The Canadian REITs (real estate investment trusts) are an incredibly underrated way to get a big dose of passive income (distributions) with a bit less correlation to the broader TSX Index. Undoubtedly, the REIT scene has been hit with major volatility in the past couple of years. While shares of your average Canadian REIT are still down by quite a bit from the rate jitters from 2022, I think that the settling and more recent strength (especially in 2025) is worth getting behind as the Bank of Canada (BoC) considers its next move.
Could the spree of rate cuts be over with? I guess it depends on when the war in Iran ends and how long elevated energy prices last. Either way, the BoC has a tough balancing act for the quarters ahead, as the inflationary threat returns while employment falls into a rather mixed spot. For now, the consensus seems to be a pause.
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REIT yields are generous, valuations are modest, and newfound momentum is encouraging
However, given the likelihood of an energy shock and the fact that food inflation has been hotter than the headline inflation figure of late, I do think the case of a hike could be back on the table. And while that might apply a bit of pressure on the REITs again, given their capital-intensive nature, I think that the risk/reward remains in a pretty good spot as the BoC and Federal Reserve in the U.S. opt to hold as they wait for more data before making the next move.
Either way, REITs are no fans of rate hikes. And with some percentage chance of a rate after the latest pause baked in, I think there’s still an opportunity for income investors to punch a ticket while valuations are in a modest spot. Let’s check in on two REITs that look ripe to buy.
SmartCentres REIT
SmartCentres REIT (TSX:SRU.UN) looks like a smart buy and hold, not just because of the name. The hard-hit retail REIT is going for a pretty compelling discount. While strip malls aren’t the most exciting place to be, I think that the pivot towards residential is being heavily discounted.
SmartCentres has fantastic managers running the show. And as the retail-residential REIT looks to expand well beyond its Walmart-anchored locations, I think the mix could attract a mild re-rating over time, especially once the rate cuts start coming again.
While there’s a lot to love about the retail REIT, the 6.5% yield is the star of the show. It’s well-covered and could certainly help give many investors a nice raise. The newfound momentum also seems worth getting behind after a 12% run in the past year. While the long-term chart is discouraging, I like the path ahead as well as the cash flows supporting the hefty distribution.
Granite REIT
Granite REIT (TSX:GRT.UN) is an industrial REIT that’s actually starting to kick things into high gear, with shares up close to 44% in the past year. That’s an absurd gain for a REIT.
Despite the sudden surge, the distribution remains relatively generous at 3.8%. That’s about a percentage less than you’d get from most other REITs, but if you’re bullish on the future for warehouses, logistics facilities, and other industrial properties, I think it’s tough to overlook the name, especially as it fuels its growth profile via smart mergers and acquisitions.
It’s a growthier REIT in a more compelling corner of the Canadian REIT scene compared to SmartCentres REIT. Perhaps buying both together could be a wise choice for investors looking to get the best of both worlds.
