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Top Canadian REITs

I’ve been a fan of Real Estate Investment Trusts (REITs) ever since my wife and I sold our condo a few years ago.  Instead of receiving direct rental income and dealing with tenant and rental unit issues (including a major water leak in our unit – that’s another post), REITs provide us indirect rental income.

REITs focus on holding income-producing real estate assets.  They offer investors (like me) a way to participate in real estate, including the potential rise in property values, with the benefits of liquidity from equity markets without the (potential) headaches of being a landlord.  REITs are an attractive asset class to us since these companies provide regular distributions, often monthly distributions.

With fixed-income investments from our bond ETFs earning peanuts in our current interest rate climate, I’m looking for some additional yield and maybe you are too.  With the Bank of Canada in no rush to raise interest rates in the short-term, I think REITs can offer the income and portfolio growth I’m looking for – even if I reinvest all distributions paid as I build up my nest egg for my retirement years.

REITs are not generally required to pay Canadian income tax if they distribute all of their net income for tax purposes on an annual basis to unitholders. Instead, this tax is passed on to you or me, the investor.  For this reason, I suggest owning REITs in registered accounts such as RRSPs, RRIFs, RESPs, and TFSAs.

Let’s take a look at what this investor considers Canada’s top REITs to invest in:

RioCan REIT (REI.UN)

RioCan is Canada’s largest trust exclusively focused on retail real estate – owning and managing community-oriented neighbourhood shopping centres – about 60 million square feet in all.

They also own interests in a number of grocery anchored shopping centres in the U.S.

Their biggest tenants are:

  • Famous Players, Cineplex, Galaxy cinemas;
  • Walmart, Metro, Super C, Loeb, Food Basics, Loblaws, No Frills, Fortinos, Zehrs and Maxi grocery stores;
  • Canadian Tire, PartSource, Mark’s Work Wearhouse stores;
  • Winners, HomeSense, Marshalls stores.

Instead of owning XRE or another REIT ETF, I own RioCan because I consider it a proxy for real estate investment trusts in Canada.   They are the 4th largest REIT in North America and have slowly but steadily increased their footprint in the U.S.  Target stores coming to Canada are going to help as well ;)

REI.UN key metrics:

  • Monthly dividend = $0.115
  • Yield over 5.3%
  • Market cap around $7 billion

Disclaimer – I own this stock.

H&R REIT (HR.UN)

H&R has a portfolio of 37 office properties, 121 single-tenant industrial properties, 131 retail properties and 3 development projects – encompassing in all about 42 million square feet.

In the office properties, the biggest tenants are Bell Canada Inc., Telus Communications, Royal Bank of Canada, Public Works of Canada, Sony Pictures Entertainment and CIBC.

For the industrial properties, their biggest tenants are Canadian Tire, Purolator, Nestle USA and Sysco Food Services.  As far as retail units go, H&R tenants are Rona, Lowe’s, Home Depot, Nike, Walgreens, Sobeys and Shoppers Drug Mart.

H&R provide me with a real estate angle I like and don’t have tons of ownership in, office properties.  Their payout ratio is fairly low, which I like.  They recently purchased a $400-million property on Long Island.  They will be increasing their rent (and distributions) for some time to come – they reported so recently.

HR.UN key metrics:

  • Monthly dividend = $0.088
  • Yield approaching 5%
  • Market cap close to $4 billion

Disclaimer – I own this stock.

Boardwalk REIT (BEI.UN) 

Boardwalk REIT owns and operates over 225 properties and 35,000 rental units in Canada, encompassing about 30 million square feet. Boardwalk is an apartment mogul.

It is Canada’s largest public owner/operator of multi-family rental communities, operating in Alberta, British Columbia, Saskatchewan, Ontario and Quebec.

They also lease commercial space in many cities across Canada – Calgary, Edmonton, Surrey, London, Windsor and Gatineau to name a few.

Boardwalk has been buying back stock, which can be a very good thing.

Like H&R, their payout ratio has been below what they are earning.  This sounds strange I know, but many REITs are not is this position.  A strong history of earnings, responsible management and good yield.  A great start.

BEI.UN key metrics:

  • Monthly dividend = $0.15
  • Yield about 3.6%
  • Market cap approaching $2.5 billion

Disclaimer – I do not own this stock but would like to in my TFSA in 2012.  The stock price is rather high right now, so I wouldn’t be a buyer at this price.

Those are my favourites.  Others worthy of portfolio consideration include:

Canadian REIT (REF.UN)

Calloway REIT (CWT.UN)

Allied Properties (AP.UN)

Do you own REITS in your portfolio?

Which ones do you own and why?

I look forward to hearing from you!

Filed in: REITs

44 Responses to "Top Canadian REITs"

  1. Dividend Player says:

    I also own REI.UN and HR.UN, with HR.UN being my best purchase based on percentage gain this year! Even better then my purchase of ENB at 19% capital gain, dividends not included. HR.UN recently announced a dividend increase effective January 2012 of 0.0917 per share. HR.UN also announced today the purchase of the 29 Storey “Hess Tower” in Houston for $442.5 million.

    On my personal REIT watch list I would add REF and CAR. I intend to purchase these if/when the price becomes right.

    I would also add that another fantastic reason to own Canadian REIT’S is the discount on DRIPP’d shares, usually from 3% (HR.UN) to 5% (CAR.UN & D.UN)!

    • Yeah, HR.UN has been great for me this year! ENB has been tough to beat! :)

      That’s great news about HR.UN, the dividend increases in 2012. I love the fact they have committed to this.

      I’m well aware of REF but don’t know much about CAR. I just checked the price of CAR, big run up this year!

      You’ve brought up a great point. REI.UN has a 3.1% DRIP discount, HR.UN has a 3% DRIP discount.

      Keep me posted on what you buy and when. Thanks for your great comment!

  2. MOA great post man! well done, and good background information on the top Canadian REITs.

    I haven’t taken the plunge yet into RETs and have watched them steadily rise in value month after month. I’ve been wanting to invest in RioCan for a while now, but I’m waiting for a better price point (and capital of course :) I’m thinking of adding the REITs into my new DRIP plan…

    Cheers
    The Dividend Ninja

    • Thanks Ninja!

      Once you take the plunge, you’ll be happy I think. I think REITs have a great model. I just wish I was investing in these guys in my 20s.
      Ugh, lesson(s) learned.

      Yes, don’t forget the 3.1% discount on RioCan in full and synthetic DRIPs :)

  3. jon evan says:

    I think REITs should be in everyone’s port. with good dividend yields. However, as you say they are expensive right now :(.
    I recently bought ZRE because I think it’s cheapest of the REIT play (price/unit) and paying a decent 5.51% dividend and providing hopefully less volatility in that sector.

    • ZRE, top holdings:

      Cdn Apartment Prop REIT = 6.87%
      H&R REIT = 6.63%
      Boardwalk REIT = 6.45%
      Allied Properties REIT = 6.37%
      Calloway REIT = 6.15%
      Crombie REIT = 6.14%
      Canadian REIT = 6.13%

      That is a nice dividend with ZRE! Almost 13% YTD return! Wow.

      I hope to have at least 10% of my portfolio in REITs or RE assets at some point. I’m much lower than that right now. Over time, that will change.

      Thanks for the comment Jon!

  4. I am curious, if ZRE and REI pay the same dividend, why not pick the ETF where you get diversification for the same yield?

    • Fair enough BTI. I guess for me, the MER of 0.55% will chip away at returns over time. If I can be an owner, outright, that is always better than paying any MERs. Unless of course, you own XIU or XIC, whereby you can’t possibly own most of those companies directly unless you’re flush with money. Indexing XIU or XIC is a great move there since the MERs are just so low.

      My plan, is to index stocks and REITs until such a point I can afford direct investments into a few of these companies outright (and thus have my own index). Good approach? Thoughts?

  5. Mike Holman says:

    Nice work! Thanks for the mention.

  6. See I believe REITs are a way better way for me to get real estate exposure, as opposed to buying a rental property that is subject to the whims of a local market (and a time black hole). Also, have you considered looking at the Vanguard REIT ETF? Gives you access to the leading REITs from 30 countries around the world.

  7. I have REI.UN and CUF.UN. Cominar (CUF.UN) mostly operates in Quebec. They are well managed.

    That’s one thing about ETFs is that they end up holding a lot of the different investments. Even thought they may hold what you want, it holds others that you may not want …

  8. 101 Centavos says:

    Good post, MOA. I’d like to diversify a little into Canadian real estate, and this is a good start.

  9. Elemag says:

    A very informative and nice post, Mark. I have been aiming at starting a DRIP of REI.UN for some time now, however haven’t had a chance to acquire a single share yet. Unfortunately, I don’t have enough capital to buy enough shares for a synthetic drip in my TFSA at the moment. Besides, there are better deals right now and if the situation in Europe deteriorates (which I don’t see how can be avoided) there will be a real fire sale coming our way soon.

    • Thanks Elemag. You’re right about those deals in Europe. I’m looking at buying more VWO for my RRSP and starting a long-term position in VEA. Those ETFs are getting cheaper by the week, which is great.

  10. nel says:

    consider iip-un, I bought small amounts cheap, small and more room to grow, anyone know if Homburg deal went through, Europe crashing might surprise with money flowing into Canada and stocks except for financials may actually rise especially conservative REIT

    • Hey nel,

      Thanks for taking the time to come by my blog. I hope you come back soon!

      As for IIP.UN, interesting company. Mostly apartment rentals in Ottawa and GTA, although they own rentals in other Ontario towns. The price is dirt cheap @ ~ $3 per unit, the yield is not bad but only $0.12 paid per year in dividends isn’t very much. You need to own a whack of shares to get any income outta this one. Probably best to keep this stock registered, no?

  11. Crystal says:

    I own REI-UN. I am interested in an additional REIT. I have trouble deciding between BEI-UN, CAR-UN and REF-UN. Any suggestions?

  12. Crystal says:

    Thanks for your quick reply.

    Your information is helpful.

    I bought 100 REF-UN and I will buy more to receive the DRIP. I am interested in a residential REIT as well. I like BEI-Un for security, as the majority of quality high-rise apartments in my area are Boardwalk. I like CAR-UN for its higher yield and it offers a 5% discount through the DRIP. I am an income investor, therefore yield and dividend increases are more important than growth.

    Is that reason to choose CAR-UN? Or is BEI-uN more likely to perform better over time?

    • REF.UN is good for many reasons, although I don’t own it yet:

      1. Well managed, respected and established company.
      2. Diversified, exposure to office/industrial/retail.
      3. Moderate payout ratio for REITs, keeps around 70% which means sustainable yield @ 4% and opportunity to grow distributions over time.

      The only downside for the initial buyer is you need about 300 shares for it to DRIP synthetically but you (and I when I buy it) can accomplish that over time.

      CAR.UN:

      1. Great – Canada’s second largest multi-family rental communities mostly in major cities. There will always be some demand for that.
      2. CAR.UN does have 5% discount with DRIP.

      BEI.UN:

      1. Great name, great company, moderate yield.

      I just think BEI.UN is too pricy now, for me it is. Have a look at 5-year chart of BEI.UN.
      http://tmx.quotemedia.com/quote.php?qm_symbol=BEI.UN

      Before recent runup, previous all-time high was about $41. Since June 2010, stock has been flying, now at $52.

      It doesn’t hurt to go with #1 (BEI.UN) but for the price #2 (CAR.UN) aint’ bad either and with CAR.UN you get more yield. I think it depends what you’re saving up for.

      Happy Investing!

  13. Crystal says:

    Thanks!

  14. auto lease says:

    This is very informative post.

  15. Ron says:

    I have a substantial position in Timbercreek Mortgage Investment Corporation (TMC) and have had for some time. Affordable, secure and it has a terrific yield!

  16. Kuku says:

    Very good article, thou

    I own REI.UN , D.UN, XRE and a small position in Cominar REIT. Overall, almost 10 percent of my portfolio is in Canadian REITs. This is lieu of having any fixed income component in my portfolio. The return, including capital gains, for REIT’s has been 12 percent plus over the last year.

    A few weeks ago, I took a position in VNQ which is Vangurd REIT ETF in US. I plan to increase my exposure to US REIT, with a belief that the recovery in US real estate is just starting.

    I believe that it is beneficial to hold REIT’s in RSP or TFSA as the distribution is treated as interest and also avoiding paying US tax. Any further thoughts on this, would be much appreciated.

    • Thanks Kuku!

      You should visit my site more often! Shameless plug.

      I think you’re wise to have 10% of your portfolio in REITs. Not just because that’s my goal as well. REITs have provided great returns of late :)

      I too, believe the US real estate sector is coming back. It can’t get much worse. VNQ is a good call there.

      As you likely know, REITs are a great way to add diversification to your portfolio since they are not closely correlated with equity returns.

      One of the problems with the XRE, is the management fee: 0.55%. Vanguard VNQ solves that problem with a MER of 0.12%.

      For me, the only place to hold U.S. securities is in my RRSP. Here is what I have under “Dividend Investing” on my blog:

      http://www.myownadvisor.ca/dividend-investing/

      “I keep U.S. dividend-paying stocks in my RRSP. Why?

      U.S-dividend paying stocks do not recieve any favourable tax treatment from our government. So, by keeping my U.S. stocks inside my RRSP, I avoid paying withholding taxes.

      • U.S. stocks held inside an RRSP or LIRA – you don’t pay withholding taxes.
      • U.S. stocks held inside an RESP or TFSA – you pay 15% withholding taxes.
      • U.S. stocks held in unregistered accounts – you pay 15% withholding taxes PLUS tax at your full marginal tax rate.

      I keep Canadian REITs in my TFSA and RRSP. Why?

      Real Estate Investment Trusts (REITs) are companies that invest in real estate assets and distribute their income (primarily from rent) to their shareholders, usually in the form of dividends, return of capital, and income. While it depends on the REIT, if the REIT distributes a portion of their income as return of capital, interest, capital gains or dividends, each portion will be taxed accordingly. I wish to avoid “the mess” of figuring this out and keep all REITs in registered accounts.”

      I hope this helps :)
      Mark

  17. Amazing! This blog looks just like my old one! It’s on a entirely different subject but it has pretty much the same page layout and design. Wonderful choice of colors!

  18. Wayne says:

    Thank you. Very helpful post.

  19. peter connor says:

    @My Own Advisor
    the US gov’t is raising dividend tax to 40%, that might impact the withholding tax…

    • Hey Peter,

      Thanks for the comment. Based on the US-CDN tax treaty, if I understand it correctly, even for US REITs, you have no withholding taxes in your RRSP.

      I know for my US stocks, I have no withholding taxes in my RRSP.

      Back to CDN REITs, REITs are not generally required to pay Canadian income tax if they distribute all of their net income for tax purposes on an annual basis to unitholders. Instead, because this tax is passed on to you or me, the investor, we should hold CDN REITs in registered accounts such as RRSPs, RRIFs, RESPs, and TFSAs.

  20. Ron says:

    I still have a substantial position in TMC. Great yield from a stable solid company and at the current price, it’s a hot buy IMHO!

  21. Thanks for the mention Ninja!

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