSX:DIR.UN), MacDonald explained that 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.”