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The Surprising Reason This REIT Is Set to Outperform

Investing in real estate investment trusts (REITs) has proved to be a huge success over the last decade. The Canadian REIT Index (TSX: REF.UN) has outperformed the TSX by 122% since 2004 and continues to provide a stable income stream for dividend investors.

Of all the REITs in Canada, my favourite is Boardwalk REIT (TSX: BEI.UN). It is the biggest Canadian REIT for residential properties. Consider:

  • Boardwalk has 226 properties with 35,386 residential units, totaling approximately 30 million net rentable square feet.
  • Boardwalk’s properties are located in British Columbia, Alberta, Saskatchewan, Ontario, and Quebec. Alberta is the home base however, comprising 57% of total apartment units.
  • Boardwalk runs a combination of high-rise and low-rise condos and charges lower rent than market average.

These are impressive figures, but here’s why I think Boardwalk can outperform the market going forward: immigration. In comparison to competitors such as RioCan REIT (TSX: REI.UN) or Dream Office REIT  (TSX: D.UN), which focus on commercial property leasing, Boardwalk benefits more from Canada’s lenient immigration policy.

As a native Chinese person who went to the U.S. to study, I’ve noticed in the past few years a clear trend for international students to change their study abroad destinations from the U.K. and the U.S. to Canada. This is largely due to the fact that it is hard for students to stay in those countries after graduation. Once they finish their studies, they are required by law to leave the country within a certain period.

In contrast, Canada stands out for its relatively cheap tuitions, high quality of education, and friendly immigration policy. The government has many programs that encourage people with higher education and capital to stay there.

As most students who come to study in Canada come from well-off families and have bachelor degrees or higher, Canada has become one of the most popular study abroad destinations for international students. Moreover, the Canadian government plans to double its international student body to 450,000 by 2022 in an effort to create jobs and stimulate growth.

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In 2012, 81% of international students come for post-secondary degrees in Canada. Source: Canadian Bureau for International Education. 

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Students from China, India, and South Korea represent 48.5% of all international students in Canada. Source: Facts and Figures 2012, CIC.

 

With international students comes a whole new source of capital and opportunities; in countries like China and Korea, where children typically are their parents’ retirement accounts, parents invest a lot of money in the future of their children. When their children choose to study abroad, they often purchase properties there for them.

 

This creates a huge market for Canadian real estate and has contributed to the increase in housing prices in big cities like Toronto and Vancouver. In my view, immigration is the secret force boosting housing prices, and Boardwalk REIT stands to benefit from the Canadian government’s welcoming hand.

 

Here’s even more good news for Boardwalk. Canada Mortgage and Housing Corporation forecasts real GDP growth in Alberta to be 3.3% in 2014 and 3.0% in 2015, representing the strongest economic growth of all provinces. Alberta is Boardwalk’s biggest market and represents 66% of Boardwalk’s total net operating income. In my view, Boardwalk REIT offers a margin of safety due to Alberta’s strong economic growth.

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Fool contributor Anyi Guo does not own shares of any companies mentioned in the article.

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