Many of us know the advantages of real estate investing, whether as a homeowner or a buyer of an investment property. However, did you know that you may invest in the sector without owning any property physically? A Real Estate Investment Trust (REIT) is one of the finest ways for any investor to access the real estate asset class.
Canadian REITs participate in income-producing estates, including office buildings, hotels and shopping complexes. Notably, most investors find it difficult to access this market segment via direct property ownership. Furthermore, a REIT eliminates the costs and risks associated with possessing an investment property.
So, if you're thinking about investing in real estate any time soon, REITs are the best way. The following is a comprehensive overview of this investment type, its advantages, how to invest in a REIT in Canada and much more.
Mortgage CalculatorsQuickly calculate Monthly Mortgage
Calculate EligibilityMortgage Payment Calculator
Find out monthly and annual payments
Calculate EligibilityMortgage Amortization
Quickly calculate land transfer tax
Calculate EligibilityLand Transfer Tax Calculator
A Real Estate Investment Trust (REIT), is a realty firm that purchases and operates properties with funds provided by investors, and then distributes income to the same investors. Usually, a real estate investment trust invests in residential properties, workrooms, shopping complexes, industrial structures, and hospitals.
Many REITs in Canada are publicly traded on the TSX or Toronto Stock Exchange. In simple words, REITs are available for purchase, much like stocks. On the Toronto Stock Exchange (TSX), REITs are income trusts, where shares are referred to as units, and the REIT is mandated to transfer the majority of its earnings to unitholders.
That's why most TSX-listed REITs have a ticker symbol, i.e. UN or -UN. REITs do not pay corporate income tax because income is distributed directly to unitholders. You will be liable to pay capital gains tax if you hold a unit outside your registered account, including a Tax-Free Savings Account (TFSA). Not all REITs are listed on the stock exchange for public trading. Only accredited or eligible investors can invest in private real estate investment trusts.
There are several forms of real estate investment trusts, which are classified according to the properties they own. The following are some of the most common types of REITs in Canada:
| Type of REIT | Example |
|---|---|
| Retail REITs | Shopping Centres |
| Residential REITs | Rental Apartments |
| Healthcare REITs | Hospitals, Nursing Facilities, Medical Centres |
| Office REITs | Office Buildings, Workrooms |
| Hotel REITs | Resorts |
| Industrial REITs | Warehouses, Distribution Centres |
| Diversified REITs | Two or more types of property |
The foremost 34 REITs of Canada traded on the TSX or Toronto Stock Exchange along with the TSX Venture Exchange, are included in the table below.
| REIT | Type of REIT | Share Price | Market Cap (In Dollars) | Yield (In %) |
|---|---|---|---|---|
| Canadian Apartment Properties REIT (CAPREIT) | Residential Apartments | 60.70 Dollars | 10.41 Billion Dollars | 2.42% |
| RioCan REIT | Retail REIT | 21.90 Dollars | 6.93 Billion Dollars | 4.39 % |
| Granite Real Estate | Industrial REIT | 89.00 Dollars | 5.86 Billion Dollars | 3.36 % |
| Allied Properties REIT | Office REIT | 42.61 Dollars | 5.45 Billion Dollars | 3.97 % |
| Choice Properties REIT | Commercial and Residential REIT | 15.07 Dollars | 4.87 Billion Dollars | 4.97 % |
| H&R REIT | Commercial REIT | 16.17 Dollars | 4.68 Billion Dollars | 4.25 % |
| SmartCentres REIT | Retail REIT | 30.00 Dollars | 4.35 Billon Dollars | 6.15 % |
| First Capital Realty | Commercial REIT | 17.65 Dollars | 3.84 Billion Dollars | 2.47 % |
| Summit Industrial Income REIT | Industrial REIT | 21.59 Dollars | 3.61 Billion Dollars | 2.63 % |
| NorthWest Health REIT | Healthcare REIT | 13.00 Dollars | 2.83 Billion Dollars | 6.15 % |
| Chartwell Retirement Residences | Healthcare REIT | 12.82 Dollars | 2.78 Billion Dollars | 4.76 % |
| InterRent REIT | Residential REIT | 17.45 Dollars | 2.41 Billion Dollars | 1.88 % |
| Killam Apartment REIT | Residential REIT | 21.43 Dollars | 2.35 Billion Dollars | 3.19 % |
| Boardwalk REIT | Residential REIT | 47.05 Dollars | 2.17 Billon Dollars | 2.15 % |
| Cominar REIT | Commercial (besides Residential) REIT | 10.93 Dollars | 2.00 Billon Dollars | 3.28 % |
| Canadian Tire (CT) REIT | Retail REIT | 17.91 Dollars | 1.86 Billon Dollars | 4.77 % |
| Crombie REIT | Retail REIT | 18.25 Dollars | 1.77 Billon Dollars | 4.87 % |
| Artis REIT | Commercial (besides Residential) REIT | 11.50 Dollars | 1.50 Billon Dollars | 5.19 % |
| Dream Office REIT | Office REIT | 22.27 Dollars | 1.14 Billion Dollars | 4.43 % |
| Minto Apartment REIT | Residential Apartments REIT | 24.00 Dollars | 854 Million Dollars | 1.89 % |
| Morguard North American Residential REIT | Residential REIT | 18.15 Dollars | 713 Million Dollars | 3.83 % |
| True North Commercial | Commercial REIT | 7.52 Dollars | 660 Million Dollars | 7.88 % |
| Slate Grocery REIT | Retail REIT | 13.50 Dollars | 634 Million Dollars | 8.12 % |
| Automotive Properties REIT | Commercial REIT | 12.89 Dollars | 504 Million Dollars | 6.23 % |
| European Residential REIT | Residential REIT | 4.66 Dollars | 413 Million Dollars | 3.48 % |
| Nexus REIT | Industrial REIT | 12.00 Dollars | 398 Million Dollars | 5.41 % |
| Morguard REIT | Commercial REIT | 6.08 Dollars | 386 Million Dollars | 3.96 % |
| Slate Office REIT | Office REIT | 5.40 Dollars | 366 Million Dollars | 7.40 % |
| PRO REIT | Commercial REIT | 6.93 Dollars | 329 Million Dollars | 6.40 % |
| Dream Industrial REIT | Industrial REIT | 16.66 Dollars | 328 Million Dollars | 4.24 % |
| American Hotel Income Properties REIT | Hotel REIT | 4.00 Dollars | 322 Million Dollars | - |
| Inovalis REIT | Office REIT | 9.57 Dollars | 312 Million Dollars | 8.57 % |
| BTB REIT | Commercial (besides Residential) REIT | 4.10 Dollars | 303 Million Dollars | 7.26 % |
| Melcor REIT | Commercial REIT | 6.86 Dollars | 89 Million Dollars | 6.98 % |
| Lanesborough REIT | Residential Apartments REIT | 0.02 Dollars | 411,000 Dollars | - |
Note: This list includes the share price, market capitalisation and 5-year return as of August 23, 2021.
When it comes to trade, it is recommended to keep your portfolio as diversified as possible, so buying more than one REIT is a good idea. If you are thinking of choosing only one REIT, consider certain crucial factors, including size, dividends, portfolio and appreciation of stock price.
For instance, 20 REITs in Canada have a market cap of more than CAD 1 billion. On the basis of stock price appreciation, 12 of these 20 REITs had a positive return in the last five years.
REIT investors should also consider REIT's dividends, the distributions it pays out to the unitholders. A REIT's distribution yield can compensate for a falling stock price. For instance, SmartCentres (SRU.UN) has seen its stock price plummet by 18% in the last five years.
However, the REIT had a high dividend yield of 6.15%. The overall return over the last five years clocked at 4.83% when dividend payouts are factored in. The total return for the same time frame would be 10.17% if the dividends/distributions were reinvested into more shares of SmartCentres REIT.
On August 19, 2016, the stock price of INO.UN was $9.58. Five years later, on August 20, 2021, the stock price was $9.56.
The majority of returns generated by the REIT investors come from dividend distributions despite stock price growth. If you bought Inovalis REIT (INO.UN) exactly five years ago and sold it today, you will stay neutral as the stock price has hardly changed. The stock price of INO.UN clocked in at $9.58 in August 2016. In 2021, after five years, it still clocked at $9.56.
While the price of Inovalis' stock fluctuated a lot between the two dates, an investor bought and kept INO.UN units would have made no money. Inovalis, on the other hand, gives an annual dividend yield of 8.58%. The unit holder would have incurred an overall return of 46.58% simply on dividends if these distributions were considered. Even if the stock price did not move, the overall return would have accounted for 59.74% if the investor decided to reinvest the dividends.
Finally, a REIT's portfolio is an essential factor that investors should consider. REITs typically specialise in one sort of property, i.e. retail or residential. Investing solely in retail REITs can be risky and may lead to the retail sector underperforming, as it did in 2020.Types of REITs include:
Residential real estate investment trusts include:
Apartment Properties REIT, Canada, is the country's largest REIT, with over 57,743 units and a monthly rent of 1,282 Canadian Dollars in 2020 on an average.
Commercial REITs or Diversified real estate investment trusts are another most looked for Canadian REIT. Common shareholding of Commercial REITs includes:
These properties have income-generating tenants, and their lease periods are often longer
than those of residential buildings.
H&R REIT (HR.UN) is one of Canada's largest commercial real estate investment trusts.
38% of H&R’s portfolio caters to offices, followed by 31% in retail, 23% in residential
rentals and 8% in industrial.
Although retail is classified as commercial property, several REITs specialise in it. Retail REITs includes the following properties:
RioCan (REI.UN) is Canada's second-largest REIT, with a sizable retail portfolio. The list of
RioCan’s retail tenants includes Loblaws, Walmart, Tim Hortons, TD Canada Trust, and Bank of
Montreal (BMO).
Some REITs may even concentrate on a single tenant. For instance, Slate Grocery REIT
with the TSX symbol SGR.UN specialises in grocery-anchored real estate, whereas CT REIT
primarily rents to Canadian Tire.
Office REITs are companies that hold office buildings and lease them to the tenants. In
Canada, Allied Properties REIT with stock exchange symbol AP.UN has a stake in 200 office
buildings.
Dream Office REIT with symbol D.UN holds a diverse portfolio of workrooms (office
space), including
Over the last five years, industrial REITs like Granite Real Estate with TSX symbol GRT.UN ranked in the list of best-performing Canadian REITs. An industrial REIT includes industrial properties such as
The portfolio of Granite REIT consists of
NorthWest Health together with Chartwell Retirement Residences are Canada's only healthcare REITs. NorthWest Healthcare is a healthcare company specialising in medical office buildings, clinics and health centres. Chartwell is a healthcare firm owning retirement homes along with prolonged care homes.
Depending on the province an individual is based, the real estate investment trusts have
varied structures and legal rules. They must count on a mutual fund trust structure in
Canada. In the United States, however, a REIT is a corporation.
The firm must pay a specific percentage of the taxable income to shareholders to be
designated as a REIT. To maintain the REIT status in Canada, the corporation must pass all
taxable revenue through the entities. In the United States, the business must share at least
90% of its earnings. However, many companies believe in distributing more than that.
Dividends are payments provided to shareholders regularly, regardless of the country.
To comprehend how Real Estate Investment Trusts (REITs) create money, we must first
understand the category in which they are classified. For example, an Equity REIT will own
many properties and collect money from tenants who rent space across the buildings. A
Mortgage REIT is a company that provides real estate finance and earns money from interest
payments. A Hybrid REIT earns money from a mix of rental revenues as well as interest
payments.
The Toronto Stock Exchange has traded real estate investment trusts in Canada since 1993. Investors purchase units on a stock exchange, primarily the Toronto Stock Exchange (TSX), and keep them in any trading account. The account types include
While a REIT is listed on the stock exchange, it is not the same as a publicly-traded stock. As previously stated, a firm's stock listed on a public exchange has a different tax structure and is set up for mutual fund trust.
Not all Real Estate Investment Trusts are made equal, so knowing how to choose the best investment for a portfolio is critical. The following are some of the most important considerations:
REITs are a means to diversify an investor's portfolio by including real estate. Furthermore,
certain REITs may pay even more significant dividends than conventional investments.
There are inherent risks, particularly with non-exchange traded REITs (Real Estate
Investment Trusts). Non-traded REITs have unique risks because they are not traded on a
stock exchange. Some risks include:
Non-traded real estate investment trusts (REITs) are illiquid investments. They are often difficult to sell on the open market. You may not be able to sell shares of a non-traded REIT to raise money in no time by selling out an asset.
The market price of a REIT traded publicly is readily available, but determining the value of non-traded REIT shares might be tricky. Non-traded REITs usually don't give an estimate of per-share value until 18 months after the public offering is completed. It could be years after the investor has made the investment. As a result, you may be unable to analyse the value of non-traded REIT investment and its volatility for an extended period.
Investors may be drawn to non-traded REITs because they offer high dividend yields contrary to the publicly-traded REITs. Non-traded REITs, on the other hand, regularly pay distributions in excess of their funds from operations, unlike publicly quoted REITs. They may do so by using revenues from offerings and borrowings. This approach is uncommon among publicly-traded REITs and diminishes the value of the company's shares and the cash available to buy more assets.
Instead of using their own workers, non-traded REITs usually hire an outside manager. This may result in potential shareholder conflicts of interest. For example, the REIT may pay a hefty fee to the external manager based on the number of properties acquired and assets managed. Shareholders' interests may not always be aligned with these fee incentives.
Any investor can benefit from investing in a real estate investment trust by gaining exposure
to the real estate market. The asset class can provide a consistent income source while
protecting against inflation. When compared to direct real estate ownership, it can also
provide enhanced liquidity and reduce property-specific risk.
Consider devoting a portion of your portfolio to REITs to help diversify your portfolio
and increase income. Before investing, always get advice from a certified specialist and
conduct thorough research.
Ans: Investors usually invest in REITs to generate higher income and long-term growth. Additionally, REITs help build an investor's portfolio by diversifying the income streams.
Ans: The primary purpose of the Real Estate Investment Trust is to make real estate investing accessible to produce income through real estate. It is the foremost investment alternative for those willing to earn profits without owning the property.
Ans: Typically, the initial cost to start a REIT will be between CAD 1,000 to CAD 25,000.
Ans: The introduction and rising adoption of new online real estate investment platforms that allow investors access to real estate through REITs have been one of the most exciting developments in the world of real estate investing in the last decade.
Get The Best Offer