These 2 Canadian REITs Yield at Least 7%, and Here’s What You Need to Check Before You Buy

If you are looking at 7%+ REIT yields and wondering whether they are too good to be true, it depends entirely on what is underneath them.

Real estate investment trusts collect rent, pass a meaningful chunk along to unit-holders, and often pay monthly, which feels a lot like a paycheque for your portfolio. The catch is that you still need the rent to stay sturdy and the balance sheet to stay flexible, especially when interest rates and refinancing costs move around. If those things hold up, a 7%+ yield can look less like a trap and more like a tool. So let’s look at two to consider.

SGR

Slate Grocery REIT (TSX:SGR.UN) owns U.S. grocery-anchored shopping centres, which makes it more defensive than a typical retail landlord. People keep buying groceries in good times and bad, and that tends to support foot traffic for the small shops that sit beside the anchor. Over the last year, the main storyline has been steady occupancy, pushing rents on renewals, and managing debt in a higher-rate world.

The most important “earnings” lens here is funds from operations and adjusted funds from operations per unit, because net income can swing with property valuations and one-time items. Recently, Slate has shown that it can keep occupancy in the mid-90% range and keep leasing moving. However, the payout coverage has looked tight at times, especially when interest expense rises or when timing hits cash flow in a given quarter. When the distribution runs ahead of adjusted funds from operations (FFO) in a quarter, it does not automatically mean disaster, but it does mean you should watch coverage like a hawk and treat the yield with respect.

On valuation, Slate often trades at a noticeable discount to what the underlying real estate could be worth on a private-market basis, which is common for smaller REITs in a choppy rate environment. The risk is simple and very real: if financing stays expensive and cash flow coverage stays thin, the distribution becomes the pressure point investors obsess over.

Slate is the grocery-anchored case for a 7%+ yield — defensive tenant base, mid-90s occupancy, and a NAV discount that could unwind if rates ease. But the tight AFFO coverage means this is a “watch it closely” hold, not a “set it and forget it” one.

AP

Allied Properties REIT (TSX:AP.UN) owns office properties in Canada, with a focus on high-quality urban workspace. That makes it a different kind of “monthly cash flow” play, because offices have lived through a tougher cycle than most property types. Over the last year, Allied’s story has centred on stabilizing occupancy, improving leasing economics, and continuing to strengthen the balance sheet through a mix of capital recycling and debt management.

From an earnings perspective, Allied is also best judged by FFO and AFFO per unit and by how the payout ratio trends over time. Recently, the key has been whether leasing spreads and occupancy can improve enough to offset higher interest expense, because office REITs feel refinancing pressure faster than most. With office, the workhorse test is not the yield, but whether cash flow per unit stays stable and whether management can keep debt and liquidity comfortable while the leasing market gradually heals.

On valuation, Allied has often traded at a steep discount to NAV through this down cycle, and that discount can create meaningful upside if conditions normalize even a little. The risk is also the obvious one: office demand can stay sluggish longer than investors want, and if cash flow weakens or refinancing costs bite harder than expected, sentiment can stay rough. This is a higher-volatility income pick, even if the properties are high quality.

Allied is the recovery bet here with a steep NAV discount, high-quality urban office assets, and a distribution reset that now looks more sustainable than the old one. The upside is real if the leasing market keeps healing, but this is a higher-volatility pick and should be sized accordingly.

Bottom line

SGR.UN and AP.UN can both deliver 7%+ monthly cash flow, but for very different reasons: Slate on grocery necessity, Allied on a high-quality office recovery. In both cases, the smartest move is to treat the distribution like a signal to investigate, not a reason to relax. Here’s what a $7,000 investment in each could bring in.

COMPANYRECENT PRICENUMBER OF SHARES YOU COULD BUY WITH $7,000ANNUAL DIVIDENDTOTAL ANNUAL PAYOUTTOTAL INVESTMENTSGR.UN$16.02436$1.18$514.48$6,985AP.UN$9.50736$0.72$529.92$6,992.00

Watch AFFO coverage, debt maturities, and refinancing progress, and you give yourself the best chance of turning a big yield into steady, boring monthly cash. That kind of discipline is what separates income investors who compound quietly from those who chase yields and get burned. It is also the kind of discipline they love at Motley Fool Canada.

The post These 2 Canadian REITs Yield at Least 7%, and Here’s What You Need to Check Before You Buy appeared first on The Motley Fool Canada.

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More reading

• TFSA: Invest $20,000 in These 4 Stocks and Get $1,100 in Passive Income
• My Top Pick for Immediate Income? This 7.6% Dividend Stock
• Retiring Soon or Already There? These 3 REITs Can Boost Your Monthly Income
• 3 Canadian REITs for an Income Portfolio That Holds Up in Any Market
• 2 Stocks Every Canadian Retiree Should Seriously Consider Avoiding

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Slate Grocery REIT. The Motley Fool has a disclosure policy.