REIT stocks stand for real estate investment trusts. When an investor buys a REIT, they are buying a share in a commercial real estate portfolio. These portfolios own income-producing commercial real estate and pay good dividends. Most of them also operate their properties.
Usually, REIT stocks will focus on a particular segment of the real estate sector. However, ETFs and other specialty REITs will be a mix of diversified properties. REITs are great for diversifying your portfolio.
REITs are great high income securities alongside banks. Income investors favour this security as they give access to real estate combined with more liquidity than traditional real estate investments.
How can you buy REITs?
REITs can be purchased in any investment portfolio through a portfolio manager or on your own using an online brokerage. We recommend Questrade if you want to go through an online broker. You can read more about why we think it’s the perfect platform for any Canadian investor.
Certain REITs will focus on a specific part of the real estate market, while others will offer a diversified batch, such as with an ETF.
REITs and Risk?
REITs are considered volatile depending on where we are in the economic cycle. Oftentimes, a downturn in the economy and housing can cause volatility in REIT stocks. Canadian REIT stocks are facing pressure as the housing market in Canada enters less certain times. Real-estate market fluctuations will affect REITs directly. In a recession, these stocks can underperform. In recent years, investors dealing with a low interest rate climate have favoured REITs for income.
Other things to keep in mind are that there are usually higher management fees than with other investment securities. It’s also important to know that there are tax regulations and there are legal structures that makes it harder for growth in capital appreciation. However, they do offer stable cash flow and diversification for your portfolio if you don’t already own real estate.
Here is our selection of Canadian REIT Stocks & ETFs…
iShares S&P/TSX Capped REIT (XRE-T)
A Canadian REIT that is dominated by RioCan (REI.UN-T) and H&R Real Estate (HR.UN-T). RioCan operates many Canadian shopping centres.
Something you want to be careful of when looking at REITs is that interest rates will eventually move up. This is why you are seeing some weakness in the REIT market in Canada. On top of that when you pile on what is happening with oil prices and what is happening in Western Canada, and…
Horizons Equal Weight Canada Reit Index Etf (HCRE-T)
This Canada focused REIT tries to follow the performance of the Solactive Equal Weight Canada REIT Index. Rates are pausing and traditionally, REIT stocks have done well during this period.
REITs are in a good time right now. Rates are pausing or perhaps heading down but the economy has not fallen apart and this is when the REITs do well. It is a hiding place.
BMO Equal Weight REITs Index (ZRE-T)
They broke out in March and has continued to do well. They have a dividend yield of 4.32%.
When you look at the real estate market, you want to look at where interest rates are moving. In Canada we had a bit of a curve ball with the interest rate drop. REITs are still looking somewhat attractive to yield hungry investors. This particular one gives you a pretty decent yield in the 3%-4%…
Harvest Global REIT Leaders Income ETF (HGR-T)
This ETF centres on gold and gold producers. This ETF will benefit from higher gold prices and offer stability. A great choice to hold gold in a different way.
Good way to diversify outside Canada? Nice yield, but value will go down as interest rates go up, much like bonds. With dollar cost averaging over the next year, you might be OK.
Vanguard FTSE Cdn Capped REIT (VRE-T)
This index fund follows the performance of a broad range of Canadian real estate equity companies. It currently tracks the FTSE Canada All Cap Real Estate Capped 25% Index.
Smart REIT (SRU.UN-T)
A retail REIT that operates 60% in Ontario and the rest elsewhere. They have performed very well and pays a good dividend. Their biggest tenant is Walmart. They are also developping aggressively in Toronto.
Yes, it’s retail, but best in class. Trades at 15x earnings, which is cheap. Spectacular management. Anchors for Walmart, which is doing well against Amazons of the world. Aggressive development in Toronto. Best tenants and assets. Diversifying and creating more margin. Yield is 5.8%. (Analysts’ price target is $32.61.)
Choice Properties REIT (CHP.UN-T)
A spin off company by Loblaws and the properties are leased to Loblaw stores. They have built-in future growth in the redevelopment of urban properties.
They are in the midst of acquiring another REIT. They are diversifying away from Loblaw’s. He likes the combined entity. He is currently short because of the spread on the acquisition.
WPT Industrial REIT (WIR.U-T)
A REIT that focuses on building facilities, mostly warehouses, that are used in traditional and online retail as well as manufacturing. They have a US focus and pay their dividends in USD. A name that can grow with e-commerce.
(A Top Pick May 10/17, Up 10%) He's still buying it. It's priced and pays its dividend in USD, so his return is actually higher. It has US assets. It's a little known stock. They partner with CPP and Alberta Investment Management, where they build facilities, mostly warehouses for traditional and online retail and manufacturing.…
Northwest Healthcare Property REIT (NWH.UN-T)
A trust that runs medical office buildings in Canada, Germany, Brazil and other locations. They are diversified across the world and recently announced a project in Australia. They pay 6.9% yield.
(Market Call Minute.) Excellent management. A niche business in that they are growing in the healthcare space but have now focused outside of Canada, and are getting leased properties that have cap rates that you don’t really see in Canada. Being in a foreign market, currency is an obvious issue. If you own it, he…
Dream Office REIT (D.UN-T)
One of the largest Real Estate Investment Trusts in Canada. They specialize in office buildings. A lot of their operations are focused in Toronto.
On Q3, they substantially completed most of their asset sales for $1.6 billion. The balance sheet is in much better shape. Has material exposure to the Toronto market which is very hot. Payout ratio is fine on 2018, but will be better in 2019. Through the asset sales their funds from operations dropped 8% 2017-2019.…
Plaza Retail REIT (PLZ.UN-T)
They are developers with tenants like Shoppers Drug Mart. The trust specializes in shopping and retail in Atlantic Canada and Quebec. Analysts see a strong management team and their operations are seen to be best in class.
Pure Multi-Family REIT LP (RUF.U-X)
Peter Imhof sees this REIT as a good defensive play with a good yield. A good play on the US demand on apartments that gives you some exposure to the US market. There was a take-over deal discussed recently and the company has struck a committee to facilitate a possible sale.
(Market Call Minute.) A really undervalued REIT out of the US. Thinks there is significant upside in this. It is going to be hurt a little bit by rates, but the multi-family is going to be the best in this environment.
InterRent REIT (IIP.UN-T)
Their main holdings are apartments in Toronto, Ottawa and Montreal. There are good fundamentals for apartments and dividend increases are expected to be announced in the coming years.
He is a big fan of this company. They have a very entrepreneurial style. Dividend payout is very low and very sustainable. Sees more than average growth potential, so continues to like it. Good management.
Slate Office REIT (SOT.UN-T)
They recently cut dividends to rebalance to buy property in Chicago. There are some vacancies that they are struggling to fill in Toronto. They have a sustainable payout of nearly 10%.
This is secondary (suburban) office. There is going to be a really interesting play in suburban office at some point. You’ll have to watch for GDP numbers for small business growth in Canada. There is quite a large spread in what people are willing to pay, for class A buildings versus suburban office. These guys…
Boardwalk REIT (BEI.UN-T)
A well-known REIT that operates multiple communities including Boardwalk Communities, Structures Metropolitaines, and Boardwalk Retirement Community. They were affected by the slow-down in Alberta and are refocusing on Ontario.
(Market Call Minute.) Calgary apartments. If you are a long term holder, maybe just wait. Stay on the sidelines for a little while. They may have a write-down in the future.
Slate Retail REIT (SRT.UN-T)
A grocery-anchored real estate investment trust in secondary markets in the U.S. midwest. A stable operation that is well-run. Managements are also large shareholders.
(Market Call Minute.) US focused strip centres. He prefers to play the US REITs, but this is trading at a discount and offers good yield.
Dream Industrial REIT (DIR.UN-T)
The industrial warehouse sector in general has been experiencing high demand. DIR.UN-T is well positioned to take advantage of this trend. They are adding value and the technological move will help grow the company.
He is a little wary of REITs right now. Valuations are excessive. You are paying 15 to 16 times cash flow. There is a lot of risk if interest rates ever start to move higher. The Calgary real estate market is not turning around in a hurry.
Dream Global REIT (DRG.UN-T)
A lot of their focus is in Europe with lots of regulations. It is one of the top performing REITs that is considered more defensive. They pay a dividend of 5.9%
(Market Call Minute.) German office exposure. A little complicated and a little disappointing on the last quarter. Avoid for now.
Granite REIT (GRT.UN-T)
A global real estate operator composed mainly of former holdings of Magna International. Their balance sheet is looking good and they are well-positioned. They have a low payout ratio for a REIT.
When this IPO’d, it was primarily dependent on Magna (MG-T) accounting for well over 90% of its net operating income. Management’s objective was to reduce Magna’s exposure to less than 50% NOI within 3 years by making additional acquisitions by using their under leveraged balance sheet. Management has not done that in a very aggressive…
Allied Properties REIT (AP.UN-T)
A leader in the industrial space in Canadian cities. One of the highest quality Canadian REITs available. They are trading at a premium but is one of the more defensive securities.
This is known as the niche brick and beam landlord in Toronto. 40% of their properties are in the downtown core. The name has pulled back recently, mostly related to the pullback in REITs. Also, 10 year bonds are backing up a bit giving a bit of consternation in the space. The name has come…
Inovalis REIT (INO.UN-T)
A leading Canadian REIT stock that focus on owning and managing a portfolio of high-quality assets in Germany and France. They announced a purchase of a building in Germany recently.
This one holds only 4 assets in France and Germany. This is an opportunity to pick up some strong yield, while you are waiting for a European recovery. He sees more and more large investors, such as pension funds, going into Europe and buying up office buildings. Company is small and illiquid so it can…
Morguard North American REIT (MRG.UN-T)
A Canadian REIT stock that focus on high-quality multi-suite residential properties in Canada and the United States. They pay a dividend of 3.85%.
He favours this REIT. Doesn’t think it is going to cause anyone to jump out of their coffin. You might be fairly bored with it, but it is safe. He immensely favours Morguard (MRC-T) itself.
Agellan Commercial REIT (ACR.UN-T)
A portfolio with US properties. They also operate in Toronto. Their specialty is acquiring and owning industrial, office and retail properties.
Recent IPO that he did not participate in. He was concerned with some of the tenant concentration and, one building in particular, where there was a head lease on the building which meant that the occupancy and the rents were being guaranteed, even though they were operating at well below what the company considered normalized.…
True North Commercial REIT (TNT.UN-T)
They announced a strong start to 2019 with an acquisition of Federal government tenant office property in downtown Ottawa. They pay a dividend of 8.93%.
Has been a little weak lately. Made an acquisition of Century Property. Has a management arrangement with Starlight (?) but he would prefer a better management agreement but it is a really good source for small company acquisitions. 7.83% yield.
Melcor REIT (MR.UN-T)
They are actively buying back stocks in order to have the present value reflect the intrinsic value. A stable company that remains well-positioned to capitalize on opportunities that are presented while Alberta recovers.
Likes the company but not crazy about the REITs and their external management structure. Thought the fees were a little bit heavy so he did not participate in the IPO. Good safe company to be in but not his preferred pick.
Partners REIT (PAR.UN-T)
A Canadian REIT stock that is based in Toronto. They operate in retail and mixed-use retail community and neighbourhood centres. They pay a strong dividend of 10.47%.
Australian REIT Income Fund (HRR.UN-T)
The REIT focuses on the Australian market segment. The dividend is at 5.92%.
Australian REIT. They have not has the rise we had here in Canada. This one went through a huge reorganization that cleaned up the balance sheet but they haven’t had the move. Australia is one of the only countries that can actually lower interest rates. Pension funds are entering Australia. Their economy is tied to…
Vanguard REIT ETF (VNQ-N)
This US REIT ETF follows the general pattern across the industry. It is an extremely well diversified ETF and is one of the largest REIT funds.
Market Vectors Mortgage REIT ETF (MORT-N)
A index fund that follows closely the “Mortgage REITs Index”. They pay a dividend of 7.19%.
Generally likes mortgages. You get higher yields and there is harder collateral security. You are a step removed from the volatility of underlying real estate prices. 30% of it is in two securities, which concerns him somewhat.
Armour Residential REIT (ARR-N)
They had a disappointing first quarter but also announced that they are going to keep dividends the same. They focus primarily in fixed rate residential, residential mortgage-backed securities and U.S. Government-sponsored enterprises.
Around 14% is pretty typical yield for mortgage REITs. This owns Agency Mortgage REITs, both fixed and adjustable rates. If you look through the results of the capital raise they did recently, it was dilutive, so their book value per share was about $7 which dropped to $6.70-$6.80. He doesn’t like to see this. Core…
SPDR DJ REIT ETF (RWR-N)
RWR is one of the oldest real estate ETFs on the market. They follow the Dow Jones U.S. Select REIT Index. They pay a yield of 3.68%.