Over the years, Real Estate Investment Trusts, or REITs, have become an increasingly used way to invest in real estate without becoming a property owner. The versatility and wide range in property that REITs manage is appealing to investors who want to diversify their portfolio.
REITs consist of many types of commercial real estate, ranging from office and apartment buildings to warehouses, shopping centers, hotels, and even hospitals.
First introduced in the
United States in 1960, REITs now serve as investment platform in over 30 countries across the globe. Their popularity has grown due to two predominant factors. First, because assets held in a REIT do not deplete in the same way oil and gas royalty trusts might, REITs are an extremely viable investment structure.
Second, REITs have historically performed.
“Over most long-term horizons, stock exchange-listed REIT returns outperformed the S&P 500, Dow Jones Industrials and NASDAQ Composite,”
REIT.com points out.
The
50 multi-sector REITs in Canada have performed well over the last two decades, with the exception of an almost 10 percent decrease in the last year due to low oil prices, a growing housing bubble and a weak loonie. Despite the drop in REIT performance over the last year, they are still attractive to savvy investors who see the big picture. In those terms, Canadian REITs are a hot commodity, especially for foreign investors.
“It’s a good time to invest in Canadian REITs,”
said Anil Tahiliani, manager at McLean & Partners Wealth Management Ltd. “They’re partly reflecting concerns about the Canadian economy, housing and the effect of low oil. But we’re going to be in a low-interest-rate environment, and Canada is still better off. Rates aren’t as likely to go up in Canada as in the U.S.”
Of the REITs that foreign investors are looking at, those with ties to Alberta are especially appealing, despite the province being home to Canada’s floundering oil and gas industry. Alex Avery, Managing Director, Institutional Equity Research, CIBC World Markets says the current state of the market is a signal to ‘buy’ because narrowing spreads will push the price of Canadian REITs higher.
He also sees some REITs with exposure to Alberta providing good value for Canadian investors. “An example is H&R with 16 percent exposure to Alberta, the company has much more exposure to the U.S. markets. The higher U.S. dollar will offset exposure to Alberta’s office market,”
Avery said to BNN last month.
Daniel White, an
Edmonton based real estate executive and CEO of Symmetry Asset Management Inc., believes the recent downturn in the Alberta economy is only temporary. “Alberta is still a smart bet for savvy consumers,” Edmonton’s Daniel White said. “The province has an inviting business policy and foreign investors will find the economy situation beneficial to their bottom line.”
White also points out to municipal and provincial efforts to boost business growth as an added incentive. “The province and the city of Edmonton are implementing various incentives and strategies to create growth,” Daniel White pointed out. “And those businesses will need office spaces, so it’s a cyclical relationship.”
Despite the economy experiencing widespread instability, investing in REITs remains one way to diversify an existing portfolio or get involved with real estate without the stress of tenants or maintenance.