Tap into the Canadian REITs Market, Select Premium Products

In the landscape of global asset allocation, Real Estate Investment Trusts (REITs) serve as a bridge connecting the capital markets with tangible real estate properties and are increasingly becoming an essential component of diversified investment portfolios. Following the end of the pandemic, with the global economy warming up, REIT markets have shown unique appeal, turning into the focus of investors seeking stable cash flows and capital appreciation opportunities.

Among many capital markets, Canada's REIT market is particularly mature and vibrant, offering domestic and international investors a wealth of investment opportunities and stable return potential. Canadian REIT products cover a variety of areas, including commercial office space, retail properties, industrial logistics, residential apartments, and healthcare, meeting the needs of investors with different risk preferences. Next, let us introduce you to the relevant products and investment strategies.

Real Estate Investment Trusts (REITs) are trust funds established according to legal procedures, which pool investors' funds through the issuance of stocks or fund units, are managed by professional institutions, and distribute over 90% of the net after-tax income to investors. Essentially, REITs are an institutionalized arrangement for real estate investment.REITs can be divided into three types based on their source of income:

（1）Equity REITs: These own and directly hold property rights of real estate, with income mainly coming from rents of the held properties. This is the main type of REIT, accounting for over 90%.

（2）Mortgage REITs: These do not hold property rights directly but invest funds in real estate loans or mortgage-backed securities (MBS), with income mainly from loan interest.

（3）Hybrid REITs: These invest in both property rights and real estate loans.

Currently, common REITs mainly invest in commercial real estate and infrastructure, such as hotels, malls, office buildings, and hospitals, which are all classified as commercial real estate.

The downsides of traditional real estate investment include large investment amounts, lack of liquidity, difficulty in cashing out, and high transaction taxes and fees. However, while retaining the features of traditional real estate investments, REITs eliminate these drawbacks:

（1）Regular mandatory high dividends: Currently, all countries require REITs to distribute at least 90% of their net income to investors each year, ensuring a continuous cash flow for investors, typically distributed quarterly or semi-annually.

（2）Low investment threshold: REIT index funds allow investors to participate in real estate rent dividends with small amounts.

（3）Lower transaction costs: Purchasing index REITs is like buying fund stocks, without high taxes and fees, just subscription and operating expenses.

（4）Professional management: REIT management teams are real estate professionals, more attuned to industry trends.

Investors should have a general understanding of a REIT's investment strategy before purchasing, including its focus on property types (such as retail, office, residential, industrial, healthcare, or data centers), geographical location, and investment objectives to match their investment preferences.

Investors often choose REIT products for their high dividend yields and stable dividend income (over 90% of after-tax income). When selecting REITs, compare the dividend yields of various products to see if they have a stable dividend situation, to select products with higher dividend returns.

Institutions hire professional management teams to manage their REIT products and attract investors with good performance, which requires charging management fees. The management fee rate and operating costs of REITs directly affect the net return of investors, and lower rates help increase net income.

Since 2009, Canadian REITs have consistently outperformed local stock market indices for 15 consecutive years, making this year's performance highly anticipated. After the pandemic, the local real estate industry in Canada is showing good development trends. By 2023, the market's REIT products have an average annual return rate of about 5.12%.

Currently, the yield of the Canadian market's REIT index is much higher than the Hong Kong and U.S. stock markets, so we recommend that investors seize the investment opportunities of Canadian market REITs and discover quality assets.

Chart: Comparison of Mainstream Market REIT Yields

As of May 13th, NET had a total market value of CAD 104 million, with a dividend yield of 6.9%, significantly above the U.S. risk-free interest rate level. In addition, since its listing, NET has distributed dividends 98 times, with two disbursements per month, and the total per-share dividend amounting to CAD 0.56, providing investors with stable compound returns.

Advantages: Diverse investment targets, allowing investors to spread the risk across different industries.

Disadvantages: Relatively new listing, smaller fund scale, and lower notoriety.

As of May 13th, NWH's total market value was CAD 1.243 billion, with a dividend yield of 12.78%, more than double the risk-free rate. Moreover, NWH has distributed dividends 169 times since its listing, with a stable return. However, the monthly dividend distributed by NWH is less competitive compared to other products, with only CAD 0.03 per share.

Advantages: Very high dividend yield, generating considerable income.

Disadvantages: High competition in the healthcare industry, dependent on a single type of tenant; the product price has shown a downward trend since 2023.

As of May 13th, CSH's total market value was CAD 3.055 billion, with a dividend yield of 4.85%, slightly below the risk-free rate. CSH has distributed dividends 245 times since its listing, with disbursements in the middle of each month, and a per-share dividend amount of CAD 0.05.

Advantages: Larger fund scale and an increase of over 25% since 2023, with a promising development outlook.

Disadvantages: The dividend yield is below the risk-free rate, making it less competitive.

As of May 13th, PLZ's total market value was CAD 388 million, with a dividend yield of 7.95%, significantly above the U.S. risk-free interest rate. Moreover, PLZ has a high frequency of dividend payouts, distributing dividends 174 times since listing, with an average of one disbursement per month, and a per-share dividend amount of approximately CAD 0.02.

Advantages: Higher dividend yield, attractive to investors.

Disadvantages: The retail industry faces competition from e-commerce, potentially affecting the rent and occupancy rates of physical stores.

As of May 13th, SGR's total market value was CAD 642 million, with a dividend yield of 10.77%, double the U.S. risk-free interest rate. Additionally, SGR has a high frequency of dividend payouts, distributing dividends 119 times since listing, with routine disbursements in the middle of each month, and a per-share dividend amount of approximately CAD 0.07, higher than PLZ's payout.

Advantages: Supermarkets are typically points of sale for essential goods, providing some defensive characteristics against economic cycles.

Disadvantages: Real estate income depends on a single type of tenant, posing a greater industry risk.

As of May 13th, FCR's total market value was CAD 3.235 billion, with a dividend yield of 5.67%, above the U.S. risk-free rate. Moreover, FCR has a high frequency of disbursements, distributing dividends 153 times since listing, with a routine monthly disbursement, and a per-share dividend amount of approximately CAD 0.07, the same as SGR.

Advantages: Investment in mixed-use properties provides additional growth and stability.

Disadvantages: In the current market environment, retail properties may face challenges.

As of May 13th, MHC's total market value was CAD 375 million, with a dividend yield of 3.82%, slightly below the risk-free rate. Moreover, MHC has distributed dividends 43 times since its listing, with disbursements in the middle of each month, and each share's dividend amount being USD 0.049, equivalent to CAD 0.067, higher than similar REITs.

Advantages: Investment in economical housing options, which may be more popular during economic downturns.

Disadvantages: Investment in a specific type of economical housing, which may limit the long-term growth potential of the product.

As of May 13th, MI's total market value was CAD 613 million, with a dividend yield of 3.23%, lower than other REITs' high dividends, but the company's dividend income is more stable than other REITs, with little historical fluctuation. Additionally, MI has distributed dividends 70 times since its 2018 listing, with disbursements in the middle of each month, and per-share dividend amounts of CAD 0.042, slightly lower than MHC.

Advantages: Investment in stable residential properties such as apartments can provide reliable rental income.

Disadvantages: The Canadian real estate market has experienced some volatility post-pandemic, which could affect property values and rent.

As of May 13th, TNT's total market value was CAD 140 million, with a dividend yield of 10.52%, significantly above the risk-free rate. In addition, since its listing, TNT has distributed dividends 130 times, with disbursements in the middle of each month, and per-share dividend amounts of CAD 0.142, making it one of the highest-dividend REIT products in Canada.

Advantages: A dividend yield of over 10% is very attractive to income investors.

Disadvantages: A sudden significant price drop in the first half of 2023 with the price still low to date; additionally, the trend towards remote work could negatively impact the demand for office space.

As of May 13th, NXR's total market value was CAD 512 million, with a dividend yield of 8.61%, significantly above the risk-free rate. Additionally, since its listing, NXR has distributed dividends 126 times. Starting in the second half of 2021, there have been two disbursements per month, with a total monthly dividend of CAD 0.16, making its dividend return more attractive than TNT.

Advantages: The current positive development trend of the international e-commerce industry is driving the demand for industrial properties.

Disadvantages: Intense competition in the industrial real estate market could lead to slower rental growth.

If you are a risk-averse investor who considers REIT products to be biased towards investing in specific physical asset industries and faces specific industry risks, we recommend a more stable and secure investment product for you – ETFs. The advantages of ETFs include:

1. Diversification of investment risks: Fund managers first establish an investment portfolio containing a variety of REITs, such as office buildings, shopping centers, apartment buildings, etc., which is equivalent to purchasing multiple types of REITs on behalf of investors. This can effectively diversify the risks associated with investing in a single REIT and reduce losses due to problems in a specific region or industry.

2. Ease of operation for beginners: By purchasing related ETFs on the stock exchange, you can enjoy the investment returns of multiple types of REITs, a method that saves time and does not require high investment technical requirements.

3. Flexibility in responding to market changes: Investors can quickly adjust the proportion of different REITs in their investment strategy according to market conditions, making it easier to implement tactical or strategic investment decisions.

As of May 13th, XRE had an asset size of CAD 1.12 billion, with a dividend yield of 5.02%, far exceeding most index funds and comparable to some high-dividend stocks. It also distributes monthly dividends. However, this ETF's management fee rate is 0.61%, making it relatively expensive – for every CAD 10,000 invested, it would cost CAD 61 in management fees.

Advantages: While diversifying risks, XRE offers a high dividend yield of 5.02%, which is extremely attractive for investors seeking high returns.

Disadvantages: Higher management fee rate, which can significantly increase costs and reduce final investment returns over the long term.

As of May 13th, ZRE had an asset size of CAD 531 million, with a dividend yield of 5.35%, slightly higher than XRE. At the same time, the management fee rate of this Canadian REIT ETF is 0.63%, higher than XRE – for every CAD 10,000 invested, it would cost CAD 63 in management fees.

Advantages: High dividend yield, which is extremely attractive for investors seeking high returns.

Disadvantages: Also has a higher management fee rate, which will increase costs and reduce investment returns over the long term.

In summary, various REITs and REIT-related ETF products not only provide investors with multiple real estate investment options but also balance yield and security, making them ideal tools for building a robust investment portfolio. Investors should consider the features of each product carefully according to their own risk tolerance, investment goals, and market expectations, and adopt the corresponding investment strategies to achieve desired investment returns.

At the same time, we also remind investors to comprehensively consider the advantages and disadvantages of each product when choosing them, to reasonably avoid investment risks and prevent unnecessary losses.