A REIT (Real Estate Investment Trust) lets you invest in real estate without buying property. You buy units on the stock exchange and receive regular cash distributions from rent collected across a portfolio of properties. In Canada, REITs are one of the most popular income investments — and they come with unique tax characteristics that every investor should understand.
How REITs Work
A REIT operates like a company that owns and manages real estate:
- The REIT raises capital by selling units on the TSX
- It buys or develops income-producing properties
- Tenants pay rent
- After expenses and debt payments, the REIT distributes income to unitholders
- Canadian REITs must distribute most of their taxable income
Most Canadian REITs pay monthly distributions, making them popular with income investors.
Types of REITs in Canada
By Property Sector
| REIT Type | What They Own | Yield Range | Risk Level |
|---|---|---|---|
| Residential | Apartments, condos | 3–5% | Lower |
| Industrial | Warehouses, logistics centres | 3.5–5% | Lower |
| Retail | Malls, plazas, grocery-anchored | 5–7% | Medium |
| Office | Downtown and suburban offices | 7–10% | Higher |
| Healthcare | Hospitals, seniors homes, medical offices | 5–7% | Medium |
| Diversified | Mix of property types | 5–6% | Medium |
| Data centre | Server facilities | 2–4% | Lower |
By Investment Approach
| Type | Description | Example |
|---|---|---|
| Equity REIT | Owns and operates properties | Most Canadian REITs |
| Mortgage REIT | Lends money secured by real estate | Rare in Canada |
| Hybrid REIT | Owns properties + holds mortgages | Some Canadian REITs |
Nearly all Canadian REITs are equity REITs — they own actual properties.
Top Canadian REITs by Sector
Industrial (Strongest Growth)
| REIT | Ticker | Yield | Why |
|---|---|---|---|
| Granite REIT | GRT.UN | ~4.0% | Warehouses, distribution centres |
| Dream Industrial | DIR.UN | ~5.0% | Industrial and logistics |
Residential (Most Defensive)
| REIT | Ticker | Yield | Why |
|---|---|---|---|
| CAPREIT | CAR.UN | ~3.5% | Largest Canadian apartment REIT |
| Killam Apartment | KMP.UN | ~4.5% | Atlantic Canada focus |
| Minto Apartment | MI.UN | ~4.0% | Ontario and Quebec |
Retail (Highest Income)
| REIT | Ticker | Yield | Why |
|---|---|---|---|
| CT REIT | CRT.UN | ~5.5% | Canadian Tire locations |
| RioCan | REI.UN | ~5.8% | Urban retail, mixed-use |
| SmartCentres | SRU.UN | ~7.0% | Walmart-anchored plazas |
| Choice Properties | CHP.UN | ~5.0% | Loblaw-anchored grocery |
Healthcare (Aging Demographics)
| REIT | Ticker | Yield | Why |
|---|---|---|---|
| NorthWest Healthcare | NWH.UN | ~7.0% | Global healthcare properties |
| Chartwell Retirement | CSH.UN | ~4.5% | Seniors living |
How REIT Distributions Are Taxed
REIT distributions are not simple dividends. Each distribution contains a mix of income types:
| Component | Tax Treatment | Typical % |
|---|---|---|
| Other income (interest) | Fully taxable at marginal rate | 20–40% |
| Capital gains | 50% taxable | 5–15% |
| Eligible dividends | Dividend tax credit applies | 0–10% |
| Return of capital (ROC) | Tax-deferred* | 30–60% |
| Foreign income | Fully taxable | 0–20% |
*Return of capital reduces your adjusted cost base (ACB). You pay tax later when you sell — as a capital gain. This makes ROC the most tax-efficient component.
Best Account for REITs
| Account | Tax Advantage |
|---|---|
| TFSA | Distributions are completely tax-free |
| RRSP | Tax-deferred; no annual tax slips to worry about |
| Non-registered | Complex; must track ACB for return of capital |
Recommendation: Hold REITs in your TFSA or RRSP to avoid the annual tax complexity entirely.
How to Evaluate a REIT
| Metric | What It Tells You | Healthy Range |
|---|---|---|
| FFO (Funds from Operations) | Cash flow from operations | Growing year-over-year |
| AFFO (Adjusted FFO) | FFO minus maintenance capital | Growing |
| Payout ratio (AFFO) | Distribution ÷ AFFO | 70–90% |
| Occupancy rate | % of space leased | 95%+ |
| NAV (Net Asset Value) | Value of properties per unit | Trading near or below NAV |
| Debt-to-assets | Leverage level | Under 50% |
| Weighted average lease term | How long tenants are locked in | 5+ years |
Red flags: Payout ratio over 100% (unsustainable), occupancy below 90%, or debt-to-assets above 55%.
REITs vs Buying Rental Property
| Factor | REITs | Rental Property |
|---|---|---|
| Starting capital | $10+ | $50,000–$200,000+ |
| Liquidity | Sell in seconds | Months to sell |
| Diversification | Hundreds of properties | Usually one |
| Management effort | Zero | Significant (or hire) |
| Leverage control | None (REIT manages) | You control mortgage |
| Income predictability | Monthly distribution | Varies with vacancy |
| Upside potential | Moderate | Higher (forced appreciation) |
| Tax deductions | RRSP/TFSA sheltering | Mortgage interest, depreciation |
| Control | None | Full |
REITs and rental property are complementary, not mutually exclusive. Many real estate investors hold both.
How to Invest in Canadian REITs
Option 1: Buy Individual REITs
- Open a brokerage account (Wealthsimple, Questrade, etc.)
- Search for the REIT by ticker (e.g., CAR.UN)
- Place a buy order
- Receive monthly distributions to your account
Option 2: Buy a REIT ETF
A single REIT ETF gives you diversified exposure to 15–25 REITs:
| ETF | Ticker | MER | Yield | Holdings |
|---|---|---|---|---|
| Vanguard FTSE Canadian REIT | VRE | 0.38% | ~4.0% | 17 REITs |
| iShares S&P/TSX Capped REIT | XRE | 0.61% | ~4.2% | 18 REITs |
| BMO Equal Weight REITs | ZRE | 0.61% | ~4.5% | 23 REITs |
See our complete REIT ETF comparison for more options.
REIT Risks
| Risk | Explanation |
|---|---|
| Interest rate risk | REITs often fall when rates rise (higher borrowing costs, less attractive yields) |
| Sector concentration | Office REITs have struggled post-pandemic; retail faces e-commerce pressure |
| Economic downturn | Higher vacancy, lower rents |
| Distribution cuts | If cash flow drops, REITs may reduce payouts |
| Leverage | Most REITs carry significant debt — amplifies gains and losses |
| Liquidity illusion | REIT unit prices can be volatile even though underlying properties are stable |
How Much to Allocate to REITs
| Investor Type | Suggested REIT Allocation |
|---|---|
| Growth-focused (under 40) | 0–10% of portfolio |
| Balanced (40–55) | 5–15% of portfolio |
| Income-focused (55+) | 10–25% of portfolio |
| Already own rental property | Reduce allocation — you already have real estate exposure |
Note that all-in-one ETFs like XEQT and VGRO already hold some real estate through their broad market exposure.