First established in 1993, Canadian Real Estate Investment Trusts (REITs) have evolved to become an important investment class for both shareholders and the economy as a whole.
While Canada is celebrating the trusts’ 20th anniversary, REITs were first introduced in the U.S. in 1960.
For non-investors wondering what a real estate investment trust is, here’s a quick refresher: REITs are publicly traded organizations that invest in income-producing real estate assets.
Investing in a REIT is much like purchasing a mutual fund or common stock. Daily unit prices are listed in all major business media under “Trust Units” and REIT units can be purchased from any broker or dealer licensed to sell equities in Canada.
Determining the appropriate REIT allocation depends on an investor’s portfolio and objectives.
In Canada, there are six types of REITs: hotels; nursing and retirement homes; office; residential; retail; and industrial.
Hotels
Canada’s popularity as a vacation and business destination fuels the hospitality industry. Canadian REITs are consolidating a fragmented hotel market and making possible the development of new supply that meets the needs of today’s consumer.
Nursing and retirement homes
Canada’s aging population stands behind the increasing demand for nursing and retirement facilities, a situation that will likely accelerate over the next 40 years.
Office
Prudent development practices, long-term tenancies and strong growth markets throughout Canada are attractive characteristics for ownership of Canadian office buildings.
Residential
Properties such as apartment buildings are a stable investment as tenant demand is high in good times as well as bad. Relaxed rent controls, rising home prices and a trend among one-time homeowners choosing to rent for flexibility and location are all driving growth.
Retail
Diversified new shopping retail centre formats are meeting consumer demand for both convenience and entertainment experience. Canadian REITs play a leading role in meeting the changing demands of this fast-evolving industry.
Industrial
Industrial is the largest real estate asset class in Canada, offering a highly stable tenant base and low costs in terms of maintenance, capital improvements and tenant inducements.
Investors can also choose a single REIT that diversifies in some or all of the above categories.
The investment class has been popular with investors and analysts. It also helps that the regulations surrounding REITs have recently undergone some changes – for the better. The legislative changes in the Technical Tax Amendments Act will enable the further expansion of the industry.
Carolyn Lane is vice-president of membership, marketing and communications for the Real Property Association of Canada (REALpac). She can be reached at 416.642.2700 ext. 223 or clane@realpac.ca.
