Are you looking to earn monthly passive income while investing in the long-term stability of Canadian real estate? Investing in necessity-based retail properties through real estate investment trusts (REITs) could shield investors from tariffs-induced volatility in 2025. Two heavyweights dominate the scene: RioCan Real Estate Investment Trust (TSX:REI.UN) and Choice Properties Real Estate Investment Trust (TSX:CHP.UN).
Both are well-known players in the Canadian retail REIT space, but they have distinct strengths and challenges that could sway your passive income investment decision. Here’s how they compare and what you need to know to make an informed choice in 2025.
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Choice Properties REIT
Choice Properties REIT is the larger of the two, with a massive portfolio spanning 66 million square feet across 700 properties double the size of RioCan’s holdings. The REIT’s portfolio is diversified, with 67.2% exposure to retail properties, 30% to industrial spaces, and a small but growing 2.7% allocation to mixed-use developments. This diversification provides stability, particularly as demand for necessity-based retail and industrial properties remains strong.
One of the key advantages of Choice Properties is its financial strength. With a low debt ratio of 40%, the REIT has significant flexibility to fund new development projects or weather economic headwinds.
Its distribution payout ratio for adjusted funds from operations (AFFO) stands at a manageable 79.8%, ensuring that its 5.9% distribution yield is well-supported by recurring cash flow. Moreover, its AFFO grew by an impressive 9.4% in the first nine months of 2024, reflecting improving distribution safety.
Choice Properties has also maintained high occupancy rates, with 97.7% of its properties leased as of late 2024. This stability is bolstered by long-term leases with anchor tenants like Loblaw, Canada’s largest retailer.
However, there are a few concerns to keep in mind. The REIT faces significant debt maturities in 2025, with $750 million in obligations set to reset. While management has already issued $300 million in new debentures to address some of these liabilities, higher interest rates could potentially increase borrowing costs. Additionally, the upcoming retirement of CFO Mario Barrafato introduces some uncertainty, although his replacement is an internal candidate, Erin Johnston, which suggests continuity in financial strategy.
RioCan REIT
RioCan REIT offers a smaller but still substantial portfolio of 33 million square feet, comprising 186 properties. Its portfolio is heavily weighted toward retail properties, which account for 85% of its holdings, while office spaces make up 10.4% and residential properties represent a growing 4.6%.
The REIT’s strategy to expand its residential footprint has shown promise, with management now exploring ways to monetize this segment, potentially unlocking additional value for investors.
One of RioCan’s most attractive features is its slightly higher distribution yield of 6.1%, compared to Choice Properties’s 5.9%. While the difference may seem minor, it can compound significantly over time, especially for long-term investors.
Furthermore, RioCan has raised its distributions in each of the past two years, including a 2.2% increase in 2024, which followed a 5.9% raise in 2023, signaling management’s confidence in the REIT’s cash flow. Management could raise the distribution again in February.
RioCan has also demonstrated strong leasing performance, with spreads exceeding 30% on new leases and 10.8% on renewals over the past year. Leasing success has helped maintain a robust occupancy rate of 97.8%, ensuring consistent cash flow to support distributions. RioCan pays out under 62% of its funds from operations. The REIT recently undertook a workforce restructuring, reducing its staff by 9.5% in late 2024. This move could lower costs and boost cash flow in the long term.
However, RioCan’s higher debt ratio of 56% limits its financial flexibility compared to Choice Properties.
Better REIT to buy for monthly passive income
Your choice of which REIT to buy in your monthly dividend portfolio ultimately depends on your investment priorities. If financial resilience, lower leverage, and portfolio diversification are important to you, Choice Properties REIT may be the safer option. Its strong ties to Loblaw and a wider diversification provide a layer of stability that could be appealing in uncertain economic times.
However, if you’re drawn to higher immediate income and the potential for distribution growth, RioCan REIT might be the better fit. Its 6.1% yield, recent history of distribution increases, and expanding residential portfolio could make it an attractive choice for long-term investors seeking growth.
