Canadian Reits are listed companies that invest in real estate. A good number of investors would like to invest in real estate to diversify their investments, or out of the conviction. However, the direct management of a property presents many constraints, and requires time and skills. Also, delegating the management of the property to an agency does not solve all the problems. The solution lies in investing directly in Reits listed on the Toronto Stock Exchange.
How REITs operate?
A REIT is a real estate company. Its business is to invest the capital it raises in the acquisition or construction of buildings, with a the purpose of leasing them. Its activity provides it with rents and, where appropriate, capital gains. REITs are listed on the stock exchange, so REITs shares are open to individual investors within an regular investment account.
However, REITs have several particularities. They are present in different sectors of activity. They invest, for example, in different types of assets, such as shopping centres, offices, logistics buildings, hotels, among others. The other specificity of listed property companies is that they use financial leverage. That is to say that these companies will have equity to invest in real estate. But they will also use the loan to be able to maximize the return on their equity.
The third specificity of listed real estate investment companies is that they benefit from a tax exemption. Their income and capital gains are taxed at the level of its shareholders and not at the level of the property company itself. Note that REITs are required to redistribute to their shareholders at least 95% of their revenues. After deduction of costs, rents are distributed to shareholders as dividends, without being taxed at the company level.
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Where can you hold a REIT?
You can hold REITs inside a Tax Free Saving Account or Registered Retirement Saving Plan, as well as a regular cash trading account. If you’re looking for an easy way to add the real estate asset class to your portfolio, REITs or ETFs might be the way to go.
Are there Risks with REITs?
Like a stock, a REIT is a market investment that fluctuates in value and is not guaranteed. Therefore, there are inherent risks when you invest in REITs. One example is how market cycles can impact REIT returns. When the real estate market drops, REITs tend to follow suit. REIT values can also fluctuate with interest rates. As rates rise, REIT values tend to rise, depending on other factors. This is why you should never invest all of your money in REITs, or any single asset class for that matter.
Top 5 best REITS in Canada
1) GRT-UN Granite REIT
Granite REIT (NYSE:GRP.U) is a Canadian-based REIT with a focus on the industrial, warehouse, and logistical properties in North America and Europe. Granite REIT owns a total of 119 properties with 83 properties in North America and 36 in Europe.
Key points:
- Granite REIT has grown tremendously in the last 24 months. Its property count has grown by over 35%.
- Its payout ratio remains steady at 80% despite a very active property buying spree.
- Its exposure to Magna International continues to drop and it currently stands at 31% from over 70% four years ago.
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2) Allied Properties REIT (AP-UN)
Allied is a leading owner, manager and developer of data centers and centrally located urban workspaces.
Key points:
- Allied has good assets located centrally in major canadian cities
- Allied was able to increase its cashflows and exceed pre-pandemic levels
- Majority of the portfolio is urban workspaces or offices. If you believe, businesses will speed up the return to office, then this stock could have a great upside potentiel
- Dividend grew 2.51% in the past 5 years
Unlike RioCan which has residential and commercial retail, Allied’s portfolio is primarily office buildings and data centres.
3) Canadian Apartment REIT (CAR.UN)
Canadian Apartment Properties Real Estate Investment Trust owns multi-unit residential properties, including apartment buildings, townhouses and land lease communities located in or near major urban centres across Canada.
Key points
- CAPREIT has stable cashflows
- A rising interest rate environment has triggered a selloff in the stock, which can be an opportunity to buy the stock at a discount.
- Housing shortage helps CAR Reits maintain high occupancy rates
4) CT REIT (CRT.UN)
- CT have a variety of assets, including over 300 retail properties (mainly Canadian Tires), as well as a couple of industrial properties and development property
- Strong and resilient portfolio allowed CT to navigate the pandemic impact and be one of the rare Reits to increase distribution during the pandemic
- CT Reits main shareolder and teant is Canadian Tire
5) H&R REIT
H&R REIT is a massively diversified REIT. Its portfolio consists of real estate assets of retail, industrial, and residential properties spread throughout continental North America.
It has 40 million square feet of leasable space that allow the company to pay its shareholders a high dividend yield. It is experiencing weakness due to the recent sell-off resulting from the ensuing coronavirus-fueled market crash.