# Best Canadian REIT?



## clovis8 (Dec 7, 2010)

I am looking at diversifying with a REIT. Any favorites? I am looking for longterm hold. It will be in an TFSA so dividends are good and tax sheltered.


----------



## Argonaut (Dec 7, 2010)

Depends on how much money you want to invest. I own shares of RioCan (REI.UN), but if I had more money to apply to a REIT I would go with Canadian REIT (REF.UN). 

RioCan has a higher yield, but is over distributing and taking steps to stop that without cutting the dividend. Canadian REIT has a lower yield, but is only paying out about 66% of its cash flow to shareholders. This has let them grow their distribution every year whereas RioCan and others have kept theirs the same for a while.

To DRIP one share per month, you would need to invest at least $8250 in REF.UN, but only $4200 in REI.UN. Because my position was only $5000 I chose RioCan for now.

Of course, you could always go with the XRE ETF. More diversification, but with management fees.


----------



## DavidJD (Sep 27, 2009)

D.U has been doing well. I bought in at just under $18 though...now hovering at $30 with a 7.25% yield.


----------



## Greyhound86 (Feb 21, 2010)

Have a look at Dennis Mitchell's comments on StockChase (which summarizes Market Call on BNN)

He runs a REIT mutual fund. When on BNN he usually gives some good precise candid comments on various REITS. He is not afraid to say that the price for a given REIT is currently too high, buy it at below this price or that the payout is too high and so on. 

I own First Cap and Primaris.


----------



## Larry6417 (Jan 27, 2010)

If you're going to own only 1 REIT, then you need to research and watch it very carefully. In addition to XRE, there is another REIT ETF from BMO called ZRE, which is an equal-weighted ETF while XRE is market cap weighted. The practical implication is that XRE is about 1/4 Riocan. The MER of both is 0.55%. ZRE is DRIP eligible.

See http://ca.ishares.com/product_info/fund/overview/XRE.htm and www.etfs.bmo.com/controller/image?image=auto_fund_profile_pdf_80001


----------



## Belguy (May 24, 2010)

For my money, it looks like ZRE is a better choice than XRE.

Anybody disagree?


----------



## Greyhound86 (Feb 21, 2010)

Belguy said:


> For my money, it looks like ZRE is a better choice than XRE.
> 
> Anybody disagree?


No you are probably right

However I would not invest in REITs through either an ETF or a mutual fund at this time.

The Canadian market is too small. There are not enough companies to invest in. The funds end up with too much cash to invest and end up bidding up the price of the good REITS to the point where they are overpaying or investing in REITs they might not necessarily like. This might hurt the performance of the fund or ETF. 

I would prefer to invest in individual REITs when I think the price is attractive.


----------



## warp (Sep 4, 2010)

Greyhound86 said:


> No you are probably right
> 
> However I would not invest in REITs through either an ETF or a mutual fund at this time.
> 
> ...


Greyhound: A very interesting little take on Canadian Reit ETF's there.
The same sort of thing has occurred to me.

I have owned XRE in my RRSP for several years, and am just basically going sideways with it, when you add in the distributions.

It is only my own laziness that has held me from "unbundling" from this ETF and just buying Riocan, and perhaps Chartwell.
We are paying a MER of .55% to own an ETF that has 10 or so positions, with RIOCAN being 25% of the total.

Its just stupid really.


----------



## warp (Sep 4, 2010)

Sorry Greyhound, you said :

" I would prefer to invest in individual REITs when I think the price is attractive."

I forget to ask you: would you like to share which REIT you think is attactively priced right now?


----------



## Greyhound86 (Feb 21, 2010)

warp said:


> Sorry Greyhound, you said :
> 
> " I would prefer to invest in individual REITs when I think the price is attractive."
> 
> I forget to ask you: would you like to share which REIT you think is attactively priced right now?


Can't really make any good recommendations now as it has been allmost a year since I looked at these in any detail.

We made of list of good solid REITs from several sources and set prices that we thought were fair. Bought 3 (FCR, PMZ.UN and AX.UN). Sold AX.UN this fall. 

Looking back at this list and based on Dec 31 2010 prices ap.un, tga.un kmp.un hr.un ref.un car.un might look interesting.

But again I have not looked at any of those companies in detail since. Their fundamentals, outlook, management, share structure etc may have all changed.

Don't consider any of this info as a recommendation. 

REITs only represent 5% of my investments.


----------



## Belguy (May 24, 2010)

The other 95% is in gold!!!


----------



## kcowan (Jul 1, 2010)

Greyhound86 said:


> Have a look at Dennis Mitchell's comments on StockChase (which summarizes Market Call on BNN)
> 
> He runs a REIT mutual fund. When on BNN he usually gives some good precise candid comments on various REITS. He is not afraid to say that the price for a given REIT is currently too high, buy it at below this price or that the payout is too high and so on...


Dennis Mitchell comments on tax effectiveness of REITs

and makes the point with this illustration:









so it would appear that REITS are best held outside tax-sheltered accounts when compared to other asset classes.


----------



## bltman (Aug 12, 2010)

To correct a previous post on ZRE, it is not eligible for a DRIP. BMO offers a DRIP plan on most of its ETFs but ZRE is not yet one of them.


----------



## Belguy (May 24, 2010)

I know from nothing about this but I heard on BNN today that Primaris REIT holds "lots" of prime Zeller's leases. I think that Riocan do as well.

With Target taking over many of them, I'm not certain what it means but it can't be a bad thing---right?


----------



## Argonaut (Dec 7, 2010)

Belguy said:


> I know from nothing about this but I heard on BNN today that Primaris REIT holds "lots" of prime Zeller's leases. I think that Riocan do as well.
> 
> With Target taking over many of them, I'm not certain what it means but it can't be a bad thing---right?


It's a good thing. RioCan CEO Ed Sonshine sounds like he was involved in the deal. I'm disappointed that the stock was only up 1% today, but it's a deal that'll take a few years to shake out.


----------



## dagman1 (Mar 3, 2010)

I'd be careful with Canadian REITs. The distributions seem way too good to be true. I remember reading an article somewhere that these REITs refinance in the recent RE boom to draw cash out of their properties and maintain their distributions. I'd be worried about what happens in a correction.


----------



## fersure (Apr 19, 2009)

bltman said:


> To correct a previous post on ZRE, it is not eligible for a DRIP. BMO offers a DRIP plan on most of its ETFs but ZRE is not yet one of them.


My dumb question (only because I'm looking at ZRE): does this include synthetic DRIPS offered by the various brokerage firms?

Looking at BMO's ETF website, it states the following:
_
BMO ETF Distribution Reinvestment Plan (DRIP)_

*All cash distributions* paid on BMO ETFs are eligible for reinvestment into additional Units of the fund through the Distribution Reinvestment Plan (DRIP).

Yet, if look at the Appendix of the PDF doc on the above page, ZRE isn't listed. CONFUSING!!!


----------



## larry81 (Nov 22, 2010)

I am more than happy with XRE in my TFSA, you cant go wrong with it.


----------



## CanXB (Apr 6, 2010)

Unfortunately I did not see a date on the pdf file. Could the pdf been published prior to the inception of ZRE? ZRE has been around for just shy of 8 months now I believe.


----------



## Argonaut (Dec 7, 2010)

Ahh, there's the jump in RioCan I was looking for. Kind of silly that the market waited a day for it. Go Target!


----------



## CanadianCapitalist (Mar 31, 2009)

If you have a Waterhouse account, you can access TD Newcrest report on the implications of Target's arrival in Canada on REITs. 



> That said, among names in our current coverage universe, our initial view is that First Capital Realty and RioCan REIT likely have the most potential to gain. They both have relatively high exposure to Zellers, and therefore stand to possibly benefit more depending on how many stores might be sold. They also have little or no exposure to Sears Canada, which arguably would be affected most negatively from a competitive standpoint.


Explains the RioCan pop today in the past couple of days.


----------



## Eclectic12 (Oct 20, 2010)

kcowan said:


> Dennis Mitchell comments on tax effectiveness of REITs
> 
> and makes the point with this illustration:
> 
> ...


Interesting article - though I will have to read it when I have time to analyse the calculations more thoroughly. 

One oddity that jumped out at me is that the common stock is listed at 2.54% where I can easily think of several whose yield are in the 4 to 5% range. Another angle to consider is my former trust that has just completed converting to common stock, which yields 8.8%.

It will be interesting to see if the differences in yields changes anything, to confirm the rest of the table
and to explore what happens if the ACB hits zero/negative so that the RoC is a capital gain to be reported yearly.

Cheers


----------



## kcowan (Jul 1, 2010)

Am I the only one who thinks that Target cherry-picking the 150 best stores and selling off the rest represents downside for the REITS?


----------



## Park (Sep 11, 2010)

Thanks kcowan for posting the link about the tax efficiency of REITs. When it comes to REITs, common advice is for them to be in tax advantaged accounts. However, that advice is American in source, and reflects different tax rules. The only caveat is that the person presenting the data has an interest in promoting REIT investment.


----------



## kcowan (Jul 1, 2010)

Park said:


> However, that advice is American in source, and reflects different tax rules. The only caveat is that the person presenting the data has an interest in promoting REIT investment.


That is valid for most studies. But thanks for emphasizing it.

(My impression was that our new tax rules are more closely aligned with the US on REITS now?)


----------



## Rysto (Nov 22, 2010)

kcowan said:


> (My impression was that our new tax rules are more closely aligned with the US on REITS now?)


In the US, dividends from REITs are typically taxed at your marginal rate, so I don't think so.


----------



## warp (Sep 4, 2010)

kcowan said:


> Dennis Mitchell comments on tax effectiveness of REITs
> 
> and makes the point with this illustration:
> 
> ...


Either I'm missing something or this comparison is really dumb.

He is talking about the " tax effectiveness" of only the yield on these various investments.

Number one.....there are lots of stocks that yield more than the 2.54 % he uses.
Secondly, many have payout ratios much lower then reits.
Thirdly, the reason you buy common stocks is to participate in the growth of the business = capital gains , over the years.

As he is selling a sort of Riet fund, that he manages, Im sure he leans towatds that.

My point is theres room for all these investmenst, in a well set up portfolio.

good luck


----------



## fersure (Apr 19, 2009)

*Update on DRIPing ZRE - Good News!!!*



fersure said:


> My dumb question (only because I'm looking at ZRE): does this include synthetic DRIPS offered by the various brokerage firms?
> 
> Looking at BMO's ETF website, it states the following:
> _
> ...


I followed up with BMO ETFs. I received the following response today:

_Thank you for your interests in BMO ETFs. All BMO ETFs are DRIP eligible, including ZRE, and you can set it up with your dealer/broker. The PDF file on the DRIP page was not up to date, our management team is now looking into it, and it will be updated on the website soon

Thank you very much for emailing us, and please do not hesitate to contact us at 1-800-361-1392 for any inquiries on BMO ETFs. _


----------



## Eclectic12 (Oct 20, 2010)

kcowan said:


> Am I the only one who thinks that Target cherry-picking the 150 best stores and selling off the rest represents downside for the REITS?


*grin* - I'd guess it depends on what percentage of the "150 best stores" the REIT owns.

Then too, if it's a high demand mall where the REIT won't have trouble finding a replacement tenant, I'm sure the REIT will be happy to take the penalty for breaking the lease and re-rent.

If there's not a lot of demand and the Zellars was the flagship store, there is a downside. Though with a total of 220, that's about 30% being liquidated.


----------



## Eclectic12 (Oct 20, 2010)

Park said:


> Thanks kcowan for posting the link about the tax efficiency of REITs. When it comes to REITs, common advice is for them to be in tax advantaged accounts. However, that advice is American in source, and reflects different tax rules. The only caveat is that the person presenting the data has an interest in promoting REIT investment.


Hmmm ... the articles I saw were Canadian (ex. Globe and Mail, Financial Post) so this bit about "American in source" is new to me.

Though is you are like me and would prefer to do other things than determine the Return of Capital (RoC) portion and re-calculate the Adjusted Cost Base (ACB) to confirm the ACB is positive - there are other reasons to put a REIT into n RRSP or TFSA.


----------



## Cal (Jun 17, 2009)

http://www.theglobeandmail.com/glob...-year-of-gains-seen-for-reits/article1980237/


----------

