Posted by Mark on December 13, 2011

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 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 4 th 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 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, Lowes, 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 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 wouldnt be a buyer at this price.

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

Do you own REITS in your portfolio?