The Best REITs to Invest in Canada for 2023 (2024)

Investing in real estate can make property owners very wealthy. The only catch is that it can be very stressful, time-consuming, and often demands large amounts of capital. Most real estate businesses can also demand their owners’ full focus and attention, to do things like having the property maintained, marketed to prospective tenants, and other necessary business activities to ensure success.

But there is a less burdensome way to make money from real estate, and that is to invest in a REIT or Real Estate Investment Trust. REITs are attractive investments in that they don’t require investors to know as much or directly manage the properties as real estate developers do, but they have the potential to pay out hefty dividends.

In Canada, there are several REITs that fit this description, although different factors like industry trends can change their performance over time. So, let’s dive in and find out which are the best REITs in Canada for this year.

What is a REIT?

A Real Estate Investment Trust or REIT is much like a mutual fund where money is pooled from several investors to buy a portfolio of different stocks and bonds. In the case of a REIT, the money is pooled to buy and manage profitable real estate investments.

Why invest in REITs? The largest REITs that pay or can potentially pay significant dividends usually possess and manage many properties spread across the country and have different types of real estate properties. Whether commercial or residential, it’s this sort of diversity in real estate that helps minimize property depreciation in some areas.

What are the different types of REITs?

There are many different types of REITs, which may be grouped by the way they can be held or purchased:

1. Publicly-traded REITs

These are REITs that are traded like stocks. They can be publicly traded on major stock exchanges like the TSX and NYSE and can be purchased via a brokerage account.

2. Public non-traded REITs

These REITs are not traded on public exchanges but may be traded through online platforms, commonly called real estate crowdfunding platforms.

3. Private non-traded REITs

These REITs do not trade on public exchanges and are only offered to high-net-worth investors.

The 3 main categories above can be further divided into other sub-categories:

1. Mortgage REITs

Also called “mREITs”, these REITs make money mostly from the interest earned from loans. MREITs act as the source of mortgages and loans and lend money to real estate developers.

2. Equity REITs

These REITs own and manage real estate that produces their own income by leasing commercial or residential space to tenants. Equity REITs can include a portfolio consisting of apartment buildings, condominiums, office buildings, and commercial properties like malls and warehouses.

3. Hybrid REITs

These are a mix of mREITs and equity REITs. Hybrid REITs generate income by renting out property to tenants or earning interest from their loans.

Equity REITs may be even further subdivided into:

Data Centre REITs

These are unusual REITs in that they specialize in spaces that aren’t offered to human customers, but to house data centres.

Data centre REITs manage temperature-regulated commercial storage spaces that also have uninterruptible power supplies. The spaces are offered to companies that need to store large amounts of data via cloud computing, and therefore need large physical servers.

Diversified REITs

These REITs manage a diverse portfolio comprised of many kinds of real estate, which can be a mix of residential, commercial, and industrial spaces. Diversified REITs can sometimes focus on one market, such as a city or a district of a city, and some may diversify further by locale.

Health Care REITs

These are comprised of health care facilities or real estate related to the healthcare industry. This REIT can include hospitals, medical offices, senior housing or senior care communities, outpatient facilities, and medical research labs.

Hospitality REITs

Hospitality REITs own and manage a portfolio of hotels and resorts. This REIT makes its income mainly through room and conference space rentals. The main caveat of hospitality REITs is that they’re considered to be the most vulnerable to economic conditions and need a strong economy to perform well.

Industrial REITs

Spaces in this type of REIT include those that specialize in large-scale industrial activities like food manufacturing, food preservation, and food processing. Storage facilities for perishable and non-perishable items are included in industrial REITs, so it’s no surprise that cannabis-growing facilities are under this category as well.

Industrial REITs are currently enjoying an uptick in business due to the spike of e-commerce companies that require a lot of storage for their goods. It’s not all about storage or production though, as industrial REITs can also include flexible office spaces.

Infrastructure REITs

Unlike other REITs, this type of REIT does not typically involve renting out physical space. This REIT is more concerned with infrastructure-related real estate like oil pipelines, cell towers, fibre-optic cables, cell towers, and other assets.

Office REITs

As the name implies, this REIT is chiefly concerned with renting out office space to tenants. The leased spaces can include luxurious skyscrapers or high-rises, or basic tuition offices in the community college of a small town.

Office REITs can have a portfolio of spaces focused on a specific city or region, while others have portfolios arranged by job type.

Retail REITs

These deal with retail spaces like shopping centres, malls, and freestanding retail stores. While brick-and-mortar retailers in these REITs have been adversely affected by the pandemic, other stores need retail space, especially groceries and pharmacies.

Residential REITs

Residential REITs handle living space intended for tenants and includes apartments, condominiums, and houses. These REITs are deemed to be very stable, as the increase in population means increased demand for more living spaces.

Self-storage REITs

These are involved with storage facilities that are leased out to individuals and businesses. Of these REIT types, self-storage REITs are the best performers. Demand for self-storage facilities is high, they are cheap to build and maintain, so it’s easier to earn high margins.

Specialty REITs

These are other REITs that cannot be classified under the other “usual” categories. Specialty REITs include spaces like skydiving arenas, casinos, trampoline parks, and farmlands.

Timberland REITs

This type of REIT is concerned with managing timber-producing land. While this may sound oddly specific, the timber industry is highly regulated and extremely land-intensive. A lot of land is required to grow trees, then mill and sell the timber.

How do you pick the best REITs?

Real estate investing offers so many different REITs to choose from. So how do savvy investors know or decide what are the best REITs to invest in? The simple rule is to invest in REITs that generate the highest returns.

EMBED: <blockquote class="twitter-tweet"><p lang="en" dir="ltr">Dean Orrico, Middlefield&#39;s President &amp; CEO, believes that public REITs provide strong yields, outperforming GICs, and have historically traded at a deep discount compared to previous REIT levels.<a href="https://t.co/p6faApxx6J">https://t.co/p6faApxx6J</a><a href="https://twitter.com/hashtag/investments?src=hash&amp;ref_src=twsrc%5Etfw">#investments</a> <a href="https://twitter.com/hashtag/wealthindustry?src=hash&amp;ref_src=twsrc%5Etfw">#wealthindustry</a> <a href="https://twitter.com/hashtag/REIT?src=hash&amp;ref_src=twsrc%5Etfw">#REIT</a> <a href="https://twitter.com/hashtag/financialadvisor?src=hash&amp;ref_src=twsrc%5Etfw">#financialadvisor</a></p>&mdash; Wealth Professional Canada (@WealthProCA) <a href="https://twitter.com/WealthProCA/status/1711774339115184447?ref_src=twsrc%5Etfw">October 10, 2023</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

There are at least 3 main criteria to consider for a REIT to be considered among the best:

Earnings

Before you buy into a REIT, have a look at its funds from operations (FFO) and how much cash it can give as dividends. Earnings can indicate a REIT's overall performance and how much money is transferred to investors.

Don’t rely solely on the REIT’s regular income numbers as these take property depreciation into account. Regular earnings are only useful if you’ve studied the other two signs. The REIT may be having unusual returns due to real estate market conditions or management's luck in picking investments.

Diversification

Real estate markets fluctuate depending on location and property type, so it’s a sound strategy to buy a properly diversified REIT.

Don't get a REIT overly focused on commercial real estate because a drop in occupancy rates can lead to portfolio problems. A REIT with sufficient diversification can mean that the trust has enough capital to fund future growth initiatives and leverage itself for higher returns.

Management

Take time to see what the REIT’s management team is like; check their track record and how they’re compensated. Profitability and asset appreciation of a REIT are closely related to the manager's ability to pick the right investments and strategies. If the compensation of a REIT’s management is performance-based, then that can work to your advantage ls well.

The Best Canadian REITs for 2023

Now that we’ve tackled the different types of REITs and how to pick the best-performing ones, here’s a look at the REITs that are viable investments for the year 2023:

1. Allied Properties REIT

Dividend yield: 2.57%
Dividend payout ratio: 10.23%
Market capitalization: $11 billion

Allied Properties is an office REIT that has one of the strongest portfolios, with assets located in many urban centres. One of the great features of this REIT is its significant diversification, with no single tenant making up a large part of its revenue. This makes it one of the best REITs to invest in.

Most of Allied assets are in Toronto and Montreal, and a significant footprint in Edmonton, Calgary, Ottawa, and Vancouver. Notably, Allied recently sold off its data centres to lower its debt and increase liquidity for any future expansions and acquisitions.

Allied Properties is counted among 8 REITs which have achieved Canadian Dividend Aristocrat status. At 11 years and counting, this REIT owns the second-longest streak for consistent dividend growth among all TSX-listed REITs.

EMBED: <iframe width="560" height="315" src="https://www.youtube.com/embed/bSvJRIlnl94?si=OTRrIr08U1UYPmnT" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen></iframe>

2. Automotive Properties REIT

Dividend yield: 7.98%
Dividend payout ratio: 10.23%
Market capitalization: $510 million

This is a specialty REIT engaged in real estate for car dealerships. As the operators value stability, the company locks in tenants with long-term leases that are at least 10 years or longer, with rent escalators.

The company has 76 dealerships and about 260,000 square metres of leasable commercial space. Their footprint extends from Alberta to Quebec, with ongoing expansion plans.

Automotive Properties still has plenty of room to grow as various dealer operators continue to leverage the company to accelerate their own growth prospects. Thanks to this REIT, dealerships and car brands have the ability to expand much faster without buying or owning their underlying real estate.

3. Canadian Apartment Properties REIT

Dividend yield: 5.38%
Dividend payout ratio: 132.12%
Market capitalization: $8.8 billion

The Canadian Apartment REIT holds the position as both the country’s largest REIT and the country’s largest Residential REIT. With over 67,000 rental apartments and housing sites in Canada, Ireland, and the Netherlands, analysts predict this REIT will retain an annual growth of 7% in the next few years.

Canadian Apartment Properties has increased its revenues non-stop for 23 consecutive years – the longest sustained growth streak in its sector. This REIT is in a tie for the second longest dividend growth streak in Canada with Allied Properties. Both REITs have maintained growth for 11 consecutive years.

Among the residential REITs, this has one of the best interest coverage ratios at 2.13. With its strong balance sheet, better-than-average growth rate and a reliable distribution, Canadian Apartment Properties delivers the goods to investors. It’s among the best REITs available today.

4. CT REIT

Dividend yield: 6.7%
Dividend payout ratio: 73.33%
Market capitalization: $1.47 billion

CT REIT is high-yielding and reliable. It generates most of its revenue by leasing its properties to the Canadian Tire Corporation, which owns and operates Canadian Tire retail outlets. CT REIT owns all the properties leased by Canadian Tire stores, along with other retail stores, distribution centres, and some mixed-use commercial properties.

Rumours that this REIT would go bust from the pandemic were proven wrong due to an e-commerce sales boom precisely due to the pandemic. CT’s occupancy rates held and translated to very solid numbers throughout the pandemic, while other retail REITs focused on shopping malls struggled to stay afloat. It's not a glamourous REIT by any means, but CT promises rock-solid coverage ratios, one of the best payout ratios, plus a growing, high-yielding distribution.

5. Dream Industrial REIT

Dividend yield: 5.38%
Dividend payout ratio: 132.12%
Market capitalization: $3.61 billion

As e-commerce takes the world by storm, industrial real estate has become a hot sector. Even major retailers like Walmart and Loblaw have looked into warehouses and more storage and distribution spaces for e-commerce. Thanks to this trend, Dream Industrial REIT is eyed as one of the few industrial REITs to experience double-digit growth.

This REIT began in 2023 with 6.5 million square metres spread among 321 properties. As of this writing, Dream Industrial has a debt-to-equity ratio of 0.65, interest coverage ratio of 6.5, and debt to assets ratio of 0.37.

With its low debt, this REIT is poised to make a lot of acquisitions and make rapid, significant growth despite being a new company. The company is even cheaper than major peers like Granite REIT. It is also trading at a 15% discount off its net asset value, so this is one of the best REITs worth investing in.

The best REITs to invest in: closing thoughts

As you consider other REITs along with the best ones to invest in, always check each REIT’s earnings, management, and diversification profiles for a balanced portfolio.

It’s important to also consider the impact of interest rates. While this can create resistance for many REITs, those with higher debt loads (like residential REITs) tend to perform well despite the rising interest rates. Because as interest rates increase, so do property values.

Stay updated on the latest investment news to help you grow and manage your wealth. Read and bookmark our Investments page for more content on the best REITs and other investment tools.

Will you include some or all of Canada’s best REITs for 2023 in your portfolio? Let us know in the comments!