Strong from my series on Canadian REITs in 2011, I’m going back this year with 4 top picks on the best Canadian REITs for 2012. I think that it’s important that you don’t get blinded by the attractive yields of REITs and decide to invest all your money in them. On the other hand, since the Canadian economy seems stable, the banking system is solid and interest rates should not go up by much in 2012 (most recent stats on inflation in January 2012 shows a 2.3% annual rate), Canadian REITs seem to be a logical addition to your portfolio. And this is good for US investors too; there are 2 things you should have in your investment portfolio from Canada:

 

Canadian Banks

Canadian REITs

 

I’ve done an extensive review of the Canadian REITs over at Canadian Dividend Stock and I show 21 Canadian REITs analyses. But for this post, I’ve picked 4 of my favorites:

 

Boardwalk REIT (BEI.UN)

Dividend Yield: 3.40%

Dividend 5 Yr Growth Rate: 7.39%

Payout % (FFO): 67.50%

Payout % (AFFO): 76.2%

Debt-to-GBV (Gross Book Value): 46.3%

 

At first glance Boardwalk REIT may sound uninteresting compared to its peers due to its low rate (most Canadian REITs are able to pay a dividend of 5+%). However, BEI is also showing a very low FFO and AFFO payout as well as a conservative debt to GBV value. In other terms, the BEI dividend payout is lower but is definitely one of the most sustainable over a long term period. BEI is expected to continue raising its dividend in 2012 and the following year. With one of the highest 5 year Dividend growth rates in the industry, it is definitely my favorite pick for the moment.

Riocan REIT (REI.UN)

Dividend Yield: 5.20%

Dividend 5 Yr Growth Rate: 1.64%

Payout % (FFO): 93.20%

Payout % (AFFO): 104.50%

Total Debt to Assets:  47.80%

 

Riocan is the largest Canadian REIT in Canada. Sometimes, I even feel like they own one building out of 2 in my area ;-). Their strong property management skills allow them to maintain a 97.5% occupancy rate. Their size is also a great strength since Riocan is well diversified across Canada (14.9% of the properties are in Quebec, 11.3% in Alberta, 5.6% in BC with a stronghold of 54% in Ontario) and they also have a presence in the US (10.7% of their portfolio). If you pick Riocan, you do it for its stability and its size. However, do not expect much growth as the dividend growth rate is far from being impressive and the FFO and AFFO payouts are relatively high.

 

Northern Properties REITs (NPR.UN)

Dividend Yield: 5.00%

Dividend 5 Yr Growth Rate: 3.63%%

Payout % (FFO): 60.90%

Payout % (AFFO): N/A

Debt-to-GBV (Gross Book Value): 47.90%

 

If you compare NPR to REI, you will immediately understand that you have 2 stocks with a similar yield but a different approach. NPR is much smaller than Riocan but the FFO payout and dividend growth are much stronger. As the name suggest it, NPR is focused in Northern Canada and Alberta (Anybody heard of Fort McMurray? ;-) ). Northern properties is the only Canadian REIT to be part of the S&P/TSX dividend aristocrats list. If we can expect oil sand exploration in northern Canada (and Alberta), we can expect NPR to continue to benefit from its dominant position in this niche market.

 

Cominar REIT (CUF.UN)

Dividend Yield: 6.60%

Dividend 5 Yr Growth Rate: 3.54%

Payout % (FFO): 92.3%

Payout % (AFFO): 94.7%

Debt-to-GBV (Gross Book Value): 54.6%

 

Another completely different REIT, Cominar is mainly based in Quebec (with a few properties in Ottawa’s region as well). CUF is currently in negotiation to buy Canmark (CMQ.un). The valuation of this REIT will greatly depend on the outcome of this deal. In the meantime, CUF is offering a huge dividend yield (6.60%) with acceptable REIT metrics. In addition to that, their occupancy rate is at 93.60% which is pretty good considering the economy in Quebec.

 

Do you have any interest in a Canadian REIT?

 

I’m currently out of cash to invest right now but if I had a few thousand, I would definitely put them on BEI.un due to its sustainable business model. Do you have any Canadian REITs in your portfolio? What do you think is the right % of your holdings that should be invested in this sector?

 

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20 Comments   |  

20 Comments

January 23, 2012, 6:02 pm

One way I play the REITS is through their Convertible Debentures. Not risk free, but ahead of the distribution. I hold HR.UN 6% Debs; D.UN 6% Debs;CUF.UN 5.8 & 6.5% Debs, and have just lightened up on a couple. These things have to be bought at issue or shortly thereafter,with premiums no more than 30%, and with an eye to redemption dates. Of course there should be some prospect of growth such that the Deb has a chance of being in the money.
For what this may be worth.
HS.

Michel
January 24, 2012, 5:08 am

Thanks Mike. I like to play a basket of REITS, such as XRE and ZRE. the yield on ZRE is 5.4%. Pretty decent. Who else likes the ETFs for REITS?

January 25, 2012, 11:22 am

I also strapped for cash but you present a convincing case for investing in one of these. I only just learned about REIT’s in the last few months but have been liking what I have been reading from you and others. I am definitely going to look into these when my next cash comes in with which to invest.

January 26, 2012, 8:33 pm

[...] Dividend Guy shared his top Canadian REITs for 2012. [...]

realestater
January 26, 2012, 10:20 pm

I like BEI as well, and am watching for an entry point.
How about a future article on monthly dividend payers relative to quarterlies?

January 28, 2012, 5:19 pm

[...] The Dividend Guy Blog with ‘4 Top Canadian REITs For 2012‘ [...]

Robert Sheriff
February 2, 2012, 10:56 pm

I just received a news letter recommending a Canadian REIT with over 60 million square feet of properties. The REIT includes a diverse roster of Fortune 500 clients, including Walmart, Safeway, Giant Grocery stores, Lowe’s , Petsmart and Staples. In the third Quarter , the Trust completed six new acquisitions. Can you identify this Canadian REIT from this information?

February 3, 2012, 12:57 am

[...] presents 4 Top Canadian REITs For 2012 posted at The Dividend Guy Blog, saying, “Do you know what the top REITs [...]

February 5, 2012, 2:37 am

[...] The Dividend Guy compares the top 4 Canadian REITS. [...]

February 6, 2012, 8:01 am

[...] The Dividend Guy – 4 Top Canadian REITs for 2012 [...]

February 11, 2012, 3:33 pm

[...] Read the rest of this post @ TheDividendGuyBlog /* Dividend Stock Analysis Darden Restaurants (DRI) – Should You Put Money Where Your Mouth Is? [...]

Fred
March 19, 2012, 4:59 pm

Now that we are around mid March 2012, do you feel the REIT recommendations that you are proposing are about the same and in the same order?

Ryan
April 6, 2012, 2:35 pm

I believe the REIT Robert is referring to is Calloway (CWYUF.PK). Also, like Fred, I am interested to hear your opinions a few months later. I’ve heard a lot about several different REITs. I’ve been looking into Calloway and Artis. What do you of think of these? Do you still feel as strongly about your 4 picks?

Lou
April 15, 2012, 6:13 pm

With Canadians in debt up to their eyeballs and malls on almost every corner, I really don’t see much future for retail properties. However if house prices collapse as they did in the U.S. more people are going to be renting. What are your favourite apartment REITS?

JACK
April 21, 2012, 8:09 pm

Could you comment on factors affecting when to buy and sell

April 27, 2012, 11:26 pm

I own Riocan, this is the best stock I ever bought. It is up about 100% and I still get monthly dividends.

Jeff
May 11, 2012, 11:51 am

Can someone elaborate on what Lou is saying?

I’m looking to buy some REITS and worried about the housing bubble atm. Money is so cheap at the moment I strongly believe there will be a correction soon. With that being said, housing prices will fall / Interest rates up and more people will rent. Looking for a Reit that is composed of strong mix of residential apartments.

Any recommendations?

May 29, 2012, 11:36 pm

[...] through stocks.  For example I can own a Real Estate Investment Trust (more commonly known as Canadian REITs) if I want to invest in real estate, or a mining Exchange Traded Fund (usually called an ETF) if I [...]

Syl
June 21, 2012, 9:21 am

There are alternatives to investing directly in REIT’s. Owning your own property in the US for example, is easy to get above 6 caps. Putting together a portfolio of properties, managed by locals is not hard at all with the right team. Why not create your own REIT and get both Cash flow and appreciation over the next 5-10 years? Plus the Canadian Dollar has never been so high. It will not stay high for ever, so another good reason to invest in the US. The Canadian market is scarey right now from a point of view that prices of homes cannot keep going up, when salaries are going down or stagnating.
Syl

Rob aka Captain and Mrs Slow
January 25, 2013, 5:54 am

For myself I have some money left over in my account plus there will be a bit more coming when my Dad’s estate is finally settled so I’ve been looking for some investment opportunities and to tell you the truth I’m kind of stuck. I can’t decided between better yields and dividend growth. Also having read your book I need to re-examine my exposure do I have enough diversification.

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