Should You Buy the Dip in REITs?

Government bailouts in the United States and Canada have calmed down their respective stock markets, but the economic fallout from the COVID-19 lockdowns is just beginning to rear its head. There is considerable anxiety building in the real estate industry. Home sales are expected to slow dramatically, but the larger impact may come from a rent crisis.

Calls for rent strikes in the United States and Canada have begun to appear ahead of April 1. The picture is not rosy in the commercial space either. Restaurants, bars, entertainment venues, retailers, and other establishments have been forced to close their doors or dramatically reduce their capacity during this period. This means that commercial properties may also make a mass appeal for leniency in this extraordinary time.

H&R REIT (TSX:HR.UN) is one of the largest real estate investment trusts in Canada. Its shares have plunged 55% month-over-month as of close on March 30. The stock currently offers a monthly dividend of $0.115 per share, which represents a monster 16% yield. However, this dividend may not be safe in this environment.

RioCan REIT (TSX:REI.UN) is another one of Canada’s largest REITs. Its stock has dropped 34% over the past month. The REIT owns roughly 300 retail properties across Canada. A crisis for its commercial properties will lead to severe turbulence in the near term that investors will want to watch out for.

Value investors should keep an eye on REITs as this crisis will not last forever. However, right now real estate is set to tackle stormy conditions.