2 REITs to Buy Ahead of Major IPO
Canada hasn’t had the best year in terms of initial public offerings (IPOs), especially among real estate investment trusts (REITs). However, that could change with one major IPO expected to start trading this month.
Dream Residential Real Estate Investment Trust should come on the market May 6; it’s expecting to close a US$125 million offering. It’s the first corporate IPO above $150 million on the TSX this year after a record year of IPOs in 2021.
The new REIT will be managed by real estate magnate Michael Cooper’s Dream Unlimited. The goal will be for the company to take advantage of the demand in apartments mainly in the United States, where rents continue to soar. While almost 90% of properties will be in the U.S., there will be a presence in Toronto as well. And, of course, the company will be looking for acquisitions.
What to buy now
Motley Fool investors could use this momentum to invest in other Dream REITs. This would include Dream Office REIT (TSX:D.UN), and Dream Industrial REIT (TSX:DIR.UN). In fact, analysts have been recommending the companies even without considering this recent IPO.
Dream Office has been up for consideration thanks to the return to the workplace. Despite a major move to working from home, many Canadians still prefer a work environment. While there has been a shift towards a mixed version of some time in office, some time at home, this means there is still a major transition back to the workplace.
This has meant an improvement to revenue for Dream office. And that’s likely to continue in the future. Yet it still trades in value territory at 7.85 times earnings as of writing. Plus, it offers a solid 3.85% dividend yield.
As for Dream industrial, it’s clear why many investors are seeking this company more and more. The rise of e-commerce was perfect for industrial REITs. That includes Dream, which has been expanding its portfolio to allow for more warehouse and assembly spaces.
And yet this stock also trades in value territory, currently at an incredible 5.46 times earnings. This gives you access to a 4.63% dividend yield as of writing.
The IPO expected this week could see these REITs climb thanks to this new investment. And, honestly, it’s a good one. The investment in apartments is a solid one for Canadian investors, with housing prices continuing to soar. This gives investors access to an area of the market that is seeing rents increase, which will mean revenue and share increases as well.
Meanwhile, these two stocks are likely to see an increase after the IPO comes down. While it’s unclear how long that momentum could last, it’s a great time to consider the stocks, as the company looks to diversify. Dream remains a strong option, with all its REITs recommended by analysts. And each area is in a strong industry that has a solid long-term future ahead of it.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends DREAM INDUSTRIAL REIT and DREAM Unlimited Corp.
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