Canadian REITs are a good option for those wanting real estate representation in their portfolio
If you want to add to your real estate holdings, one good way to do it is through the best Canadian REITs.
Investing in Canadian REITs lets you hold income-producing real estate such as office buildings, shopping malls and hotels. They can save you the cost, work and risk of owning investment property yourself.
More about Canadian REITs, and special tax treatments
The best real estate investment trusts have sound management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite slow economic growth, and, when possible, they are able to take advantage of lower interest rates to refinance long-term mortgages.
Canada offers special tax treatment for Canadian income trusts. When they flow their income through to their unitholders, they don’t pay much if any corporate tax. Investors pay tax on most of the distributions as ordinary income (although some distributions qualify as a tax-deferred return of capital).
Ottawa feels the income-trust business structure is appropriate for real estate investment trusts, or REITs, so it exempted REITs from the 2011 income-trust tax.
Real estate investment trusts resemble Canadian income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings, shopping centres and hotels.
How will further interest rate changes affect REIT valuations and performance?
Interest rate changes significantly impact REIT valuations through their effect on borrowing costs, yield attractiveness, and property values.
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What are the long-term growth prospects for different REIT sectors?
The long-term growth prospects vary considerably across different REIT sectors:
Industrial REITs show strong growth potential due to e-commerce expansion and supply chain restructuring, with continued demand for warehouse and logistics spaces.
Data center REITs benefit from digital transformation, cloud computing growth, and AI development, positioning them for sustained long-term growth.
Residential REITs (apartments, single-family) maintain stable prospects due to housing affordability challenges and demographic trends, though growth varies by region.
Healthcare REITs have positive long-term outlook driven by aging populations and increased healthcare spending, particularly in specialized facilities.
Retail REITs face mixed prospects, with high-quality properties in prime locations performing well while secondary locations struggle with e-commerce competition.
Office REITs confront significant challenges from remote/hybrid work trends, with better performance in prime locations and buildings with modern amenities.
Self-storage REITs benefit from urbanization and smaller living spaces, though oversupply in some markets may limit growth.
Infrastructure REITs supporting 5G, renewable energy, and communications show promising growth aligned with technological advances.
Real estate investment trusts can maintain their exemption as long as they meet the following requirements:
All REITs (including the best Canadian REITs) must not hold any property other than “qualified REIT properties” at any time during a tax year.
At least 75% of the trust’s revenue for a tax year must come from rent or mortgage interest from real or immovable properties in Canada, and capital gains from the sale of such properties.
At least 75% of the total fair market value of all trust properties that the REIT holds must be in Canada.
A few of the best Canadian REITs are:
H&R REIT (Toronto symbol HR.UN) is one of the best Canadian REITs. It owns or has stakes in office buildings, industrial properties and shopping malls in Canada and the U.S. The trust uses proceeds from industrial properties to buy more malls and office buildings in Canada.
RioCan Real Estate Investment Trust (Toronto symbol REI.UN) owns all or part of many shopping centres in Canada and, increasingly, mixed-used properties. Those include high-demand residential components.
Allied Properties Real Estate Investment Trust (Toronto symbol AP.UN) owns office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 10 million square feet of leasable area.
Canadian REITs are much better than speculative stocks
One of the more reassuring aspects of a long-term rise in the stock market are gains concentrated in well-established companies. Investors are bidding up the prices of stocks with a history of sales and earnings, if not dividends. That includes the best Canadian REITs
This contrasts sharply with, say, the income-trust boom of the mid-2000s. Back then, investors were plunging into new issue income trusts, many of which were of low investment quality. Today’s situation contrasts even more with the Internet stock mania of the late 1990s. Many of the new issue Internet stocks back then were little more than stock promotions.
Chasing after low-quality investments like these becomes common when inexperienced investors enter the market. These newcomers lack the healthy sense of skepticism that you need to succeed as an investor. So they naturally zero in on the least desirable stocks on the market. Almost by definition, these are extremely risky and/or overpriced stocks that seem to offer high rewards with little risk. They generally deliver precisely the opposite.
Do you hold any Canadian REITs in your portfolio? Share your experience with them in our comments section.
This post was originally published in 2016 and is regularly updated.
Comments
Bill
REITs especially with the symbol UN pay distributions NOT dividends and so do not benefit from the dividend tax credit so I have decided to have all such investments such as Chartwell [ but NOT Sienna which pays a dividend ] in my TFSA . If you are not retired and do have an RRSP as well you could put these in an RRSP also. Your thoughts ??
I own shares in Choice Properties REIT (CHP.UN) based on a buy recommendation through TSI. I’ve only held it since August but it’s already down 9.6%…..
I have Allied Property Reit since 2021 and I am down 50% even with dividends re-invested. I have Dream Office Reit since 2010 and I am down 22% with dividends re-invested. I have H&R Reit since Feb 2022 and I am down 26% with dividends re-invested. I have RioCan since 2006 and I am up 52% with dividends re-invested.
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REITs especially with the symbol UN pay distributions NOT dividends and so do not benefit from the dividend tax credit so I have decided to have all such investments such as Chartwell [ but NOT Sienna which pays a dividend ] in my TFSA . If you are not retired and do have an RRSP as well you could put these in an RRSP also. Your thoughts ??
I like industrial reits like DIR and GRT
I own shares in Choice Properties REIT (CHP.UN) based on a buy recommendation through TSI. I’ve only held it since August but it’s already down 9.6%…..
I have Allied Property Reit since 2021 and I am down 50% even with dividends re-invested. I have Dream Office Reit since 2010 and I am down 22% with dividends re-invested. I have H&R Reit since Feb 2022 and I am down 26% with dividends re-invested. I have RioCan since 2006 and I am up 52% with dividends re-invested.