What is Reit Canada: A Detailed Guide!
REITs allow you to participate in real estate with no difficulties of home ownership. Stocks, ETFs, and mutual funds are just a few examples. These options enable you to make investments for just one dollar and without the need for physical property maintenance.
But wait is that a complete answer to the question “What is Reit Canada?” Obviously no, so, let’s dive deep into the topic to understand it completely.
1. What is Reit Canada?
A real estate investment trust (REIT) is an asset management firm that purchases and administers properties with funds supplied by owners and subsequently distributes income to those investors. This could include homes, offices, shopping centers, industrial structures, and healthcare facilities.
Many REITs here in Canada are openly listed on the stock exchange in Toronto, which means they can be purchased in the same way that stocks are. REITs traded on the Toronto Stock Exchange are income trusts, which means that the shares are known as units, as well as the REIT is required to distribute the bulk of its revenue to unitholders.
As a result, the majority of REITs listed through the TSX had a symbol on their tickers that contains. If you’re purchasing a REIT unit, use UN or -UN. Because income is distributed straight to unitholders, REITs are exempt from corporate income tax.
However, if you keep the property out of a listed account, like a TFSA, you must pay capital gains tax. Not all Companies are traded openly. Limited real estate investment companies are only available to accredit or qualified investors.
2. How do REITs Operate?
Depending on where they are situated, real estate investment trusts possess various structures and legal rules. They must use a mutual fund trust arrangement in Canada. In the United States, however, a REIT is a corporation.
The company must dish out a certain proportion of its taxable revenue to unitholders in order to be categorized as a REIT. To retain its REIT status in Canada, every dollar of taxable earnings must pass through the entity. However, in the United States, the entity has to split a minimum of 90% of its revenue — through companies that frequently distribute in excess of the required amount. Dividends are payments given to shareholders on a regular basis, regardless of country.
To understand how investors’ real estate trusts earn capital, we need to first look at the group through which they are categorized. An Equity REIT, on the other hand, will own various real estate and receive income from people who lease rooms in the buildings. A Mortgage REIT is an entity that offers real estate financing and earns interest. A Hybrid REIT earns money through a mix of revenue from rentals and interest payments.
3. Best Canadian Real Estate Investment Trusts
Some of the best Canadian Reits are listed below:-
3.1 Smart Centres Real Estate Investment Trusts
SmartCentres Real Estate Investment Trust (SRU.UN) is a real estate investment trust located in Vaughan, Ontario. The REIT was established in 1994 and employed over 300 people in 2016. They concentrate on retail real estate, particularly big-box malls.
When you invest in Smartcentres, they will take care of the Ontario eviction procedure while you sit back and collect dividends. Walmart is the main tenant in almost all SmartCentre locations.
3.2 H&R Real Estate Investment Trusts
H&R Real Estate Investment Trust (HR.UN) is the third-largest REIT in Canada. The firm is located in Toronto, Ontario, and specializes in commercial properties. H&R holds 40 workplaces, 161 stores, 105 industrial real estate, as well as 11 other investments in addition to its 40 office structures.
3.3 The Granite Real Estate Investment Trusts
The Granite Real Estate Investment Trust (GRT.UN) is headquartered in Toronto, Ontario. The business was formally established following an acquisition from Mag Group. Granite is a multi-residential apartment construction specialist in North America and Europe. The trust is primarily concerned with e-commerce and distribution assets.
3.4 Artis Real Estate Investment Trust
Artis Real Estate Investment Trust (ARY.UN) is Canada’s biggest diversified real estate investment trust. The Winnipeg, Manitoba-based business holds a charge, of industrial, as well as retail assets across Canada as well as the US. The REIT held 171 commercial properties as of September 2021.
4. Which REIT Ought to Invest In?
Diversifying your portfolio is always a good plan, so consider investing in a few different REITs. If you must choose just one REIT, consider factors such as their growth, the portfolio, dividends/distributions, as well as stock price appreciation.
Twenty Canadian REITs, for example, have a market value of more than $1 billion. Over the last five years, 12 out of these 20 REITs earned a positive return based on equity price appreciation.
REIT owners should also consider the dividends paid by the REIT, which are referred to as distributions. The dividend yield of a REIT can far exceed compensate for a declining stock price. For example, SmartCentres (SRU.UN) has experienced a share price fall of 18% in the past five years.
They did, however, have a high dividend return of 6.15%. When dividend distributions are taken into thought, the total return in the last five years is 4.83%. If the dividends had been invested in additional SmartCentres REIT shares over the same 5-year timeframe, the total return would be 10.17%.
For some REITs, the majority of an investor’s return may come from dividend distributions instead of a stock price increase. If you purchased Inovalis REIT (INO.UN) five years ago and are selling it today, its equity price has barely altered. INO.UN’s equity price on August 19, 2016, was $9.58. The equity price was $9.56 five years later, on the twentieth of August in 2021.
Despite the fact that the price of shares of Inovalis changed considerably in each of these cases, an investor bought a large number of INOs.Based purely on price, UN units could have made no gains. Instead, Inovalis offers a sizable dividend return of 8.58% per year. After accounting for dividend payments, a shareholder could have a total yield of 46.58% based solely on dividends. Even if the price of the shares did not change, the overall return after five years would have been 59.74% if the dividends were reinvested.
5. Residential Real Estate Investment Trusts
A Residential REIT’s portfolio may consist of high-rise, mid-rise, as well as low-rise structures apartment buildings, multi-unit renting real estate, and single-family rental homes. While the price of shares of Inovalis fluctuated considerably in both of these cases, an investor bought a large number of INOs.UN units would’ve earned no profit just on price.
6. Commercial Real Estate Investment Trusts
Diversified REITs are another name for commercial REITs. Commercial structures, factories, warehouses, hotels, multi-family residences, and retail will all be included in commercial REITs. These properties all have income-generating tenants and typically have longer lease arrangements than residential properties.H&R REIT (HR.UN) is one of Canada’s largest REITs, investing in industrial real estate. H&R’s portfolio consists of 38% workplaces, 31% sales, 8% commercial, and 23% domestic rentals.
7. REITs in the Retail Sector
Retail is classified as commercial real estate, but some REITs specialize solely in retail. Retail malls, small retail plazas, large box shops, and single-tenant properties are examples of retail properties which a retail REIT may own. RioCan (REI.UN) is Canada’s second-largest REIT, with a sizable retail business.
Among the retail companies at RioCan are Loblaws, Canadian Tire, Walmart, Shoppers Drug Mart, Tim Hortons, TD, and BMO. Several REITs may even concentrate on a single client. Slate Grocery REIT (SGR.UN), for example, concentrates on supermarket-anchored real estate, whereas CT REIT (CRT.UN) primarily leases to Canadian Tire.
Office REITs personal office buildings, which they then license to tenants. In Canada, Associated Properties REIT (AP.UN) holds 200 office buildings.
Dream Workplace REIT (D.UN) holds a diverse portfolio of office space, including Distillery Street and Canary Street in Toronto, as well as the soon-to-be-completed Zibi project in Ottawa/Gatineau.
8. Industrial Real Estate Investment Trusts
Granite Real Estate (GRT.UN) has been one of Canada’s best-performing industrial REITs over the last five years. An industrial REIT may own industrial assets such as manufacturing facilities, manufacturing, warehouses, logistics facilities, and storage facilities.
Granite REIT’s inventory is made up of 71% distribution as well as e-commerce properties, 17% special purpose structures 11% storage facilities, and 1% flex/office properties.
9. REITs in Healthcare
In Canada, there are just a couple of Healthcare REITs: NorthWest Health as well as Chartwell Retirement Residences. NorthWest Healthcare holds medical office buildings, clinics, health centers, and other healthcare facilities. Chartwell owns and runs retirement communities as well as long-term care facilities.
10. How do I Get Started Investing in REITs?
Buying an openly traded REIT is just like buying a different publicly traded stock. The major banks in Canada all have internet trading and investment platforms where you can buy as well as sell REITs, though they might charge a set price per transaction. If you are fresh to real estate investing, you could seek guidance from a CCIM.
RBC Direct Investing, for example, levies a $9.95 fee per trade, so purchasing costs $9.95 and selling costs $9.95. This means that if you only intend to spend a small amount, it may not make sense to make use of such platforms for purchasing REITs.
If you have just $50 to spend and choose to purchase a single share of Beach REIT for $47, you are also paying a total fee of $19.90 for a round-trip transaction.
There are internet discount brokerages that charge minimal or no trade commissions. Wealthsimple Exchange allows you to purchase as well as sell Canadian stocks without paying a commission, which means you can buy a $5 REIT like Slate Office REIT with no fees.
National Bank’s direct brokerage service also charges no fees on all transactions. This can be an excellent method to invest in REITs on a regular schedule in a small investment, like making a tiny investment once a month.
11. Mutual Funds for REITs
In Canada, a few mutual funds are solely comprised of REITs or real estate-related businesses. Some mutual funds demand a minimal beginning investment, which can vary from $100 to $500. For future investments, mutual funds typically have a reduced minimum investment requirement. The higher yearly management fees of mutual funds are a major disadvantage. ETFs have fewer costs and are less difficult to join and exit. Here are some instances of Canadian REIT mutual funds in action:
11.1 Canadian Real Estate Fund of CIBC
The Canadian Real Estate Mutual Fund of CIBC invests mainly in Canadian REITs and some real estate companies, including Sienna Elderly Living and FirstService Corp. The net asset value (NAV) per share of this mutual fund increased by 5% between 2016 and 2020. CIBC’s Class A mutual fund has an annual management charge of 2%, while its low-fee Class F mutual fund has a fee of 1%.
11.2 Fidelity Global Real Estate Fund
Fidelity’s real estate mutual fund invests in global REITs and real estate businesses. Prologis has the biggest holding at 8.12%, followed by Digital Realty Trust at 4.66% and Duke Realty at 3.72%. The mutual fund earned 30.4% over the last five years, with an MER ranging from 2.02% to 2.31%. Along with trading cost fees, the mutual fund’s annual fees range from 2.12% to 2.41%.
11.3 Global Real Estate Fund of Canada Life
Canada Life’s property mutual fund invests in REITs around the globe, with approximately 25% in real estate companies. Canada Life costs a yearly management fee that ranges from 0.80% to 2.00% based on the mutual fund series, as well as an administration fee that ranges from 0.15% to 0.28%.
12. Are Real Estate Investment Trusts (REITs) Smart Investments?
As with any asset, there are advantages and disadvantages to having a real estate investment trust. They can be a good investment if the unitholder knows the REIT’s and property type’s specific characteristics.
12.1 The Benefits and Drawbacks of Having a Real Estate Investment Trust
The benefits of owning a REIT are comparable to the benefits of directly owning real estate. When renters inhabit a property, for example, it can generate an income stream.
It has historically done well as an insurance policy against rising consumer costs. During times of rising inflation, landlords can pass on the cost increases to tenants. Given that we are right now in a period of inflation, this can be a substantial benefit and help investors keep and grow their purchasing power.
12.2 Diversification
Investing in a REIT also provides the investor with the chance for diversification. The investment, as an alternative commodity, has an associated risk and reward profile that is uncorrelated with traditional assets. This functions to reduce the portfolio’s overall risk.
Investing in a REIT rather than owning a property provides for greater diversification of real estate holdings. Direct ownership exposes the investor to only certain real estate assets. A trust, on the contrary hand, subjects an investor to a portfolio of properties. This not only reduces the risk related to one business, but it also offers a less unpredictable income stream.
12.3 Liquidity
Furthermore, REITs have a distinct benefit in that they’re a liquid investment. Investors may dispose of their share of ownership in the trust at any moment and receive cash within days.
When it involves selling property directly, the same is not accurate. Selling a seller’s real estate holdings may take months if not years. Even if they do, there may be significant costs connected with the sale, such as agent fees, closing costs, and so on. The lack of availability as well as additional selling expenses can make direct ownership difficult for someone simply seeking to acquire experience in the real estate sector.
The Takeaway!
This was all about the topic “What is Riet Canada?”
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Queries and Answers
Some of the most asked questions regarding the topic “What is reit Canada?” are listed below:-
1. How do Canadian REITs function?
REITs are corporations that control passive real estate interests. The REIT is governed and created by an act of trust. The REIT’s trustees hold the legal right to administer the trust land for the benefit of the REIT’s unitholders.
2. What exactly is REIT equity in Canada?
Real Estate Investment Trusts (REITs) in Canada own and control income-producing real estate holdings. Office structures, shops, industrial storage facilities, and apartment complexes are examples of such properties.
3. What exactly is a REIT and exactly how does it operate?
The abbreviation for “Real Estate Investment Trust” is REIT. A real estate investment trust (REIT) is a partnership, corporation, trust, or entity that invests directly in real estate by buying properties or mortgages. REITs distribute stock exchange-traded shares which can be bought and sold in the same way that normal stocks can.
4. What is the typical return on a Canadian real estate investment trust?
Because of their company structure, these trusts have large dividend yields. They must give out almost all of their earnings after costs to investors. Typically, a REIT will return 85-95% of its earnings to stockholders
