# What people think about Canadian REITS stocks (buy or watch)?



## DayDreamer (Jul 5, 2018)

Hello Everyone,

I wouls like to know what experienced think about Canadian REITS. I have few questions regarding them.

1. are they good long term investments (esp. Considering Dividend)?
2. Which industry REITS are better to hold for long term, residential, real estate, commericals etc. ?
3. Any thoughts on RIOCAN?
4. Any good suggestion ?
5. A lot of people talking about REITS these days, is it a correct time to invest in them ?

Cheers,
DD


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## AltaRed (Jun 8, 2009)

REITs issue 'distributions', not dividends. The distributions can contain several types of income from Other Income to Cap Gains to Return of Capital, etc.

Current market prices of REITs as measured against NAV (or discount to NAV), distribution yield, and where current prices sit relative to 52 week lows and 52 week highs, reflect what is popular and what is not. Industrial REITs are expensive, and to a lesser extent residential REITs. Some retail REITs have been hammered such as RioCan but may be oversold at current levels (some are saying RioCan is priced almost 30% discount to NAV) which would be extraordinary. Recreational and hotel REITs have been hammered for good reason. Some may go bankrupt with huge business losses.

Only you can decide what you are looking for, for what reason, and whether short term or long term, but always buy at a discount to NAV. Why might you ask? Because NAV calculations are rather opaque and subjective. Property appraisals are not done frequently and there is no certainty to their accuracy since they cannot be tested in the markets every day like stocks. So there is always a 'safety' cushion that investors will attach to share value.

Disclosure: I have owned RioCan for a very long time and continue to hold. It has done quite a bit in recent years to get rid of its secondary assets and consolidating in 6 key markets. It is also re-developing many of its strip malls in key urban (prime real estate) locations to multi-purpose residential/commercial/retail complexes. It will be a 10-20 year process but should result in extracting a ton of new value out of asphalt parking lots in strip malls. Time will tell.

I tend to not follow the crowd (herd mentality) into momentum if prices are nosebleed. That said, I did very well owning Pure Industrial REIT until it got taken out and taken private. A 2-3 bagger in a relatively short period. Not many home runs quite like that. If I was going to go into real estate now, it probably would be through Brookfield. They still are the gold standard for a long term hold.


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## scorpion_ca (Nov 3, 2014)

I would say this is the time to invest in REITs as it is on sale now. I have been using DRIP to get shares of ZRE every month as I don't need the money for the next 15-20 years.


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## Jimmy (May 19, 2017)

I agree. Have added to the major index areas when they were on sale ( they aren't as much any more ie S&P 500 ETFs) and REITs and Utilities/Infra have the best discounts now. Still down ~ 16% ytd


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## james4beach (Nov 15, 2012)

Myself, I think REITs are in for a lot of pain. These are leveraged financial entities (like banks) and we are possibly heading into a very bad environment for real estate and commercial property.

In the last bull market (2009-2020) Canadian REITs performed incredibly strongly, XRE had roughly 13.8% CAGR growth which is condiderably higher than the TSX. They did well because they were _leveraged_ during a credit & real estate boom period.

Of course this is completely speculative -- as with any sector specific bet -- but I think this is a bad time to get into them. I don't think the conditions of 2009-2019 continue any more and market themes do tend to last about ~ 10 years, roughly speaking. I think it's over.

I wouldn't be surprised if REITs turn out to be one of the worst, chronically underperforming sectors going forward. Already in the recent stimulus driven rally, REITs have underperformed. This indicates that institutions are selling them into the strength.

I would agree that if you really want to invest in REITs, it's best to use an ETF.


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## AltaRed (Jun 8, 2009)

The REIT market isn't homogeneous. I think there will be wide divergence in performance between REIT sectors.


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## MrMatt (Dec 21, 2011)

AltaRed said:


> The REIT market isn't homogeneous. I think there will be wide divergence in performance between REIT sectors.


I agree, and even among sub sectors, or tenants.

I've got lots of ideas, but I'm not even sure how to evaluate the REIT market in Canada.

I wouldn't want to touch conventional residential right now. It seems like governments are intent on screwing over landowners in favour of tenants.


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## AltaRed (Jun 8, 2009)

I'd probably wait a month or two on residential to be sure occupancy rates and delinquency rates didn't take a material turn for the worse. So far though, there has been little indication of that.


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## londoncalling (Sep 17, 2011)

I bought Brookfield Property partners in January after Dream Global REIT (DRG.UN) got taken out. At the time it was a bit of a contrarian play in that commercial was not the place to be but I was ready to sit on it for the next decade or more as it readjusted its properties either through sale or redevelopment. I spent the remainder of my DRG money on Brookfield Infrastructure at the end of April. I have a feeling once the CERB and CEWS curtails the fed will still need to create jobs. Perhaps some of this will be achieved through infrastructure spending as we have already seen a bit of money thrown towards infrastructure. I wanted to gain exposure to residential and Industrial for the past few years but never seemed to have the right bid in at the right time. Another sector to look at may be senior living. They may be facing some headwinds but if demographics have the impact that have followed boomers their entire lives this may be the place to be at some point. 

The posts above do a great job in answering your questions 1-7 in which the answer is depending on how long and which ones it is definitely maybe a good time to invest. I apologize if I am being a bit facetious but it really depends on what your plan and current weighting to give you a better answer. If you don't have any REITs it may be something to consider adding at some point in time.

Cheers


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## Jimmy (May 19, 2017)

It looks like REITS are undervalued and the threats of lost rent and work from home are overblown. Comments from the G&M on 2 REITs



> Domestic real estate companies are doing a remarkable job stickhandling the negative effects of the pandemic and government support initiatives.
> 
> CIBC’s report on RioCan REIT’s quarterly results was called “No rent left behind”,
> 
> ...


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## dubmac (Jan 9, 2011)

I hold a small position with ZRE in a non-reg account. ZRE has neither increased nor decreased in value - yet it adds a nice little income to the income-based non-reg account (60/40) that I made for my wife. currently, the yield is around 5.4%. ZRE is doing exactly what I expected it to do. no glitter, no gold. just good, predictable monthly income.


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## AltaRed (Jun 8, 2009)

My ex has a relatively small (<10%) holding in ZRE as well to broaden her XIU et al holding. It will do just fine over her remaining 20 years or so.


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## Jimmy (May 19, 2017)

Here is another Globe article suggesting REITs are a good value


> *CIBC real estate analyst Dean Wilkinson is looking for a catch-up trade in domestic REITs in a Monday research report called “As The Sector Lags, The Relative Opportunity Widens,”*
> 
> “While the broader S&P/TSX continues to rebound from its March lows (now down 4% year-to-date), the real estate recovery has effectively stalled (REITs have delivered a YTD -25% total return on an unweighted basis, with price levels largely unchanged from mid-April levels).
> 
> ...


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## hfp75 (Mar 15, 2018)

CMBS default rates are climbing... I would be careful buying a REIT that has commercial/office RE in it....

You could make the argument that an industrial REIT is going to recover nicely when the economy picks up and buy that, but commercial/office is going to be different - IMHO.....

Residential REITs are going to flounder for a while but people need to live somewhere... 

I'd consider residential and industrial REITs... 

Health care/ geriatric REITs are a no go right now as far as I can see... after COVID the govts could step in with a bunch of rules that squish profits...


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## MrBlackhill (Jun 10, 2020)

Well, I don't know much about REITs, but I've been watching this small cap (Inovalis REIT) and they are into European offices mostly in France and Germany and they seems to be doing pretty well with their current 10.40% dividend at 33% payout and a 5-year average yield of more than 8.50%.


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## Ponderling (Mar 1, 2013)

We presently own the following reits: 
CAR. Mid market apartment buildings. Off about 5% from feb presently. Has done very well in the last 5 years though, and I have sold off to rebalance on the gains here.
KMP again down a bit. Mid market apartments and residential trailer parks.
SRU - bought in in July. Big box retail mostly, often anchored by grocery stores and shoppers drug mart, so those are pretty safe leases.
HR- down a bunch, since high rise commercial mostly, but I have put more money in, as I think it has been beat down more than it needs to be, and commercial has a reasonable cnace of being back in under 2 years. 

Have enough in each position the REIT etf's adder did not materially help in our situation to consider buying thr wrap versus the reits of the sort we wanted to be mostly conservative in our reit holdings.


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## Topo (Aug 31, 2019)

I don't follow the sector very closely, but from what I gather, the rent impairments for office/industrial haven't been as bad as expected. Some things of course take time to develop and it is possible things could get worse over time.


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## james4beach (Nov 15, 2012)

Topo said:


> I don't follow the sector very closely, but from what I gather, the rent impairments for office/industrial haven't been as bad as expected. Some things of course take time to develop and it is possible things could get worse over time.


This is such a fascinating time. I really find this kind of uncertainty to be exciting and fun.

The future can play out many different ways. Perhaps government stimulus programs, or existing cash reserves, are helping individuals and businesses stay afloat only temporarily. Perhaps we are approaching the point of massive defaults, where everyone stops paying all debts, resulting in a total collapse of rentals. And then heavy loan losses at banks, banking crisis, likely a bail-in, equity wipeout, etc.

Or, perhaps businesses and individuals have adapted quite well, and are still solvent. Maybe all we get is some reduction in consumer spending, but rentals, real estate, and banks keep humming along without much problem.

Or, the virus may subside (for various reasons), business might bounce back strongly, and everything comes roaring back to life. And we end up 1 or 2 years from now with a stronger business environment than anyone is forecasting.

All of these seem plausible to me. I also find it interesting that the average forecast (which is likely what banks and REITs are pricing today) does not capture the fact that there's an _enormous_ difference between worst case & best case. One outcome could be worse than the Great Depression, but the market prices don't reflect that. But that's just one possible outcome.

Good luck to all gamblers out there!


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## gardner (Feb 13, 2014)

The best performing REIT I have is NVU, and only because of the cash deal with Starlight and KingSett. When they cash me out, I think I might go to ZRE.

I've been trying to run an equal sector-weight dividend portfolio but have been chronically underweight on REITs since I have such a hard time choosing ones I want to own. I have a mixed bag, but nothing I really recommend specifically other than FCR. Currently:

AX.UN 6% ARTIS REIT T/U
FCR.UN 26% FIRST CAPITAL REIT
HR.UN 12% H&R REIT
NVU.UN 28% NORTHVIEW APARTMENT REIT
REI.UN 14% RIOCAN R/ESTATE INV T/U
BPY 15% BROOKFIELD PPTY PTNRS LPU

Except NVU, they are all underwater by 30% to my book.

I want to hold around 4 REITs and I originally eschewed ZRE or similar ETFs as (1) they inevitably contain some dross (2) there's not that many REITs worth owning in the first place and (3) the MERs are comparatively high. Now, I am not so sure. I recon once I get the NVU cash I will either sell AX and go equal weight on the remainders (FCR, HR, REI, BPY) or sell the lot and go to ZRE. I can use the capital loss to go back to last year, so that would ease the pain.


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## Eder (Feb 16, 2011)

Why not buy the top 5 or 10 holdings in ZRE...I dont think any of your current REITs are in there so you can harvest the gain and also avoid the high MER.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> This is such a fascinating time. I really find this kind of uncertainty to be exciting and fun.
> 
> The future can play out many different way ...
> 
> ...


Hmmm ... so back when the market said DFN-PA was worth $8, the market had it right where there was, from what I recall you writing - lots of hidden risk. Now for REITs, the market has it wrong because it's missing out on the risks.

Maybe .... just maybe - the market isn't always right and isn't always as efficient.


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Hmmm ... so back when the market said DFN-PA was worth $8, the market had it right where there was, from what I recall you writing - lots of hidden risk. Now for REITs, the market has it wrong because it's missing out on the risks.
> 
> Maybe .... just maybe - the market isn't always right and isn't always as efficient.


I think you have to re-read what I wrote. I said that the range of _possible outcomes_ is very wide here. The current price is somewhat of an average scenario forecast which seems correct -- it may be a rational pricing. But pricing is a one dimensional thing (it's a scalar number) which cannot capture the huge range of possible outcomes.

I do agree that the market isn't right, isn't always efficient, but I think REIT pricing today might be about right. But at the same time, I think pricing is incapable of reflecting the huge uncertainty of where this could go.


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## SixesAndSevens (Dec 4, 2009)

james4beach said:


> Myself, I think REITs are in for a lot of pain. These are leveraged financial entities (like banks) and we are possibly heading into a very bad environment for real estate and commercial property.
> ...
> I wouldn't be surprised if REITs turn out to be one of the worst, chronically underperforming sectors going forward. Already in the recent stimulus driven rally, REITs have underperformed. This indicates that institutions are selling them into the strength.
> I would agree that if you really want to invest in REITs, it's best to use an ETF.


if there is 1 sector where you should stock pick instead of index, it is REITs.
There are a small subset of REITs that have performed spectacularly (compared to other REITs, I mean, not tech stocks, obviously).
Vast majority of REITs are unappetizing...meh stocks.

Speaking of spectacular performers, look at how Milestone Apartments turned out for investors...a few others have been mentioned upthread, such as Pure Industrial.
but the vast majority of REITs are dead money (Artis, Dundee Office, etc...)....understand the sector, do your research, and stock pick a small handful of REITs.....pass on these ETFs


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> I think you have to re-read what I wrote. I said that the range of _possible outcomes_ is very wide here ...
> I do agree that the market isn't right, isn't always efficient, but I think REIT pricing today might be about right. But at the same time, I think pricing is incapable of reflecting the huge uncertainty of where this could go.


So what's different that one investment pricing is incapable of reflecting risk while for another, it does?

Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> So what's different that one investment pricing is incapable of reflecting risk while for another, it does?


Not much of a difference, and we're not discussing DFN.PA here.

I don't have a team of editors reviewing everything I type, looking at my entire posting history, and finding all possible incongruencies.


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## james4beach (Nov 15, 2012)

I remain bearish on REITs and I think the XRE chart looks pretty bad at this point, also taking into account that the global economic situation is tilting more negative now. I also don't like that REITs (like banks) are leveraged into what is still quite possibly a Depression.


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## AltaRed (Jun 8, 2009)

Some REITs have significant headwinds but just like the economy is diverse and some sectors are much better than others, so it goes with REITs. Office, hospitality and some retail REITs will be challenged for some time.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Some REITs have significant headwinds but just like the economy is diverse and some sectors are much better than others, so it goes with REITs. Office, hospitality and some retail REITs will be challenged for some time.


Yeah I can't see how office / hotel / retail will be doing well any time soon.


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## MrMatt (Dec 21, 2011)

What's the good Industrial REIT?

Commercial/retail are in for pain, and are appropriately dropping in value.

I think we'll see massive government intervention into health care.
Residential... not touching that. I'm seeing a massive willingness to stomp all over the rights of the property owners, which will kill residential rental investment, and cause significant housing shortages. Also why would anyone want to live in an urban area if you don't need to?

Maybe some condo/construction developers could be a good one.


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## hfp75 (Mar 15, 2018)

id steer clear of reits for a few more months.....

i think to maintain monthly payments it’s just roc.....

no thx....


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## Beaver101 (Nov 14, 2011)

hfp75 said:


> id steer clear of reits for a few more months.....
> 
> i think to maintain monthly payments it’s just roc.....
> 
> no thx....


 ... what a quick turn about (and use of a broad paintbrush) to apply from your post (#14) of 2 months ago.



> _CMBS default rates are climbing... I would be careful buying a REIT that has commercial/office RE in it....
> 
> You could make the argument that an industrial REIT is going to recover nicely when the economy picks up and buy that, but commercial/office is going to be different - IMHO.....
> 
> ...



Let's apply your crystal ball, how many more months should "investors" be staying clear of REITs do you suggest?


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## hfp75 (Mar 15, 2018)

Well, if ... you were gonna buy reits I’d look at industrial and residential, but since we might be looking at a second wave already starting in september & we dont obviously know the impact over the next 6 months, we could have a semi->complete shut down again!!!!

So, given our current predicament, id steer clear...

the federal cerb/stimulus is sustenance money.... not productive for economic growth....

lastly, i just reread my first post and i was by no means a bull, i believe i expressed concern/trepidation in my comments. Ill expand on my roc concern, i find it a pita doing the adjusted cost base in cash accts. So, its not worth my time in a cash acct to buy a product that is giving me back my own cash and then making me sit at a desk to figure out how much they gave me and adjust my numbers to reflect it..... real question is, how are reits maintaining the distributions ?

feel free to buy reits, in fact please do !


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## MrMatt (Dec 21, 2011)

hfp75 said:


> Well, if ... you were gonna buy reits I’d look at industrial and residential, but since we might be looking at a second wave already starting in september & we dont obviously know the impact over the next 6 months, we could have a semi->complete shut down again!!!!


Considering banning residential evictions, and implementing residential rent freezes is VERY popular, don't you think residential REITS are in for a rough ride?


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## james4beach (Nov 15, 2012)

I realize this is purely technical speculation, but I don't like the XRE chart at this point. I feel quite bearish about it as of 2020-10-19

Is anyone here going short the REIT index?


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