Best Canadian REITs

Real EstateLooking for a REIT for your portfolio? Want the best REIT? The reality is that REITs can have different focuses and therefore more than one can fit the bill thus allowing you to diversify your portfolio. You might not be aware but there are 39 Canadian REITs trading on the Toronto Stock Exchange (TSX). However, only 19 have a market capitalization above $1B.

Canadian REITs

Let’s start by looking at the full list of REITs and then drill down from there. The Canadian REIT sector has 7 industries to which a REIT belongs to based on the services they provide. Knowing the industry they serve is quite important as it highlights what can influence their business.

I admit that I was pretty surprised to find 39 REITs in total. That’s a lot of real estate income trusts to filter through. Choice Properties is the recent REIT created by Loblaw out of its real estate assets. I sorted the list by market capitalization rather than yield. A REIT has a high yield just by the nature of the REIT and I am not looking for the REIT that pays the most but the REIT that will serve me best in the following criteria:

  • Consistent Payout
  • Growth Potential
  • Dividend Growth Potential

2016 Canadian REITs - Industries

Best Canadian REITs

To find the best Canadian REITs fitting my criteria, I choose to go through the following steps.

  • Filter the REITs based on my investing criteria
  • Get a better understanding of the filtered companies
  • Review their AFFO – That’s one of the most important metric with REITs

Related: Understanding REITs

Filtered Down Canadian REITs

I decided to eliminate the little players. They may well have a lot of growth but I want an established REIT of at least $1B in market capitalization. With that criteria, they can have funds to expend and play in the big cities. That leaves us with 19 REITs.

For the purpose of my selection, I will go with $1B as a minimum market capitalization. I am going to exclude the industrial REIT industry as I don’t understand that industry. Healthcare is also not a REIT I understand. There is definitely a growing market but I am not sure how the business model works. It leaves me with the list below sorted by market capitalization.

Understanding the Filtered Canadian REITs

Now comes the hard part. The easy filtering is done. I could easily remove those with a yield under 5% but I am curious if they grow their yield and what the properties actually are. If you have Wal-Mart as a renter, the chances of long term business is much stronger than having an arbitrary business. Personally, I have invested in both REI.UN and CUF.UN in the past. See my portfolio holdings for details. At this point, I think many of those investments have their own strength but the best of breed has been RioCan for many years according to many analysts.

RioCan  REIT

Dividend Snapshot
The biggest value in RioCan are the tenants. They include Walmart, Canadian Tire, Cineplex, the Metro Chain, Winners, Loblaws and Target to name a few. Those top tenants represent 20% of the rent with 50% of their revenue coming from Ontario while having exposure across Canada. The downside to RioCan is that their distribution has been flat.

H&R REIT

H&R Reit is well diversified across Canada with 20% of their assets in the US. Their portfolio includes

  • 42 office properties
  • 167 retail properties
  • 112 industrial properties
  • 2 development projects

Their distribution has seen regular increases which is attractive for an investor. This is not something that RioCan has done. Their tenants are mostly corporation when you compare with RioCan which includes

  • Encana Corporation
  • Bell Canada
  • Hess Corporation
  • TransCanada Pipelines
  • Telus Communications
  • New York City Department of Health
  • Giant Eagle
  • Canadian Tire
  • Bank of Nova Scotia

52% of their revenue source comes from corporation. I would be curious to know which pays more, a retail tenant or a corporation tenant. I am quite impressed with H&R REIT.

Canadian REIT

REF.UN advertises a 15.6% 20-year annual return. That basically beats the stock market averages 🙂 Are you a skeptic of the performance now? The stock chart does have a pretty linear growth over the past 10 years. This is a REIT showing stock appreciation with a relatively low yield.

REF.UN is not a high income play. With this dividend yield, I would compare it with other dividend aristocrats to understand which can better serve your portfolio over time.

Smart REIT

This is a shopping mall nirvana with a 99% occupancy. In terms of tenant, Smart REIT provides space for 82 Walmart stores. That might be the next best thing to investing in Walmart itself 🙂

Smart REIT is definitely operating in the same space as RioCan. The tenants are similar and it comes down to their operating abilities.

Boardwalk REIT

Dividend Snapshot
Being a REIT focused on residential, I feel it is riskier business than corporation and retail real estate. Job markets will impact this REIT and it will probably be more impacted than retail and commercial REITs. It’s my gut feeling since corporations can usually stay in the same location even with fluctuating personal count but a job loss can have an immediate impact on residential rent. With that said, at over $2B in market capitalization BEI.UN has definitely been able to manage employment concerns for the renters and reduce their costs over time.

The dividends doesn’t see much movement but the stock has definitely appreciated over time. If you are thinking of managing rental property on your own, you might want to consider BEI.UN but if you are looking for income from REIT, I would pass on this one. I can assume that the yield is lower due to the regular increase in value over time.

Comparative AFFO

The adjusted funds from operations (AFFO) is the true metric you need to look at for REITs as it highlights how well they can pay their shareholders. A company with an AFFO below their payout means they can’t keep up paying the shareholders. A REIT that can increase their AFFO will be able to increase their distribution to share holders.

What’s the right target? I think that anything above 90% for a sustainable period of time is a warning sign.

Canadian REITs Summary

I will admit that it’s impressive to see the number of REITs available in Canada. I was pretty surprised at the business of H&R REIT with their corporate tenants and the amazing setup Boardwalk REIT has with its residential monopoly. In the past, when I first purchased REITs, I had no understanding of the AFFO and since I learned about that metric, it will change how I evaluate REITs forever.

You HAVE to read their financial report for the year end. It’s not just raw numbers. It highlights their businesses and strength. You get to understand the strength of their sector.

Which is the best Canadian REITs? Well it really depends on your goals. Do you want to see dividend growth? Some of them have it. Do you want to only pick below 90% AFFO payout? Some of them fit the bill. Do you want to see growth in value? Some of them have it. Do you want high income? Some of them have it.

As you can see, there isn’t just one Best Canadian REIT. There is a best Canadian REIT for your portfolio based on your criteria. Are you nearing retirement? Are you starting and diversifying?

If you are new to REIT investing, you need to understand REIT taxation prior to making a purchase. The account you decided to use has a big tax impact.

Readers: What’s your Best Canadian REIT?

Image courtesy of cooldesign – FreeDigitalPhotos.net

46 Responses to "Best Canadian REITs"

  1. Fantastic article, very helpful indeed. There’s definitely a shortage of Canadian REIT review articles out there, this was very helpful thank you. That being said, personally I feel the Canadian real estate market is overdue for a correction. I don’t know how soon, but at least locally in Toronto it already seems to be slowly starting. For that reason I’d especially be very careful about residential REIT’s at the moment.

    If a correction happens, there could be some great buying opportunities on the horizon.

    Reply
    1. @Erich

      It’s interesting because there was a correction last August when interest rate increases were rumoured. Many analysts on BNN are actually saying that REITs are fairly valued too.

      What makes you think they are due for a correction? I do think that REITs and utilities will take a hit when interest rates go up but I don’t expect a pull back for the sector.

      Reply
      1. @Paul

        TFSA is a good account for REITs from a tax purposes. Non-registered account is the worst due to the ACB tracking on return of capital. It becomes complicated to track and you have to do it on your own.

        As for ETFs vs individual REITs, it really depends on you and what works for your portfolio.

  2. PIE, what REITs do you hold?
    I hold REI, HR, AX, CUF and DI…. When I unbundled my XRE, I bought directly its 2 biggest holdings REI and HR (which I had alittle bit from PMZ), than did similar research , wanted to pick REITs with not very high Payout AFFO and good yield for a long term, so decided to go with CUF and AX…
    Was thinking about buying some ETF for US REITs

    Reply
  3. I own a few Canadian reits .
    REI.UN
    HR.UN
    D.UN
    AX.UN

    Been looking into CUF and CWT

    I recently started dividend investing and find your blog very helpful, I am trying to start my own blog but i have no clue what I am doing lol.

    Reply
  4. If dividend growth is your main criteria only 2 of the 39 REITs are on the Canadian Dividend All Star List. The list is comprised of Canadian companies that have increased their dividend for 5 or more calendar years in a row. The 2 on the current list dated May 1, 2014 are:

    Canadian REIT (REF.UN) – streak of 12 years
    Plaza Retail REIT (PLZ.UN) – streak of 11 years

    The Canadian Dividend All-Star List can be found here…
    http://www.dividendgrowthinvestingandretirement.com/canadian-dividend-all-star-list/

    Reply
    1. @Bernie

      Thanks for pointing that out. I think dividend increases from a REIT perspective doesn’t have to be the Dividend Aristocrats (5 years is the Canadian Dividend Aristocrats requirement unlike the US which is 25 years). If there is dividend increases, event though it’s not every year, it is a good sign. Some REITs just don’t increase them at all. I would filter between no increases at all and those that increase them.

      Reply
      1. Follow-up to my original comment…
        There are now 3 REITs which have increased their distributions for at least 5 or more calendar years in a row (streak). This is each and every year, which is more stringent than the Canadian Dividend Aristocrats requirement. The REITs as of July 31, 2016 are:
        Canadian REIT (REF.UN) – streak of 14 years
        Plaza Retail REIT (PLZ.UN) – streak of 13 years
        Granite REIT (GRT.UN) – streak of 5 years

      2. @Bernie

        Do you prefer them for that streak over the others? The dividend growth rate is not usually spectacular on REITs but it’s a good quality nonetheless. I am going to have a quick look at the three compare with RioCan and Smart REIT out of curiosity.

        Which do you own?

      3. Being a dividend growth investor I prefer my holdings increase their distributions on an annual basis. Very few Canadian REITs do this regularly. I’ve owned PLZ.UN for several years and would like to own REF.UN but have always found it too expensive. I’ve never owned, or are interested in Granite REIT. If it’s total return performance you’re after here are the annualized returns over the past 10, 5, 3 and 1 year periods (per Morningstar.ca):
        REF.UN 10-Yr 10.16% 5-Yr 12.72% 3-Yr 11.01% 1-Yr 22.47%
        PLZ.UN 10-yr 8.85% 5-Yr 7.85% 3-Yr 11.93% 1-Yr 21.43%
        GRT.UN 10-Yr 3.89% 5-Yr 8.66% 3-Yr 10.63% 1-Yr 9.07%
        SRU.UN 10-Yr 7.73% 5-Yr 13.13% 3-Yr 18.52% 1-Yr 23.92%
        REI.UN 10-Yr 6.61% 5-Yr 8.26% 3-Yr 10.90% 1-Yr 14.98%

      4. I failed to mention the dividend growth rates. Here are the annualized DGRs for the three aforementioned REITs:
        Canadian REIT (REF.UN) 3-Yr 6.4% 5-Yr 4.9%
        Plaza Retail REIT (PLZ.UN) 3-Yr 5.2% 5-Yr 5.4%
        Granite REIT (GRT.UN) 3-Yr 4.8% 5-Yr 34.9%

  5. As attractive as HR.UN and CUF.UN (ones I own) might seem with their distributions, both currently have a negative return (share price only) based on a 5 or 10 year hold. The largest share price decline (excluding the 2008 financial crisis) happened in 2015, but actually started about mid 2013 with fears of interest rate hikes. I believe share prices will recover (so I am holding on), but that will take time – meanwhile there is some risk these companies may reduce dividend payout, sending share prices into further decline.

    Reply
    1. @Alex

      The AFFO / FFO is taken from the company’s financial reports. AFFO is a new accounting formula not required to be reported on but accepted for reviewing REITS. More and more REITs share it but it’s not the case with all of them.

      Reply
  6. Folks
    Here is my REIT investment basket. Criteria is Market Cap >$1B, payout <100%, Net Debt/Asset < 50%. Also diversified by type – retail, industrial, apartment, retirement. TD Waterhouse periodically issues a research report. Also reviewed content of existing ETFs. I review the basket annually. My intent with the "basket" is to create my own "etf" suited to my investment style. Next review I will look more closely at growth prospects

    Company Symbol
    H&R HR.UN
    RIOCAN REI.UN
    Smart Real Estate SRU.UN
    Brookfield BOX.UN
    Chartwell Retirement CSH.UN
    Sienna Senior Living SIA
    Boardwalk BEI.UN
    Northview Apartment NVU.UN

    Alex

    Reply
  7. I am interested in a residential reit that is heavy in Vancouver. BC has rent controls, l would think reits are subject to? If so wouldn’t the real estate value be considerably higher than the investment value in these companies? The real estate value growth would be higher over a 10 yr period than what the revenue growth, which is based on inflation .

    Reply
    1. @Ted
      That’s an interesting approach. To find out the exposure of location you should be able to look at the residential REIT annual report to see the exposure by cities.

      It’s an interesting approach you are thinking about but REITs value is often based on the cash flow and debt as opposed to potential value of a building. The value of a building is based on the potential earning value. Renting is still not cheap in Vancouver (I live here) and as soon as someone moves out, that value goes up.

      I would not bank on rent control as a strategy. In any case, the earning reports would give you a lot more information on what you are looking for.

      Reply
  8. In your article you reference Calloway REIT but in your charts you reference Smart REIT. As you probably know, Calloway announced a name change to Smart REIT effective July 8, 2015.

    On August 2, 2016, Smart REIT announced plans for a new Class-A office tower in the Vaughan Metropolitan Centre (“VMC”) with professional services firm PwC Canada as the lead tenant. Here is a link to their August 4, 2016 press release wherein they indicate:

    The Trust announced the commencement of the second phase of office development at Vaughan Metro Centre (VMC). The next phase of development is expected to be completed in 2019 and will feature a new 220,000 square foot Class A facility, which will be home to lead occupants, PwC, YMCA, and a new library and community uses for the City of Vaughan.

    http://www.callowayreit.com/upload/SmartREIT%202016%20Q2%20-%20Press%20Release.pdf

    Interestingly, KPMG is an anchor tenant in another of this complex’s office towers.

    Here is an interesting video for your readers regarding the VMC.

    https://www.youtube.com/watch?v=6Rub9bDSTW4

    The August 4, 2016 press release also indicates a 3% increase in the annual distribution (payments made monthly) to $1.70/unit; this increase is effective October 2016.

    In an article in the August 12, 2016 edition of The Financial Post, Smart REIT announced new financing at lower rates than currently in place for some of their current financing.

    http://business.financialpost.com/investing/investing-pro/smart-reit-makes-smart-move-with-two-part-offering

    This is the only REIT in which we have invested and fortunately our average cost on a few thousand units is considerably lower than today’s value. When analyzing various REITs prior to making our investment, I came away impressed with Smart REIT’s growth strategy and management and plans to diversify away from a focus on the retail space.

    I encourage your readers to conduct their own due diligence to ascertain whether this entity meets their investment criteria.

    Reply
    1. @Chuck

      Thanks so much for this detailed comment! Smart REIT is on my watch list.

      I recently updated this post (dating back to 2012) with the latest REITs I track. The lists are now updated automatically (based on my input) to provide more up-to-date numbers. As you point out, there has been updates between 2012 and 2016 and I missed updating the name change. I have now done so.

      Reply
  9. You mention there are only 39 REITS on the Canadian Exchange. But what about listings such as BEP.UN, or KEG.UN. I’ve been considering these but only for my TFSA because of tax treatment of REITS. Am I not correct that these are treated as REITS?

    Reply
    1. @Rob

      They are not REITs, they are income trusts. From a tax perspective, they are similar but REITs are a very specific industry in the real estate sector. For example, BAM.A is in the real estate sector but is not a REIT even though they manage a lot of real estate.

      I used the stock screener from the TSX to compile the list as recorded in Canada.

      Reply
  10. I’m confused. What is the date of this article, and most importantly, what is the date of the data presented? Why do I ask? Well, some of the comments are dated 2014, 2015 and some are in early 2016, and finally, some are dated in the last few days.

    Reply
  11. I don’t own any Canadian Reits but do own some American ones and at least one BDC.

    The ones that don’t raise their dividend regular I like to call steady eddies as they pay the steady dividend. I plan to use the dividends from those to buy regular dividend raising stocks.

    Reply
  12. Thank you for providing the information via Google Sheet. Now, if you could add a column to show the yield as a percentage, that would be much appreciated. .

    Reply
  13. You published an article earlier this year where you went into various Reits at a much deeper level. Is it possible to get hold of that article.
    Thanks
    Roy

    Reply
  14. I only own Riocan on your list but don’t get the logic regarding your comments on BEI.un
    I would think a bad job market increases the demand for residential rental properties and commercial softens. The recent federal govt decision to force banks to qualify mortgage applicants at rates roughly double the going rate will probably mean fewer people will realize home ownership and increase demand for rental.
    The Lazy Investor dude just announced he has purchased BEI.un, believing it to be undervalued and the dividend safe.
    thanks for your blogposts – I enjoy reading them!!

    Reply
    1. @Alan

      Thanks for stopping by and I appreciate the kind words.

      BEI.un has come down a lot since I wrote the post. It was trading near $60 at the time. Not saying whether or not it’s an opportunity but my comment were made based on the valuation at the time.

      I also don’t like to invest in stocks that are dependent on employments or job numbers or mortgage rates. It’s impossible to predict. The Vancouver market has been said to be in a bubble since 2005 … That was almost 12 years ago after 100% growth in prices. I look for an economic moat that can be leveraged around necessities (housing is one for sure).

      Reply
    1. @Dan

      They are both classified as Income Trusts. REITs are a little bit on their own when it comes to evaluating them. Non-REITs have different challenges starting with the change in taxes the government did some years ago. Corporations were abusing of a tax advantages provided to income trust and the government closed the loop. (http://www.cbc.ca/news/business/income-trust-conversion-deadline-arrives-1.957643) At some point, many .UN stock decided to convert back to a corporations and those that stayed (outside of REITs) are either behaving like an income trust or biding their time.

      Reply
  15. Do any REITs pass the Chowder Test? Despite good yields, as has been said in other comments, the growth rates are not great. I’ve owned REI.UN for years and they haven’t grown the distribution for a while. Same for HR.UN. REF.UN has a growth rate of 2-5% depending on if you look at 2 or 5 years. MST.UN has announced a 10% increase for next year based on a recent acquisition and plans to do more deals like this.
    Do you know of any other REIT that has a decent growth rate?

    Reply
  16. Thanks for the detailed information especially the AFFO comparison. It made me look at the financial statements with a much more critical eye. I’m enjoying your website! (I only wish I had ditched my adviser sooner.)

    Reply

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